Assurant, Inc. (AIZ)

AIZ 
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Assurant Inc. (AIZ)

Q4 2010 Earnings Call

February 3, 2011 8:00 am ET

Executives

Melissa Kivett - SVP, IR

Rob Pollock - President and CEO

Mike Peninger - CFO

Chris Pagano - CIO and Treasurer

Analysts

Mark Finkelstein - Macquarie

Steven Schwartz - Raymond James & Associates

Jeff Schuman - KBW

Ed Spehar - BofA Merrill Lynch

Mark Hughes - SunTrust

Chris Giovanni - Goldman Sachs

John Nadel - Sterne, Agee

Presentation

Operator

Good day, everyone, and welcome to the Assurant fourth quarter 2010 financial results conference call. (Operator Instructions)

I would now like to turn the call over to Ms. Melissa Kivett, Senior Vice President, Investor Relations.

Melissa Kivett

Thanks so much. Welcome to Assurant's fourth quarter and full year 2010 earnings conference call. Joining me with prepared remarks are Rob Pollock, our President and Chief Executive Officer of Assurant; and Mike Peninger, our Chief Financial Officer. Prepared remarks will last about 20 minutes and then we'll open up the call to questions. Chris Pagano, our Chief Investment Officer and Treasurer, is also here for questions.

Yesterday, we issued a news release announcing our fourth quarter and full year 2010 financial results. The news release as well as corresponding supplemental financial information is available on our website at assurant.com.

Some of the statements we make during today's call may contain forward-looking information and our actual results may differ materially from those projected in those forward-looking statements. We caution you about relying on these forward-looking statements and direct you to consider the discussions of both risks and uncertainties associated with our business and results of operations contained in our 2009 Form 10-K and subsequently filed Forms 10-Q and 8-K, which can also be accessed from our website. The company undertakes no obligation to update or revise any forward-looking statement.

Additionally, this presentation will contain non-GAAP financial measures, which we believe are meaningful in evaluating the company's performance. For more detailed disclosures on these non-GAAP measures, the most comparable GAAP measures and a reconciliation of the two, please refer to yesterday's earnings release and the supplementary financial information that we have on our website at assurant.com.

Now I'm glad to turn the call over to Rob.

Rob Pollock

Thanks, Melissa, and good morning everyone. As I reflect on the quarter and full year 2010, I'm pleased that we again delivered strong operating results. We expanded our customer base, reduced expenses, broadened our product portfolio and carefully managed our capital.

For the full year of 2010, net operating income increased 20%. Our operating return on equity was 12%. Our diluted book value per share, excluding AOCI, increased 6%. This is after taking a goodwill impairment charge resulting principally from healthcare reform.

Our strong capital position provides us with a great deal of financial flexibility. We ended the year with $880 million in corporate capital, an increase of nearly 24% from the end of 2009, even after returning more than $600 million to shareholders in repurchases and dividends.

During 2010, we were able to take more than $800 million in dividends from our operating companies as both Specialty Property and Solutions provided dividends that exceeded their operating earnings. Excluding our $250 million capital buffer against tail-event risks, we began 2011 with more than $600 million in deployable capital. We anticipate that operating dividends in 2011 will be at least equal to operating company earnings.

We increased our dividend for the seventh consecutive year. During the year, we repurchased 15.2 million shares of our stock or 13% of shares outstanding at 2009 yearend. Through January 31, we have repurchased an additional 1.7 million shares. These actions demonstrate the ability of our specialty platform to generate free cash flow.

With that as background, let me provide a few trends and market insights for each of our businesses. Assurant Solutions continued to focus on developing new client relationships and distribution channels. Their efforts generated solid improvement in gross written premiums during the year. The full year 2010 combined ratio in our international business improved by 480 basis points versus 2009, led by improvements in the U.K.

Our Preneed life insurance business continued to deliver strong results with double-digit increases in new sales and operating profits over 2009. We expect Preneed will continue its good performance in 2011.

Moving to Solutions' other businesses, we continue to invest in new business opportunities while managing our expenses. Domestically, we are diversifying our client base by the original equipment manufacturer or OEM channel. Internationally, we've added new wireless clients during 2010. We continue to find the wireless market filled with growth opportunities. We also added clients in Latin America for both service contracts and credit insurance. We expect this will continue in 2011.

Growth is more challenging in Europe, but our product offerings are well positioned for when the European economy recovers. In 2011, earned premiums will be affected by the continued run-off of domestic credit insurance and certain large service contract clients that are no longer in business.

Remember, service contract revenue is deferred through the manufacturer's warranty period. But our new client additions have set the stage for Solutions to deliver revenue growth over the longer term.

Let's turn to Assurant Specialty Property, which produced another terrific quarter and year. The foundation of our business is the specialty processing platform. Our loan tracking technology and our risk management expertise allow us to deliver superior service to our clients and enable us to provide insurance protection for client portfolios without underwriting individual properties.

During the last two years, the lack of major storm activity improved our results. However, during the fourth quarter of 2010, we experienced about $15 million in pre-tax catastrophe-related losses due to the wind and hailstorms in Arizona. I'm proud to say that we again responded quickly for our customers in their time of need.

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