Higher Non-Cash Charge for Assurant - Analyst Blog

Assurant Inc.'s (AIZ) full-year 2010 GAAP earnings will likely fall short by $306.4 million after-tax on account of non-cash goodwill impairment charge. It had incurred $83,000 million of goodwill impairment charges in 2009. However, no charges were recorded under this head from 2005–2008.

 As a result of annual review of goodwill impairment, Assurant announced last week that it will incur the charge related to its segments––Assurant Health and Assurant Employee Benefits. The goodwill of these units were injured due to the effects of the U.S. Healthcare reform, the low interest rate environment, continuing high unemployment and the slow pace of the economic recovery.

Assurant's Employee Benefits distributes insurance coverage to the Small Group (<500 lives) and markets life disability and dental products. The segment has been pressured by persistent economic challenges in the Small Group sector leading to higher lapse rates and lower premium growth on in-force policies.

Given very few new employee additions and a modest wage growth, premium income from the segment will continue to remain under pressure in the near term.

Moreover, the low interest rate environment will pressure investment income in 2011 and drive a decline in discount rate for new long-term disability claims beginning in 2011. Based on its 2009 annual goodwill impairment test, the unit experienced an impairment of $83,000.

Assurant Health, which provides individual health insurance products, has traditionally been underperforming, faced with a challenging environment. It has concentrated on this business by enhancing its product offering and changing its pricing and plan designs.

These initiatives are expected to improve margins in the near term. However, the Healthcare reform is expected to continue to impact results in the fourth quarter of 2010 and in 2011.The unit did not report any goodwill impairment in 2009.

Assurant, which competes with American International Group, Inc. (AIG) Aviva plc (AV), etc. is expected to release fourth quarter and full year 2010 earnings on February 2, after market closes. The Zacks Consensus Estimate is $1.04 per share for fourth quarter core earnings and $4.99 (excluding non cash impairment charge) for full-year earnings.

Assurant carries a Zacks #3 Rank, which translates into a Hold recommendation over the short term (1–3 months). Also, over the long term (6+ months) we have a Neutral outlook on the company.

 
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