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AIZ Beats Despite Huge Cat Loss

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Assurant Inc. (AIZ - Free Report) reported fourth quarter 2012 operating earnings of 7 cents per share, which compared favorably with the Zacks Consensus Estimate of an operating loss of 31 cents per share. Earnings were however, significantly down 94% year over year.

Despite suffering a huge loss from Superstorm Sandy, Assurant was able to significantly beat estimates led by revenue growth and share repurchases, partly offset by higher operating expenses.

Full year 2012 net operating income came in at $5.27 per share, beating the Zacks Consensus Estimate of $4.86 per share and up 18% year over year.

Net income was down to $ 31 cents per share from $1.70 per share, in the year ago quarter.

Total revenue for the reported quarter increased modestly by approximately 2.3% year over year to $2.16 billion, led by higher premiums, net realized gains on investment, and fees and other income, partly offset by a higher amortization of deferred gain. Total revenue was higher than the Zacks Consensus Estimate of $2.10 billion.

Net earned premiums improved modestly by 2.0% year over year to $2.0 billion. Net investment income was almost unchanged at $172.1 million.

Segment Performance

Premium earned at Assurant Solutions was up 4% year over year to $719.6 million, led by improvements in international businesses, partly offset by a decline in domestic service contracts. Operating income, however, decreased 87% to $3.3 million, due to one time charges related to asset impairment and restructuring.

Premiums earned at Assurant Specialty Property increased 13% year over year to $583.9 million due to positive developments in loan portfolios and multi-family housing products. Net operating income, however, dwindled 91% year over year to $10.2 million, due to huge losses from superstorm Sandy.

Net premiums earned at Assurant Health fell 13.0% year over year to $389.1 million attributable to declines in small group business sales. Net operating income of $0.2 million declined sharply by 99% year over year, due to lower net earned premiums, resulting from a continued shift in product mix and fewer small group insured lives.

Net premiums earned by Assurant Employee Benefits segment declined 4% year over year to $258.3 million. This was 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 increased 18% year over year to $17.1 million.

Financial Position

The financial position of Assurant remains strong with $4.4 billion of equity capital as of Dec 31, 2012, which remained unchanged on a sequential basis. The company maintains a low leverage ratio of 18.3%, almost unchanged from 18.4% as of Dec 31, 2011.

Book value per share excluding accumulated and other comprehensive income, increased 13.8% year over year to $53.87. Assurant repurchased 11 million shares during the year which is equivalent to 12% of share outstanding as of Dec 31, 2011.

Looking Ahead

For full year 2013, management expects its Specialty line of business to benefit from growth in multi-housing loans and higher volume in lender-placed loan portfolios. 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 see depressed earnings from the ongoing implementation of health care reform as well as a decline in investment income from real estate joint venture partnerships. The Employee Benefits business top line growth is expected to remain unchanged relative to 2012. However, a low interest rate will result in overall earnings decline of the segment.

Assurant currently carries a Zacks Rank #3 (Hold). Other property and casualty players Assured Guaranty Ltd. with Zacks Rank #1 (Strong Buy) and CNO Financial Group Inc. (CNO - Free Report) , and Radian Group Inc. (RDN - Free Report) both carrying Zacks Rank # 2 (Buy) are scheduled to release fourth quarter earnings shortly.

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