We are reiterating our Neutral recommendation on Assurant Inc. (AIZ) following the fourth quarter earnings release. The company reported earnings ahead of the Zacks Consensus Estimate and threw a positive earnings surprise of 122.6%. We, however, remain on the sidelines on this Zacks Rank #3 (Hold) multi-line insurer, given headwinds faced by its business units.
Assurant ‘s Solutions segment has been performing well over the past several quarters. Assurant Solutions expanded in several targeted areas. It strengthened its position in Latin America, a key market for Solutions. The segment has a robust sales pipeline and it is focused on achieving a goal of 14% ROE in 2014.
However, Assurant Health had been underperforming for the past several quarters due to the challenging marketplace. It is expected that the segment’s earnings will remain under pressure due to ongoing implementation of health care reform and lower investment income from real estate joint venture partnerships.
The company’s Employee Benefits segment has been pressured by persistent economic challenges in the small group sector, leading to higher lapse rates and lower premium growth on in-force policies. We do not expect a substantial improvement in earnings from this segment until the U.S economy recovers substantially.
Nevertheless the company manages its capital prudently. Its strong balance sheet continues to provide great flexibility.
The stock has witnessed a positive estimate revision since earnings release. The Zacks Consensus Estimate for 2013 has gone up 0.4% to $5.59 per share. Moreover, the Zacks Consensus Estimate for 2014 has also increased 1.5% to $5.62 per share.
Other carriers under our coverage Assured Guaranty Ltd. ( AGO), AEGON N.V. ( AEG) carrying a Zacks Rank #1 (Strong Buy) and FBL Financial Group Inc. ( FFG) with a Zacks Rank #2 (Buy) are worth considering.
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