We are reiterating our Neutral recommendation on the shares of Assurant Inc. (AIZ). While we expect long term out performance from the company, results in the near term will continue to be affected by micro as well as macro economic headwinds faced by its various business lines.
The company’s Assurant Solutions segment has been performing well over the past several quarters. Though results in U.K. have been disappointing for some quarters, the company has taken several steps to improve in the international arena.
Over the longer time horizon, the international business is anticipated to continue growing steadily, while the domestic business should rebound as the economy improves and consumer electronics spending recovers, leading to overall revenue growth.
Though Assurant Health had been underperforming for the past several quarters, its profitability has shown some improvement. In response to the challenging marketplace, the company entered into a network agreement with AETNA signature Administrators and a marketing agreement with American Family. In addition, it focused on the distribution of individual healthy policies to its customers.
Assurant’s Specialty property business is expected to see a decline in placement rates which are likely to worsen the impact of price reductions, thereby resulting in a plunge in revenues over the next two years.
The 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. Since there have been few new employee additions and a modest wage growth, premium income from the segment will remain under pressure in the near term.
In the absence of a substantial organic growth, Assurant has maintained its bottom-line earnings via an active capital management strategy.
Assurant is conservatively placed with respect to its investment portfolio, which will cushion earnings if the macro conditions deteriorate.
Based in New York’s financial district, Assurant competes with Principal Financial Group Inc. (PFG), Loews Corp. (L), The Chubb Corp. (CB) among others. The company’s stock currently retains a Zacks #3 Rank, which translates into a short-term Hold rating.
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