Assurant Inc. (AIZ) reported second quarter 2012 operating earnings of $1.81 per share, beating the Zacks Consensus Estimate by a good 41 cents and also significantly ahead of the prior-year quarter earnings of 76 cents per share. The outperformance was the result of significant contributions from its business lines – Specialty Property, Health and Employee Benefits. A lower share count also boosted bottom-line results.
Total revenue for the reported quarter increased modestly by approximately 3.2% year over to $2.13 billion, led by higher premiums, net investment income, net realized gains on investment, and fees and other income. Revenues also beat the Zacks Consensus Estimate of $2.07 billion.
Net earned premiums also showed a modest increase of 2% year over year to $1.9 billion. Net investment income increased 14.7% year over year to $199.3 million.
Segment Performance
Premiums earned at Assurant Solutions increased 6% year over year to $721.7 million, led by growth in both the domestic as well as international businesses. Operating income increased 3.1% to $40.4 million.
Premiums earned at Assurant Specialty Property increased 7% year over year to $515.5 million led by growth in loan portfolios and multi-family housing products including increased fees from the SureDeposit acquisition. A higher premium earned coupled with very low catastrophe related losses during the quarter led to more than a twofold increase in operating income to $92.3 million.
Net premiums earned at Assurant Health fell 5.0% year over year to $410.6 million. This was due to a decline in traditional individual medical and small group business sales, partially offset by higher sale of supplemental and affordable choice products. Net operating income of $28.9 million increased more than five times year over year, led by lower expense and favorable loss experience and $13.9 million income from real estate joint venture investments.
Net premiums earned by Assurant Employee Benefits segment declined 4% year over year to $259.3 million due to the loss of two clients in the disability line of business, partly mitigated by premium growth in voluntary and supplemental products. Net operating income increased more than twofold year over year to $18.6 million on the back of favorable loss experience.
Financial Position
The financial position of Assurant remains strong with $4.4 billion of equity capital as of June 30, 2012, unchanged sequentially. The company maintains a low leverage ratio of 18.2%.
Book value per share, excluding accumulated and other comprehensive income, increased 9.0% from year end 2011 to $51.62. The company repurchased 4.6 million shares during the quarter at a total cost of $160.2 million.
Looking Ahead
For the rest of 2012, management expects its Specialty line of business to benefit from growth in multi-housing loans. Its Solutions line will see higher top-line growth from an increase in domestic as well as international businesses. Its Health line of business is expected to benefit from increased sales of voluntary and supplemental products and also from expense savings and the recent agreement with Aetna Signature Administration. Its Employee Benefits business is expected to witness top-line growth from higher sale of supplemental and voluntary products.
Along with organic growth, we expect bottom-line earnings at Assurant to get a boost from its share buyback activity.
Assurant, which closely competes with Torchmark Corp. (TMK), and Unum Group (UNM), retains a Zacks #3 Rank, which translates into a short-term ‘Hold’ rating. Considering the fundamentals, we are also maintaining our long-term “Neutral” recommendation on the shares.
ASSURANT INC (AIZ): Free Stock Analysis Report
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UNUM GROUP (UNM): Free Stock Analysis Report
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