Q1 2011 Earnings Call
April 28, 2011 8:00 a.m. ET
Melissa Kivett - SVP, IR
Rob Pollock - President and CEO
Mike Peninger - CFO
Chris Pagano - CIO and Treasurer
Mark Finkelstein – Macquarie
Ed Spehar - BofA Merrill Lynch
John Nadel - Sterne Agee
Mark Hughes - SunTrust
Jeffrey Schuman - KBW
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Melissa Kivett - SVP, IR
Thanks operator. Welcome to Assurant's first quarter 2011 earnings conference call. Joining me with prepared remarks are Rob Pollock, 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 first quarter 2011financial 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. Our actual results may differ materially from those projected in the forward-looking statements. Additional information concerning factors that could cause actual results to differ materially from those projected in any forward-looking statements can be found in our 2010 Form 10-K, which can be accessed from our website.
The company undertakes no obligation to update or revise any forward-looking statement. Additionally, the 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’s posted on our website at assurant.com.
Now I’ll turn the call over to Rob.
Rob Pollock - President and CEO
Thanks, Melissa, and good morning everyone. Our first quarter results are consistent with our commitments made during our investor day last month. Though overall growth remains a challenge, we were encouraged by sales results in several of our targeted areas. We continue to provide products and services that offer value to our customers.
For the quarter, our annualized operating return on equity was 12.5% and our diluted book value per share, excluding accumulated other comprehensive income increased 3% since year end.
Turning toward the businesses, I’ll begin with Assurant Solutions, which is off to a good start this year with profits up by $9 million versus the first quarter of last year. We are starting to see the payback from Solutions’ risk management improvements implemented during the past few years.
The addition of new clients sets the stage for longer-term revenue growth at Solutions. However, 2011 revenues will be similar to 2010 levels because of the runoff of Circuit City business and the continued decline in the U.S. credit insurance business.
Pre-need had another good quarter in both sales and profitability as our partnership with SCI continues to help grow this business.
Assurant Solutions products and services revolve around asset protection, peace of mind, and ease of doing business – a winning value proposition. Looking ahead, we believe Solutions is on track to produce a sustainable double-digit return on equity in 2012.
Let’s turn next to Assurant Specialty Property, which had another strong quarter. We continue to see market contraction in the number of mortgage loans outstanding. Our results were essentially flat compared to last year after adjusting both periods for disclosed items.
New clients added in 2010 helped to sustain the number of loans we track, which helped maintain gross and premiums. Process improvements are controlling expenses even as the business adds new clients and tracks more loans.
Adjacent products including renter’s insurance contributed nicely to overall results. This is an area we are targeting for growth and we are encouraged by the results. Net earned premiums in our other product categories were up 5% from the prior year.
We realize there are many changes being contemplated for the lending and mortgage servicing industries. Assurant Specialty Property complies with the regulations applicable to our business and will continue to do so.
We believe lender-placed insurance, which provides required coverage without any underwriting of individual properties, remains an important backstop for homeowners and lenders. Assurant Specialty Property is well-positioned to serve this market by providing great customer service supported by a sophisticated tracking platform. During 2011, we expect continued good performance at Specialty Property.
Weather activity will be the major variable impacting earnings. The recent April storm activity has created hardships for individuals we insure. I am proud to say our employees have responded quickly and we are making claim payments to policyholders in their time of need.
Longer-term, we anticipate placement rates for our lender-placed products will return to lower levels and we are managing our business accordingly. We believe this transition will take several years.
Next I’ll turn to Assurant Health. First quarter sales results and expense reductions demonstrate early progress in adapting to the new healthcare landscape. Both are key to transforming this business. We recognize, however, we are in the early innings, and must remain vigilant to achieve success.
This quarter we accrued a new obligation for premium rebates in our financial statements to comply with the minimum loss ratio requirements of healthcare reform. The sales of our new product portfolio increased sequentially.