Assurant Beats EPS, Matches Rev - Analyst Blog

Assurant Inc.'s (AIZ) operating earnings for the fourth quarter came in at $1.08 per share, fairly ahead of the Zacks Consensus Estimate of 98 cents. The quarter's results also compared favorably with operating earnings of 86 cents per share recorded in the prior-year quarter.

The earnings surprise of 10% was bought about by improved performances at Health and Employee Benefit segments, partially offset by lower operating income from Solutions and Specialty Property.

Total revenue of $2.1 billion was in line with the Zacks Consensus Estimate, but declined 5.0% year over year. The fall was primarily due lower earned premiums and negative amortization of deferred gain on disposal of business, partially offset by an increase in net investment income and fees and other income.

Net earned premiums declined 6.0% year over year to $1.8 billion resulting from a decline in the premium from Assurant Solutions. Net investment income increased a modest 3% to $177.8 million driven by an improvement in yields while the invested assets remained stable. 

Full-year operating earnings of $5.02 also surpassed the Zacks Consensus Estimate of $4.92 per share and compared favorably with $3.92 earned in the prior year. Full-year revenue of $8.5 billion trended in line with the Zacks Consensus Estimate, but was down 2.2% year over year due to lower premium earned and lower fees and other income.

Segment Performance

Year over year, net operating income at Assurant Solutions decreased 61% to $11.7 million primarily due to $30.9 millionafter-tax intangible asset impairment in the domestic service contract business. Net earned premiums declined 13% to $598.0 million primarily due to lower service contract sales in the domestic line of business, continued run-off of domestic credit, partially offset by an increase in international business due to new client addition and heightened Preneed sales.  

Year over year, Assurant Specialty Property reported an 11% decline in net operating income to $95.4 million, primarily due to $14.8 million of catastrophe losses, partially offset by $7.6 million of favorable reserve development. In the year-ago quarter, no catastrophe calamity was reported. Net earned premiums decreased a modest 2.0% to $486.2 million as an increase in cede premiums outpaced growth in creditor-placed homeowners and flood and renters insurance.   

Net premiums of $461.2 million earned at Assurant Health fell a modest 1.0% from the prior-year quarter. This was due to reduced small group and short-term medical premium. Net operating income improved significantly to $15.0 million from an operating loss of $29.7 million in the year-ago quarter due to a decline in loss ratios, which was bought by plan and pricing changes to meet higher medical utilization trends. Assurant Health competes with companies like CIGNA Corp. (CI) and Aetna Inc. (AET).

Year over year, Assurant Employee Benefits reported a 1.0% drop in net premiums earned to $268.6 million. Net operating income increased significantly by 54% to $17.7 million on the back of favorable loss experience, low disability incidence and favorable life mortality rates. 

The financial position at Assurant remains strong with $4.5 billion of equity capital. The company maintains a low leverage ratio (17.9% vs. 17.0% at the end of the prior year) and there is no debt maturing until 2014.

Book value per share, excluding accumulated other comprehensive income, increased 6.4% year over year to $43.08. During the quarter, 4.5 million shares were repurchased incurring a total cost of $163.8 million.

In January 2011, the board authorized buyback of $600 million shares and the company repurchased an additional 1.7 million shares for $65.7 million, with $772.4 million remaining in the repurchase authorization.

Although challenging business trends in Specialty Employee Benefits and Assurant Health will likely pressure earnings, we remain optimistic on EPS growth foreseeing continued significant share buyback activity through 2012.

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

 
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