We are reiterating our Neutral recommendation on
) as we remain concerned about the micro as well as macro economic
headwinds faced by its various business lines. While the Health
Business is subject to uncertainty related to the Health Care
Reform, its Employee Benefits business is suffering from high
unemployment. The Specialty line of business is likely to suffer
from declining outstanding mortgage loans.
We, however, expect the Solutions Business to record marginal
growth. Given the limited scope for top-line growth, it is evident
that earnings growth will depend on capital management, primarily
share buybacks, in the upcoming quarters. The Zacks Consensus
Estimate for second quarter earnings is currently pegged at $1.41
per share, reflecting a growth of 86% year over year. The company
is scheduled to release its second quarter results on July 25, 2012
after the market closes.
The top line at Assurant Solutions, which constitutes
approximately 35% of total revenues, has been performing well over
the past several quarters. Though results in UK have been
disappointing for some quarters, the company has taken several
steps for a turnaround in its international business.
Looking ahead, it is expected that international credit
insurance service contracts worldwide, including wireless and
pre-funded funeral products, will drive growth for Solutions. The
company has a solid sales pipeline in each of these areas.
Management expects overall premium growth for the segment to be
modest in 2012, with continued improvements expected in the later
Though Assurant Health has been underperforming for some time,
its profitability in the first quarter of 2012 showed a sharp
improvement. 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
Management is quite optimistic about its specialty strategy,
which in its view is immune to Supreme Court ruling on the Health
Care Reform case. Meanwhile, the company is reducing overhead
expenses and trying to introduce more products to suit customer
However, 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.
Moreover, increasing government participation in home mortgages
is limiting the company's market share. In order to provide
additional product service to customers in this segment, the
company acquired SureDeposit in June, the market leader in rental
security deposit alternatives. The acquisition is expected to be
accretive to earnings right from the beginning.
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. A low
rate of recruitment and modest wage growth in the segment imply
that premium income from the segment will remain under pressure in
the near term.
The segment saw an increased sale of voluntary products
providing dental benefits. 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 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 13% in May 2011,
marking the eighth straight year of increase. The company also
returned $600 million in share repurchases and dividend in 2011. A
low debt-to-capital ratio also reflects a solid capital
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 will cushion earnings if the macro
Based in New York's financial district, Assurant competes with
Principal Financial Group Inc.
) among others. 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
LOEWS CORP (L): Free Stock Analysis Report
PRINCIPAL FINL (PFG): Free Stock Analysis
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