Assurant Inc. (AIZ) reported first quarter 2012 operating earnings of $1.76 per share, beating the Zacks Consensus Estimate by a good 33 cents and also significantly ahead of the prior-year quarter’s earnings of $1.36 per share.
The outperformance was the result of significant contributions from all its business lines – Specialty Property, Health and Solutions as well as Employee Benefits. A lower share count also boosted the bottom-line results. Earnings also benefited from lower share count.
Total revenue for the reported quarter increased modestly by approximately 2% year over to $2.1 billion, led by higher premium, net realized gains on investment, and fees and other income.
Net earned premiums also showed a modest increase of 1% year over year to $1.78 billion. Net investment income remained almost unchanged at $172.3 million.
Segment Performance
Premiums earned at Assurant Solutions increased 6% year over year to $699.4 million, led by growth in both the domestic as well as international businesses. A favorable loss experience along with top-line growth led operating income to increase 17% to $43.4 million.
Premiums earned at Assurant Specialty Property increased 5% year over year to 508.3 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 no reported catastrophe loss during the quarter buoyed the bottom line with net operating earnings increasing 10% to $113.0 million.
Net premiums earned at Assurant Health fell 5.0% year over year to $415.2 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, however, increased 62% year over year to $11.6 million, owing to reduced operating expenses and lower taxes.
Net premiums earned by Assurant Employee Benefits segment declined 3% year over year to $265.4 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 improved significantly by 41% to $9.1 million on the back of favorable loss experience.
The financial position of Assurant remains strong with $4.4 billion of equity capital as of March 31, 2012, up 12% sequentially. The company maintains a low leverage ratio of 18.2%, with no debt maturing until 2014.
Book value per share, excluding accumulated and other comprehensive income, increased 4.0% sequentially to $49.01. The company repurchased 2.4 million shares during the quarter at a total cost of $99.4 million.
Operating return on equity, signifying profitability, improved 450 basis points sequentially to 14.6%.
Apparently, the company seems to have outperformed the Estimates, but a closer look at the results indicates a rather modest top-line growth. Earnings benefited primarily from higher bottom line operating income across the segments and share repurchases.
The Health segment at Assurant is expected to record top-line growth, while Employee Benefits will suffer from the loss of two disability clients. The Solutions Business is expected to record marginal growth, whereasb the Specialty line of business will suffer from declining outstanding mortgage loans.
Given the limited scope for top-line growth, it is evident that earnings growth will depend on capital management, primarily share buybacks, in the upcoming quarters.
For now 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.
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