Assurant Outshines on Revenues

Assurant, Inc.’s (AIZ - Analyst Report) operating earnings for the third quarter came in at $1.07 per share, substantially ahead of the Zacks consensus estimate of 92 cents. This also compares favorably with operating earnings of 70 cents per share in the prior-year quarter.
 
The upside was primarily based on the absence of reportable catastrophe losses at Assurant Specialty Property and increased profitability at Assurant Solutions, partially offset by less favorable results at Assurant Employee Benefits and a loss at Assurant Health. 
 
GAAP net income came in at $144.7 million, or $1.22 per share, compared to a net loss of $111.4 million, or 94 cents per share in the prior-year quarter. In addition to the absence of reportable catastrophe losses, the results benefited from a $12.9 million (after-tax) realized gain in the investment portfolio compared to a $194.5 million (after-tax) loss in the prior-year quarter.
 
Total revenues increased 10.4% year over year to $2.2 billion. The revenue growth primarily benefited from the net realized investment gain and an increase in fees and other income.
 
Net earned premiums were $1.9 billion, down 5.5% from $2.0 billion in the year-ago quarter. The decrease was driven primarily by the difficult economic environment.
 
Net investment income for the quarter was $172.9 million, down 10.1% from $192.3 million in the prior-year quarter. The decrease in net investment income was due primarily to lower average invested assets and lower yields.
 
Excluding accumulated other comprehensive income, book value per share increased to $40.57 at Sep 30, 2009 from $37.16 at Dec 31, 2008. Annualized operating return on equity improved to 10.7% from 8.7% in the prior quarter. The company does not have any debt maturing until 2014 and continues to maintain a low 17.0% of debt-to equity ratio.
 
Assurant’s leading position in specialty markets, solid balance sheet and conservative investment approach are the clear positives in its business model. These positives are more than offset, however, by the significant downside risks including the loss of a major distribution or client relationship, greater healthcare competition, irrational pricing, and deterioration in the manufactured housing industry.