We are reiterating our Neutral recommendation on
Assurant Inc. ( AIZ ).
Although we are optimistic about the company's long-term
performance, the micro as well as macro economic headwinds faced by
its various business lines at present are the matters of
concern.
While the Health Business is subject to intense market
competition and changing market environment led by the Health Care
Law, its Employee Benefits business is suffering from high
unemployment. The Specialty line of business is likely to suffer
from declining outstanding mortgage loans.
Nevertheless, we expect the Solutions Business to record
marginal growth. The top line at Assurant Solutions, has been
performing well over the past several quarters. Although results in
UK have been disappointing for the last few quarters, the company
has taken several steps to transform its international
business.
Though Assurant Health has been underperforming for some time,
the company is preparing its health business to showcase impressive
results. In response to the challenging marketplace, the company
entered into a network agreement with AETNA Signature
Administrators and a marketing agreement with American Family. It
also focused on the distribution of individual health policies to
its customers, which may lead to an improvement in the segment's
contribution.
Assurant Specialty Property, which derives most of its premium
from creditor-placed homeowners insurance, is witnessing a decline
in outstanding mortgage loans. This trend is expected to continue
until the mortgage market rebounds.
The Employee Benefits segment has been pressed by persistent
economic challenges in the small group sector, resulting in higher
lapse rates and lower premium growth on in-force policies.
Management expects a modest sequential improvement in the segment's
dental business, owing to a growth in voluntary products. However,
strong and broad-based growth is unlikely to happen until the
economy recovers fully.
In the absence of substantial organic growth, Assurant has
maintained its bottom-line earnings via an active capital
management strategy. From 2004 to 2010, Assurant utilized 48% of
its free cash flow for repurchasing shares.
The company also raised its annual dividend by 17% in May 2012,
marking the ninth straight year of dividend hike. It had returned
$295 million in share repurchases and dividend in 2012 to the
investors. A low debt-to-capital ratio and no debt maturing until
2014 also reflect a solid capital position.
Assurant is conservatively placed with respect to its investment
portfolio. It has below-average investment allocations in risky
assets, such as commercial real estate, European sovereign debt,
BBB bonds and subprime /Alt-A securities. We believe this
conservative portfolio to 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 ) and
Conesco Inc. ( CNO ).
The stock currently retains a Zacks #3 Rank, which translates into
a short-term Hold rating.
ASSURANT INC (AIZ): Free Stock Analysis Report
CNO FINL GRP (CNO): Free Stock Analysis Report
PRINCIPAL FINL (PFG): Free Stock Analysis
Report
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