(AIZ) Assurant Suffers High Catastrophe Loss – Hurts Second Quarter Earnings

Assurant Inc. (AIZ) has reported second quarter 2011 operating earnings of 76 cents per share, missing the Zacks Consensus Estimate by 8 cents and significantly lagging the prior-year quarter’s earnings of $1.35 per share. The quarter’s results were hit by high catastrophe loss (cat loss) incidence and a weak performance at the company’s health unit.

Total revenue for the reported quarter stood at $2.1 billion, down 3.6% year over year. Lower earned premiums, along with a decrease in net investment income, primarily accounted for the decline.

Net earned premiums fell 4.4% year over year to $1.8 billion owing to a decline in premium across all the business segments. Net investment income inched down 0.8% to $173.8 owing to a drop in yields, while the invested assets remained stable.


Year over year, net operating income at Assurant Solutions increased 31% to $39.7 million, primarily due to stronger business from international operations and stable preneed results. Net earned premiums inched down 1% to $679.5 million, primarily owing to continued run-off of the domestic credit business and service contract from old customers.This decline was partly offset by premium growth in both domestic as well as international units.

Assurant Specialty Property’s net operating income plunged 59% year over year to $42.6 million. The drop was primarily caused by $42.7 million of cat loss, coupled with higher loss frequency from  non-catastrophe events. Net earned premiums decreased 3.0% to $483.3 million due to an increase in ceded premiums coupled with higher cat reinsurance premium, partly offset by a growth in creditor-placed homeowners as well as flood and renters insurance.

Net premiums earned at Assurant Health fell 9.0% year over year to $434.3 million. This was attributable to premium rebate accrual, partly offset by an increase in premium from affordable choice and supplemental products. Net operating income dropped 79% year over year to $5.2 million due to $10.9 million of after-tax accrual of premium rebates associated with the minimum medical ratio requirement provisions as stated by the Health Care Reform Act. Assurant Health competes with companies like CIGNA Corp. (CI) and Aetna Inc. (AET).

Year over year, Assurant Employee Benefits’ net premiums earned slipped 4.0% to $270.6 million due to pricing actions on a block of assumed disability business and lower sales in 2010, partly  mitigated by premium growth in voluntary and supplemental products. Net operating income dropped significantly by 31% to $8.5 million on the back of lower favorable loss experience and low disability incidence.

The financial position of Assurant remains strong with $4.5 billion of equity capital, unchanged from the level at 2010 end. The company maintains a low leverage ratio of 17.8% and has no debt maturing until 2014.

Book value per share, excluding accumulated other comprehensive income, increased 7.1% to $46.16 from $43.08 at December 31, 2010. The company repurchased 3 million shares during the quarter at a total cost of $110.4 million.

During the quarter under review, Assurant increased dividend by 13% to 18 cents, representing its eighth dividend increase since it went public in 2004.

During the quarter, Assurant also entered into a comprehensive catastrophe (CAT) reinsurance program  to shield itself from losses that looms ahead as an above-average hurricane season this year. The program is intended to provide the shareholders with an acceptable return on the risks assumed in the company’s property business, and to reduce variability of earnings while providing protection to its customers.

Based in New York’s financial district, Assurant competes with Principal Financial Group Inc. (PFG), Loews Corp. (L), and Conesco Inc. (CNO) among others.

ASSURANT INC (AIZ): Free Stock Analysis Report

CNO FINL GRP (CNO): Free Stock Analysis Report

LOEWS CORP (L): Free Stock Analysis Report

PRINCIPAL FINL (PFG): Free Stock Analysis Report

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