Assurant: Restructuring Specialty Property with Unit Sale

Assurant Specialty Property, a unit of multiline insurer Assurant Inc. (AIZ) announced that it has divested its subsidiary, American Reliable Insurance Company, to Global Indemnity Group, Inc., a subsidiary of Global Indemnity plc (GBLI). The sale fetched Assurant $114 million in cash, which it expects to invest in high growth return business.

Assurant’s Specialty Property has given favorable performance over the past many quarters, driven by high placement rates and market share from lenders’ consolidation. However, the high margins witnessed by the segment is not expected to continue over the long term due to regulator-mandated price cuts and improving housing market conditions which will likely lower placement rates and shrink its lender-placed book of business.

In this backdrop, Assurant has been seeking to offset the profit that it expects to lose, by investing in targeted growth areas promising higher return on equity. Currently, high growth is expected from the company’s Solutions segment which has achieved its quarterly goal of $50 million of net operating income much earlier than expected. The company is also contemplating small to mid-sized acquisitions to beef up its specialty business.

Moreover, the company has been working consistently to realign its Specialty Property business by deleting and adding business. Last October, the company had acquired Field Asset Services, a company specializing in service related to property preservation, restoration and inspection, for $50 million. This acquisition perfectly complemented the segment’s pre-existing Assurant Specialty Property’s field services business via which the segment provides services like property inspection, preservation as well as repairs to mortgagers.

Prior to that in April, the segment acquired StreetLinks LLC for about $60 million in cash to expand appraisal services for the mortgage industry.

Last month, the segment took over eMortgage Logic to provide new services such as property appraisals, regulatory and compliance services, valuation technology and local market analytics in the mortgage industry. The purchase involved an initial payment of $17 million, and a possible earn-out payment depending on future performance. eMortgage Logic is expected to generate approximately $35 million in fee income annually from mortgage servicing and capital market customers. This would directly enhance the company’s earnings.

Assurant is expected to release fourth-quarter 2014 earnings in the first week of Feb 2015.

Assurant carries a Zacks Rank # 2 (Buy).

Other stocks worth considering include Radian Group Inc. (RDN) and CNO Financial Group, Inc. (CNO). Both stocks carry a Zacks Rank # 1 (Strong Buy).