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Assurant's Q1 Earnings Gain on Higher Revs

Zacks Equity Research

Assurant Inc. ( AIZ) reported first-quarter 2014 operating income of $1.68 per share, comfortably beating the Zacks Consensus Estimate of $1.56 per share. Earnings were also up 24% on a year-over-year basis. Strong performance at Assurant Solutions and Assurant Employee Benefits along with a lower share count owing to share repurchases boosted the quarter’s results.  


Net income increased to $137.2 million or $1.86 per share from $117.8 million or $1.46 per share recorded in the year-ago quarter.


Total revenue came in at $2.4 billion, up 13.8% year over year and also higher than the Zacks Consensus Estimate of $2.3 billion. 


Net earned premiums, fees and other income amounted to $2.3 billion, up 15.0% year over year led by growth at all the company’s segments - Assurant Specialty Property, Employee Benefits and Solutions. 


Net investment income increased by a mere 1.3% year over year to $168.1 million, primarily led by higher investment income from real estate joint venture partnership. 


Segment Performance


Premium earned fees and other at Assurant Solutions improved 16% year over year to $894.0 million, led by growth in domestic service contracts and the Lifestyle Services Group acquisition. Operating income grew 42% year over year to $49.5 million, primarily due to improved results in domestic service contracts including mobile, and previous expense management actions. 


Premiums earned at Assurant Specialty Property increased 19% year over year to $664.1 million on the back of positive developments in lender-placed loan portfolios and multi-family housing products and the Field Asset Services acquisition. Net operating income of $97.7 million rose 4% year over year led by higher earnings from lender-placed insurance business, partly offset by $5.1 million of catastrophe loss incurred during the quarter.


Net premiums earned at Assurant Health shot up 12% year over year to $431.0 million, led by strong sales of major medical, affordable choice and supplemental products. However, the segment incurred operating loss of $7.1 million, worse than the loss of $5.3 million incurred in the year-ago quarter due to increased commissions expenses on new sales along with less favorable loss experience.


Net premiums earned at the Assurant Employee Benefits segment spiked 4% year over year to $267.7 million led by continued growth in voluntary products, partly offset by lower premium from employer-paid products. Net operating income escalated 128% due to $13.9 million, led by favorable life and dental loss experience. 


Financial Position


The financial position of Assurant remains strong with $4.5 billion of equity capital as of March 31, 2014, up 2.4% from year-end 2013.


The company leverage ratio moderated to 20.6% as of March 31, 2014 compared with 27.1% as of Dec 31, 2013.


Book value per share, a measure of net worth, increased 2.6% sequentially to $61.05 as of March 31, 2014.


Looking Ahead


For 2014, management expects premium in its Specialty property segment to remain unchanged compared to 2013. While premium growth is expected to result from the recent acquisition of StreetLinks, it will be partly offset by a decline in premium from the company’s lender-placed insurance business. Bottom-line results will be affected by higher expense ratio as well as higher loss ratio. 


Assurant’s Solutions line will see higher top-line growth from increases in mobile as well as all product lines in Latin America. In the fourth quarter of 2014, the segment is expected to report about $50 million of net operating income.


The Health line of Assurant’s business is likely to witness top-line growth due to increase in sales of new major medical policies. Bottom-line margin will, however, tend to be pressurized by high effective tax rate and higher sales commissions. 


Likewise, the Employee Benefits business’ top-line growth is expected to increase due to growth in voluntary products. Nonetheless, earnings are likely to be affected by continued expense management and higher expenditure which will be incurred to generate higher voluntary sales.


Assurant presently carries a Zacks Rank #3 (Hold).


Other Stocks


Other insurers like The Travelers Companies Inc. ( TRV), W.R.Berkley Corp. ( WRB) and Torchmark Corp. ( TMK) have all reported their first-quarter earnings ahead of the respective Zacks Consensus Estimate. 

Read the Full Research Report on TRV
Read the Full Research Report on WRB
Read the Full Research Report on AIZ
Read the Full Research Report on TMK

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