Assurant (AIZ) Q4 Earnings Miss, Revenues Beat Estimates

Assurant Inc. AIZ reported fourth-quarter 2015 net operating income of 97 cents per share that missed the Zacks Consensus Estimate by 37%. The bottom line also deteriorated from $1.38 per share earned in the year-ago quarter owing to soft performance at Assurant Solution’s mobile business and ongoing normalization of lender-placed insurance business at Assurant Specialty Property.

 

Total revenue came in at $2.5 billion, down 2.9% year over year. Nevertheless, it surpassed the Zacks Consensus Estimate of $2 billion. Lower premiums earned, decline in both net investment income and net realized gains on investments was responsible for the year-over-year decline.

Net investment income, excluding Assurant Health runoff operations, decreased 1.2% year over year to $152.8 million.

Total benefits, losses and expenses came in at $2.4 billion, down 3.7% due to a decline in policyholder benefits.

Full-Year 2015 Highlights

Assurant’s full-year operating net earnings decreased 4.2% year over year to $6.58 per share.

Total revenues for 2015 slipped 0.5% year over year to $10.3 billion.

Segmental Performance

Net earned premiums, fees and other at Assurant Solutions remained flat year over year. Effect of foreign exchange volatility, loss of business, and declines in credit insurance as well as lower service contract production from North American retailers offset fee income growth from domestic mobile and auto warranty business.

Net operating income plummeted 49.1% year over year to $29.6 million, primarily due to lower contributions from mobile.

Net earned premiums, fees and others at Assurant Specialty Property plunged 12.4% year over year to $601.7 million due to the sale of American Reliable Insurance Company (“ARIC”) as well as loss of client business and normalization of lender-placed insurance. Nevertheless, fee income increased in the reported quarter, which reflected mortgage solutions business growth.  

Net operating income of $57.8 million was down 18.6% year over year primarily due to loss of client business and normalization of lender-placed insurance.

Net earned premiums, fees and others at the Assurant Employee Benefits segment inched up 0.5% year over year to $270.8 million on continued growth in voluntary products.

Net operating income soared 115.3% year over year to $15.5 million owing to favorable disability and life experience.

Financial Position

Assurant’s financial position remains strong with $460 million in corporate capital as of Dec 31, 2015. Total assets amounted to $30.1 billion as of Dec 31, 2015, down 4.7% year over year.

Annualized operating return on average equity, excluding AOCI and Assurant Health runoff operations, was 11.3% as of Dec 31, 2015 compared with 12.1% as of Dec 31, 2014.

Debt-to-capital ratio, excluding AOCI and Assurant Health runoff operations, deteriorated to 23.4% as of Dec 31, 2015 from 21.9% as of Dec 31, 2014.

Share Repurchase and Dividends Update

In 2015 the company repurchased approximately 4.2 million shares worth $284.6 million. Subsequent to 2015, through Feb. 5, 2016, the company spent $90.0 million to repurchase an additional 1.1 million shares and has $862.1 million remaining in the current repurchase authorization. Moreover, the company paid dividends worth $94.2 million to its shareholders.

2016 Outlook

The company expects Assurant Solutions’ net earned premiums, fees and net operating income to improve from the 2015 levels. The company anticipates an improvement in overall results in the second half of 2016 owing to new mobile programs, additional cost-cutting initiatives and improved international profitability. However, foreign exchange volatility, lower service contract revenues from legacy North American retail clients as well as continued declines in credit insurance are likely to adversely impact results.

Assurant Specialty Property’s net earned premiums and net operating income are likely to decline due to the ongoing normalization of lender-placed insurance business, partially offset by increased efficiencies and expense-saving initiatives. Through gain in market shares, the company envisions expansion in multi-family housing and mortgage solutions businesses. However, overall results are likely to be affected by catastrophe losses.

Assurant Health is anticipated to exit the health insurance market by 2016. During the remainder of the period before exit, the company is likely to incur $40–$50 million pre-tax of extra exit-related charges and overhead expenses, which had been excluded from the premium deficiency reserve calculation.

Zacks Rank and Performance of Other Insurers

Currently, Assurant carries a Zacks Rank #4 (Sell). Other insurers too recently released their fourth-quarter earnings results. While the bottom line at The Travelers Companies, Inc. TRV and Progressive Corp. PGR beat their respective Zacks Consensus Estimates, RLI Corp. RLI missed the same in the fourth quarter.

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