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Assurant Inc. (AIZ - Analyst Report) reported third quarter 2012 operating earnings of $1.55 per share, beating the Zacks Consensus Estimate by 16 cents and also significantly surpassing the prior-year quarter earnings of 77 cents per share. The better-than-expected result was the outcome of significant contributions from segment –Specialty Property. A lower share count also boosted the bottom-line results.

Total revenue for the reported quarter increased modestly by approximately 4.0% year over year to $2.15 billion, led by higher premiums, net realized gains on investment, and fees and other income, partly offset by a lower net investment income.

Net earned premiums also improved modestly by 3.4% year over year to $1.84 billion. Net investment income decreased 1.6% year over year to $169.4 million.

Segment Performance

Premiums earned at Assurant Solutions escalated 12% year over year to $752.6 million, led by improvements in both the domestic as well as international businesses. Operating income increased 9% to $36.7 million.

Premiums earned at Assurant Specialty Property increased 9% year over year to $544.9 million due to developments in loan portfolios and multi-family housing products. A higher premium earned coupled with very low catastrophe related losses during the quarter led to more than a two-fold increase in operating income to $89.4 million.

Net premiums earned at Assurant Health fell 8.0% year over year to $405.0 million attributable to declines in traditional individual medical and small group business sales. Net operating income of $11.3 million spiked 95% year over year, led by lower expense and favorable loss experience.

Net premiums earned by Assurant Employee Benefits segment declined 6% year over year to $259.7 million as a result of the loss of two clients in the disability line of business, partly mitigated by premium growth in voluntary and supplemental products. Net operating income decreased 3% year over year to $13.2 million.

Financial Position

The financial position of Assurant remains strong with $4.4 billion of equity capital as of September 30, 2012, which remained unchanged on a sequential basis. The company maintains a low leverage ratio of 15.7%, down from 16.6% as of December 31, 2011.

Book value per share, excluding accumulated and other comprehensive income, increased 13.0% from the end of 2011 to $53.70. The company repurchased 3.1 million shares during the quarter at a total cost of $109.8 million.

Looking Ahead

For full year 2012, management expects its Specialty line of business to benefit from growth in multi-housing loans. Its Solutions line will see higher top-line growth from increases in domestic as well as international businesses.

The Health line of business is expected to benefit from expense savings and favorable loss experience. However, the segment is expected to see a drain in premium earned due to changes in product mix along with lower sale of small employer group and individual medical insurance. The Employee Benefits business is expected to witness a decline in top-line growth due to lost premiums from departure of two assumed disability clients.

The bottom-line earnings at Assurant are expected get a boost from its share buyback activity.

Assurant, which closely competes with Torchmark Corp. (TMK - Analyst Report), and Unum Group (UNM - Analyst Report), 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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