Stocks

Assurant (AIZ) to Divest Global Preneed for $1.3 Billion Cash

Assurant AIZ has agreed to divest its Global Preneed business to CUNA Mutual Group for $1.3 billion in cash. The divestiture, pending regulatory approval and closing conditions, is expected to be completed in the third quarter of 2021. The sale will help Assurant intensify focus on connected world businesses and specialty property and casualty offerings.

Concurrently, the company announced its capital deployment plan with the net proceeds and outlook for 2021.

Transaction Details

Per the definitive agreement, the deal is valued at 1.2x adjusted book value (including AOCI) or 2.8x adjusted book value (excluding AOCI) or 27x 2020 GAAP earnings.

Sale of its prearranged funeral insurance and final expense business, Global Preneed, and related legal entities and assets  including American Memorial Life Insurance Company, Union Security Insurance Company and Assurant Life of Canada is expected to generate $1.2 billion in net proceeds.

Transaction Rationale

Assurant’s divestiture is a strategic step toward intensifying focus on market-leading lifestyle and housing businesses. Connected World businesses represented about two-third of 2020 adjusted Global Lifestyle and Global Housing segment net operating income in 2020, nearly double the amount in 2015.

This divestiture accelerate Assurant’s focus on growing the fee-based, low-risk, less interest rate sensitivity, service-oriented, capital-light businesses that presently consist of 52% segmental revenues. Management estimates the contribution to continue growing in double digits over the longer term.

Assurant intends to deploy 25% of the net proceeds in organic investment as well as acquisitions to ramp up Connected World business that consists of Connected Living, Global Automotive and Multifamily Housing.

CUNA Mutual Group, a broad financial services provider, will be able to serve the middle market better, leveraging Assurant’s superior prearranged funeral insurance and final expense solutions business. The business brings $6.5 billion of face value in-force for CUNA Mutual Group.

Moreover, the agreement includes a multiyear extension of the 23-year automobile mechanical repair coverage partnership between the companies.

Capital Deployment

The company intends to deploy 75% of the net proceeds to buy back shares in its effort to enhance shareholders value. This is in addition to returning $470 million remaining under Assurant targeted three-year $1.35 billion capital return objectives to shareholders by 2021.

2021 Outlook

Effective first-quarter 2021, Global Preneed and its related legal entities will be reported as discontinued operations. Assurant estimates 2021 net operating income per share, excluding catastrophe losses and Global Preneed, to be in line with 2020 reported results of $10.80 or increase 9% over 2020 adjusted net operating income per share of $9.88.

The increase should be driven by earnings growth in Global Lifestyle, improved Corporate & Other results and share repurchases. These combined is expected to offset the earnings-per-share impact of the Global Preneed divestiture.

Assurant also projects high single-digit earnings increase in Global Lifestyle, driven by Connected Living, and improved results in Global Financial Services. Global Housing net operating income is estimated to decrease as non-catastrophe loss experience normalizes from very favorable 2020 levels, as well as modestly higher catastrophe reinsurance costs.

Corporate and Other net operating loss is expected to lower to $90 million, reflecting continued expense discipline, including the anticipated elimination of indirect enterprise support costs associated with Global Preneed divestiture by 2021 end.

Share Price Performance

Shares of Assurant have lost 1% year to date against the industry’s increase of 15.3%. Focus on Specialty Property and Casualty and Lifestyle Protection is likely to continue driving its shares.


 

The company currently carries a Zacks Rank #4 (Sell).

Stocks to Consider

Some better-ranked stocks from the same industry are Old Republic International Corporation ORI, Markel Corporation MKL and James River Group Holdings JRVR.
    
Old Republic delivered an earnings surprise of 87.50% in the last reported quarter. The stock sports Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Markel delivered an earnings surprise of 75.11% in the last reported quarter. The stock sports Zacks Rank #1.

James River delivered an earnings surprise of 6.86% in the last reported quarter. The stock carries a Zacks Rank #2 (Buy).

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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