AIZ Assurant Inc

Assurant Inc. (AIZ) reported fourth quarter 2011 operating earnings of $1.65 per share, beating the Zacks Consensus Estimate by a good 28 cents and also significantly ahead of the prior-year quarter’s earnings of $1.08 per share. The outperformance was the result of significant contributions from Assurant Specialty Property, Assurant Health and Assurant Solutions, party offset by lower operating income from Assurant Employee Benefits. Earnings also benefited from a lower share count.

Total revenue for the reported quarter stood at $2.1 billion, unchanged relative to the prior-year quarter.

Net earned premiums also remained unchanged at $1.8 billion compared with the prior-year quarter. Net investment income dipped 3.5% to $171.6 million owing to a drop in yields. 

For the full year, Assurant's operating income decreased to $4.55 per share from $5.02 per share in the year-ago quarter. Earnings, however, compared favorably with the Zacks Consensus Estimate of $4.28 per share. Total revenue fell to $8.27 billion from $8.53 billion.                                                                                  

Segment Performance

Net operating income at Assurant Solutions increased more than two-fold to $28.5 million from $11.7 million in the prior-year quarter. This can be primarily attributed to stronger business from international operations and growth in domestic business. Net earned premiums increased 4% year over year to $691.3 million, primarily owing to growth in domestic and international income and partly offset by continued run-off of the domestic credit business and service contract from old customers.

Assurant Specialty Property’s net operating income increased 22% year over year to $116.1 million, primarily the result of no reportable catastrophe losses compared with $9.8 million after-tax of reportable catastrophe losses in fourth quarter 2010. Net earned premiums increased 3% year over year to $517.6 million.    

Net premiums earned at Assurant Health fell 5.0% year over year to $445 million. This was due to the decline in traditional individual medical and small group business. Net operating income increased 51% year over year to $22.7 million, owing to reduced operating expenses and lower 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 declined 2% to $268.0 million. The decrease in premium was due to pricing actions on a block of assumed disability business and lower sales, partly mitigated by premium growth in voluntary and supplemental products. Net operating income dropped significantly by 18% to $14.5 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 the end of 2010. The company maintains a low leverage ratio of 17.9% and has no debt maturing until 2014.

Book value per share, excluding accumulated and other comprehensive income, increased 14.0% to $49.05 from $43.08 on December 31, 2010. The company repurchased 4.5 million shares during the quarter at a total cost of $173 million.

Assurant’s fourth quarter results reflected continued execution of the company’s growth strategy. Also, full year results reflect favorable performance, despite the high cat losses 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 related 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) and Unum Group (UNM). 

 
ASSURANT INC (AIZ): Free Stock Analysis Report
 
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