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Assurant's (AIZ) Q2 Earnings Beat Estimates, Improve Y/Y

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Assurant, Inc.’s (AIZ - Free Report) second-quarter 2017 net operating income of $1.63 per share outpaced the Zacks Consensus Estimate by 3.2%. Also, the bottom line improved 14.8% from $1.42 per share earned in the year-ago quarter.

Lower Corporate and other expenses resulted in the improvement. However, lower contributions from Global Lifestyle, driven by an absence of $18 million one-time tax benefit in the year-ago quarter, partially offset this upside. Notably, the company did not incur any reportable catastrophe loss in the second quarter, in comparison to $16 million of the same in the prior-year quarter.

Assurant, Inc. Price, Consensus and EPS Surprise

 

Assurant, Inc. Price, Consensus and EPS Surprise | Assurant, Inc. Quote

Total revenue fell 5.2% year over year to $1.56 billion due to lower premiums earned as well as a decline in fees and other income. The top line missed the Zacks Consensus Estimate of $1.60 billion by 2.4%.

Net investment income improved 1.6% year over year to $121.7 million.

Total benefits, losses and expenses declined about 9% to $1.4 billion, mainly due to a significant decline in selling, underwriting, general and administrative expenses plus interest expenses.

Segmental Performance

Assurant has revised its reportable segments in keeping with its evolved global operating model which supported its multi-year transformation. As of fourth-quarter 2016, Assurant reported through four segments – Global Housing (formerly known as the Assurant Specialty), Global Lifestyle (formerly included in the Assurant Solutions), Global Preneed (formerly included in the Assurant Solutions) and Corporate & Other.

Net earned premiums, fees and others at Global Housing fell about 2% year over year to $550.2 million, primarily due to anticipated lower placements rates in lender-placed insurance as well as reduced demand for originations and field services in mortgage solutions. However, growth in multi-family housing as well as new client revenues in lender-placed insurance partially offset this downside.

Net operating income dipped about 1.2% year over year to $56.2 million. The ongoing lender-placed insurance normalization and higher non-catastrophe losses led to the downside.

Net earned premiums, fees and others at Global Lifestyle declined 8.6% year over year to $836.0 million. This deterioration was primarily attributable to a change in program structure for a large service contract client in Connected Living, implemented in the fourth quarter of 2016.

Net operating income of $40.2 million plunged 19.8% year over year. The downside was driven by a one-time tax benefit of $18 million in the prior-year quarter.

Net earned premiums, fees and others at Global Preneed grew 6.9% year over year to $46.3 million, primarily due to expanded volumes in Canada.

Net operating income climbed 13.3% year over year to $12.8 million, mainly driven by higher fees and investment income. Higher expenses partially offset this upside.

Net operating loss at Corporate & Other was $10.6 million, substantially narrower than the year-ago quarter net operating loss of $19.4 million. Lower taxes and fees associated with Assurant Employee Benefits (sold in Mar 2016) as well as reduced corporate expenses in the reported quarter, drove the improvement.

Financial Position

Assurant’s financial position remains strong with around $625 million in corporate capital as of Jun 30, 2017. Total assets inched up 1.2% to $30.1 billion as of Jun 30, 2017, from $29.7 billion at year-end 2016.

Share Repurchase and Dividends Update

The company’s total share buybacks and dividends amounted to $142 million in the second quarter. While share buyback totaled $112 million, dividend payout totaled $30 million.

The company spent about $25 million to repurchase an additional 0.2 million shares from Jul 1 through Jul 28, 2017. It now has $442 million remaining in the current repurchase authorization.

2017 Outlook

Assurant estimates net operating income (excluding reportable catastrophe losses) to remain flat with the 2016 level. This is primarily due to the anticipated profitable growth in fee-based, capital-light offerings (comprising Connected Living, multi-family housing and mortgage solutions) and lower net operating loss at Corporate. However, declines in lender-placed insurance and other legacy businesses are likely to limit this uptrend.

Assurant projects operating earnings per diluted share (excluding catastrophe losses) to grow in double-digits from 2016 owing to share buyback activity.

The company expects Global Housing to witness a year-over-year decline in its net earned premiums and net operating income, excluding reportable catastrophe losses. The ongoing lender-placed insurance normalization and reduced contributions from mortgage solutions are anticipated to decrease the above-mentioned metric. However, expense savings and profitable growth in multi-family housing is likely to partially offset this downside.

Global Lifestyle’s net operating income is likely to increase due to an improved performance in Connected Living, fueled by mobile as well as higher contributions from vehicle protection and expense efficiencies. The decline in credit insurance and legacy North American retail clients is likely to continue. The company anticipates revenues to fall, primarily owing to a change in program structure for a large service contract client. In addition, the company estimates net earned premiums to decrease by about $500 million from 2016 due to reduction in expenses. This apart, the company might witness a rise in net earned premiums and fee income owing to growth in Connected Living and vehicle protection globally. However, results are likely to be impacted by foreign exchange.

Global Preneed is anticipated to experience an increase in its fee income and earnings, mainly due to sales growth across North America due to the company’s alignment with market leaders and operational efficiencies.

Assurant expects a full-year net operating loss of about $60 million at Corporate & Other compared with $71 million in 2016, mainly due to lower tax and employee-related costs as well as reduced corporate expenditures.

Zacks Rank

Currently, Assurant carries a Zacks Rank #4 (Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Performance of Other Insurers

Among other players from the insurance industry that have reported their second-quarter earnings so far, The Progressive Corporation (PGR - Free Report) as well as The Travelers Companies, Inc’s. (TRV - Free Report) bottom line missed the Zacks Consensus Estimate, while RLI Corp. (RLI - Free Report) beat the same.

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