Assurant Inc.’s (AIZ) operating earnings for the second quarter came in at $1.35 per share, substantially ahead of the Zacks Consensus Estimate of $1.17. This also compared favorably with operating earnings of 84 cents per share recorded in the prior-year quarter. Earnings were boosted by higher premiums from the Employee Benefits and Specialty segments.
Total revenue of $2.1 billion was in line with the Zacks Consensus Estimate, but declined 5.9% year over year. The fall was primarily due lower fees and other income, partially offset by net realized investment gains compared with realized investment losses last year.
Net earned premiums declined modestly by 1.4% year over year to $1.8 billion, led by a decline in the Solutions segment.
Net investment income remained almost unchanged compared with the year-ago levels at $175 million.
Segmental Performance
Year over year, net operating income at Assurant Solutions increased 8.6% to $30.3 million. Net earned premiums declined 6% to $629.7 million, due primarily to lower service contract sales in the domestic line of business, decline in pre-need premiums and continued run-off of domestic credit, partially offset by an increase in business from international business due to client additions.
Year over year, Assurant Specialty Property reported a 14.0% increase in net operating income to $103.7 million, primarily led by $13.6 million of favorable reserve development. Net earned premiums remained unchanged at $477.1 million as growth in creditor-placed homeowners, creditor-placed flood and renters’ insurance was completely offset by an increase in ceded premiums and lower real estate owned premiums.
Net premiums of $467.7 million earned by Assurant Health remained unchanged relative to the prior-year quarter. This was due to reduced small group and short-term medical premiums, completely offset by increased premiums from individual medical. Net operating income improved significantly to $25.3 million from an operating loss of $10.3 million in the year-ago quarter.
Year over year, Assurant Employee Benefits reported a 5.0% increase in net premiums earned to $275.4 million, due primarily to an increase in premiums as a result of acquisition and reinsurance clients added during the year end 2009. Net operating income increased modestly by 2.5% to $12.4 million.
The financial position at Assurant remains strong with $4.8 billion of equity capital. The company maintains a low leverage ratio (17.1% at the end of the quarter versus 17.3% last year). There is no debt maturing until 2014.
During the quarter, 6.1 million shares were repurchased at an average cost of $35.46. Assurant carried out no share repurchases in the prior-year quarter.
Book value per share, excluding accumulated other comprehensive income increased 10.3% year over year to $43.42.
Results reflect improved performance from Assurant’s Employee Benefits and Specialty segments. However, the performance of its Health segment remains uncertain with the recent passing of the health care reform Act. Its Specialty unit is also expected to be sluggish in the near term but we believe its conservative investment portfolio and robust capital management will lift the stock above its peers in the long term. Thus we reiterate our Outperform recommendation on the shares of the company.
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