On Sep 25, we downgraded Assurant Inc. ( AIZ) to Neutral from Outperform, reflecting concerns about weakness in the company’s specialty property, employee benefits as well as health business. This property and casualty insurer carries a Zacks Rank #3 (Hold).
Assurant’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. 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.
Also Assurant's Specialty Property is witnessing lower mortgage originations and a drop in real estate owned volumes, which is pressurizing growth in the segment. We are also concerned about the long term performance as we expect regulator mandated price reductions and declining placement rates to pressure revenues.
Another segment of Assurant – Health insurance, 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.
We are nevertheless upbeat about Assurant's Solutions division. This division has been performing well over the past many quarters. With international as well as domestic business improving we expect top line earnings growth.
Also a strong balance sheet with disciplined capital management will aid Assurant's bottom line earnings.
Other players from the same industry – Eastern Insurance Holdings, Inc. ( EIHI), FBL Financial Group Inc. ( FFG) with Zacks Rank #1 (Strong Buy) and Kemper Corporation ( KMPR) with Zacks Rank #2 (Buy) are worth investing in.