We are upgrading Assurant Inc. (AIZ) to Neutral from Underperform, as we believe a low debt-to-capital ratio, adequate capitalization and sound liquidity with no debts to repay will shield the company from the ongoing economic challenges.
Third quarter 2009 results were particularly impressive, beating the Zacks Consensus Estimate due to strong earnings from its solutions and specialty business along with reduced expenses and improved loss ratio and a benign hurricane season.
During Nov 2009, rating agency A.M. Best affirmed the financial strength ratings (FSRs) and issuer credit ratings (ICRs) of the property and casualty (P&C) and life and health insurance subsidiaries of the company. Additionally, A.M. Best has affirmed the ICR of “bbb” of Assurant. The rating agency has also upgraded the FSR of four of its operating subsidiaries to “A” from “A-” and ICRs to “a” from “a-” with a stable outlook.
The financial position at Assurant remains strong. As of Sep 30, 2009, Assurant’s unadjusted debt-to-capital and debt-to-tangible capital ratios were 16.7% and 20.2%, respectively, while maintaining a fixed interest coverage ratio at over 10 times. Assurant has a $500 million commercial paper program with a backup credit facility, with none having been utilized till date in 2009. In addition, cash and cash equivalents held at the holding company totaled over $300 million at Sep 30, 2009, with no debt maturing until 2014. We view this as a positive in the current credit-constrained market, where adequate cash resources are vital for sustenance.
While a prolonged economic slowdown could pressure several of Assurant’s businesses, its largest segment, which focuses on creditor-placed homeowners’ insurance, has the opportunity to generate solid earnings during the economic downturn. While growth is likely to slowdown, the Specialty Property business continues to benefit from increased placement rates and higher average insured values of homes, which is based on replacement cost and not market value.
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