Assurant Inc. (AIZ) reported third quarter 2011 operating earnings of 79 cents per share, beating the Zacks Consensus Estimate by 2 cents but significantly lagging the prior-year quarter’s earnings of $1.27 per share.
The outperformance was led by higher international underwriting results, while the year-over-year decline was led by high catastrophe loss (cat loss) incidence, decline in premiums, as well as lower investment income.
Total revenue for the reported quarter stood at $2.1 billion, down 2.5% year over year. Lower earned premiums, along with decrease in net investment income, primarily accounted for the decline.
Net earned premiums fell 3.0% year over year to $1.8 billion owing to the decline in premium at the Health segment. Premium at other segments – Solutions, Specialty Property and Employee Benefits remained largely unchanged year over year. Net investment income dipped 2.3% to $172.2 million owing to a drop in investment yield.
Segment Performance
Year over year, net operating income at Assurant Solutions increased 9% to $35 million, primarily due to stronger business from international operations and stable preneed results. Net earned premiums remained flat year over year at $670.8 million, primarily owing to continued run-off of the domestic credit business and service contract from old customers. This decline was partly offset by premium growth in both domestic as well as international units.
Assurant Specialty Property’s results were affected by high catastrophe losses. Net operating income plunged 59% year over year to $43.7 million. The drop was primarily caused by $52 million of cat loss, including losses from widespread coastal flooding versus no comparable losses in the same period last year.
Net earned premiums remained almost unchanged at $498.0 million due to increase in ceded premiums, partly offset by growth in creditor-placed homeowners as well as flood and renters insurance.
Net premiums earned at Assurant Health fell 8.0% year over year to $438 million. This was attributable to the decline in traditional individual medical product sales, partly offset by the increase in premium from affordable choice and supplemental products.
Net operating income increased 8% year over year to $5.8 million due to reduced operating expenses, partly offset by $6.0 million of after-tax accrual of premium rebates associated with the minimum medical ratio requirement provisions, as stated by the Health Care Reform Act.
Year over year, Assurant Employee Benefits net premiums earned of $277.1 million remained unchanged relative to the prior-year quarter, led by decrease in premiums due to pricing actions on a block of assumed disability business and lower sales in 2010, which was almost wholly mitigated by premium growth in voluntary and supplemental products. Net operating income dropped significantly by 20% to $13.6 million on the back of lower favorable loss experience and low disability incidence.
The financial position of Assurant remains strong with $4.5 billion of equity capital, unchanged from the level at 2010 end. The company maintains a low leverage ratio of 17.8% and has no debt maturing until 2014.
Book value per share, excluding accumulated other comprehensive income, increased 9.0% to $47.13 from $43.08 at December 31, 2010. The company repurchased 2.2 million shares during the quarter at a total cost of $93.4 million.
Assurant expects to incur a charge of $140–$150 million relating to the change in the accounting of deferred acquisition cost effective beginning 2012.
Assurant’s third quarter results reflected continued execution of the company’s growth strategy. Despite the high cat loss incurred, the company managed to beat the estimate on the back of better performance from its international business.
Though the company is facing operating headwinds relating to economy and regulations in its businesses, we expect it to perform well over the longer term given a solid capital position, low leverage and good capital management. We thus reiterate our Neutral recommendation on the shares of Assurant, which closely competes with Torchmark Corp. (TMK), Unum Group (UNM).
ASSURANT INC (AIZ): Free Stock Analysis Report
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