) has been on an uptrend since the beginning of this quarter,
reflecting investors' enthusiasm about its developments so far.
Among others A.M. Best Co. affirmed Assurant's issuer credit
ratings (ICR) at 'bbb'. The outlook on the ratings was pulled up
to positive from stable.
A.M. Best acknowledges Assurant's diverse product base and
distribution platform, established presence in various niche
markets, adequate risk-adjusted capitalization, solid operating
earnings, low debt-to-capital ratio and adequate interest
coverage ratio. The company has sufficient financial flexibility
with a moderate debt ratio of approximately 27.3% as of Sep, 30,
2013. Moreover, it has $350 million in a commercial paper
program, fully backed by letters of credit.
The rating agency affirmed the financial strength rating (FSR)
and the ICR of "A" and "a", respectively, on the Assurant's
Property and Casualty (P&C), and pulled up the rating outlook
to positive. It acknowledged the established presence of the
business in the North American markets. The rating agency stated
that the company is a leader in credit-related insurance
products, creditor placed hazard insurance, manufactured housing
insurance, vehicle service contracts and retail extended service
contracts. A.M. Best attributed the strong performance and solid
operating earnings of Assurant's P&C business over the past
five years, to its diverse product line.
However, the growth in Specialty Property in recent years has
nevertheless increased the segment's exposure to natural
catastrophes. Also, the increase in catastrophe retention limit
invites further earnings risk. Increased dependence on third
party reinsurance are some other headwinds. The rating agency,
however, said that it will monitor the company's performance in
the face of challenging macroeconomic conditions and developments
in the mortgage servicing industry.
The rating affirmation of Assurant's preneed companies in both
markets ??? the current U.S. domestic market and in Canada,
comes on the back of their established presence in the respective
markets. Units in both the countries have grown profitably,
displaying strong premium growth and at the same time maintaining
adequate risk-adjusted capitalization.
However, an offsetting factor to the ratings is the ongoing
low interest rate environment, given the long-duration nature of
the business. Moreover since the segment's domestic company gets
all of its business from Service Corporation International, there
is a chance of concentration risk.
The affirmation of FSR at "A-" and ICRs at "a-" of Assurant's
Employee Benefits segment - with upgrade of outlook to positive,
comes on the back of its niche position in the U.S. group dental,
disability and group life insurance market. The unit primarily
serves businesses with less than 500 employees. Though the unit
sells its products both on traditional as well as voluntary
basis, lately the emphasis has been on voluntary basis. The unit
also maintains pricing discipline on new business and renewals.
Expense and underwriting management along with innovative ways of
marketing are other positives. However, macroeconomic factors
will continue to adversely impact the segment's earnings.
The rating affirmation for Assurant's health subsidiaries come on
the back of the company's adequate presence in the individual and
small group major medical market. The rating agency is
appreciative of the segment's efforts of rolling out an
innovative product line with attractive features. The company has
also fared well in managing its costs. However, recently the
segment has witnessed adverse earnings experience due to pricing
actions and increase in tax rate.
Financial strength and credit ratings, which measures a company's
ability to meet policyholder obligations, are important factors
affecting public confidence and creditworthiness of a company,
and hence provide a company's competitiveness. Securing an
investment grade debt rating with a positive outlook reflects
optimism about Assurant's future performance
The rating agency may raise its ratings on Assurant if it
continues to show a strong operating performance and maintain
strong risk-adjusted capitalization.
However, negative rating actions cannot be ruled out in case
the balance sheet strength deteriorates to a level which is below
the rating agency's minimum requirement for the current ratings.
ASSURANT INC (AIZ): Free Stock Analysis
CHUBB CORP (CB): Free Stock Analysis Report
MONTPELIER RE (MRH): Free Stock Analysis
PRINCIPAL FINL (PFG): Free Stock Analysis
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On a separate development, Assurant's board of directors approved
an increase of $600 million of share buyback.
With respect to earnings performance, Assurant delivered positive
surprise in 3 of last 4 quarters with an average beat of 32.9%.
The latest price appreciation is certainly encouraging, but make
sure to keep a close watch of this firm in the near future before
investing in it.
Principal Financial Group Inc.
Montpelier Re Holdings Ltd.
) also carry investment grade ratings from A.M.Best.