Assurant Sees Cat Loss from Irene

After recording a high catastrophe loss (cat loss) in the second quarter of 2011, property and casualty insurer Assurant Inc. (AIZ - Analyst Report) is again set to incur further pre-tax cat losses in the range of $80 million to $85 million in the upcoming quarter. Out of the total losses, $65 million to $70 million is attributed to Hurricane Irene, which battered the East Coast in August 2011.

These cat losses will affect Assurant’s largest business – the Specialty Property segment – which accounts for 60% of the company’s operating earnings. The segment incurred $42.7 million in after tax cat losses in the previous quarter.

Assurant’s margins appear to be more volatile than previously expected due to the company's increased exposure to coastal and catastrophe-prone regions. As such the company maintains an active catastrophe reinsurance program. In June, the company entered into a comprehensive three layered reinsurance agreement. Assurant’s CAT reinsurance agreements are part of the company’s catastrophe management strategy, which aims to provide the shareholders an acceptable return on the risks assumed in its property business, and to reduce variability of earnings while providing protection to its customers. However, firming reinsurance rates could put the margins under pressure going forward.

We believe Assurant’s third quarter 2011 earnings, likely to be released on October 26 after the market closes, will be modestly affected by cat losses. According to the Zacks Consensus Estimate, the company’s third quarter earnings per share (EPS) would be $1.08, up 9.5% year over year. We expect a lackluster performance from Assurant’s Employee Benefits segment and Health business. The Employee Benefits segment is suffering due to high unemployment and the sluggish economic growth, while the Health segment might suffer owing to weak sales and the minimum loss ratio mandate of the Health Care Reform.

However, a strong capital position, a conservative investment portfolio, and minimal exposure to equity sensitive businesses are some of the positives for Assurant.

Based in New York’s financial district, Assurant competes with Principal Financial Group Inc. (PFG - Analyst Report), Loews Corp. (L - Analyst Report), and Conesco Inc. (CNO - Analyst Report) among others.

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