Assurant Eyes Long-Term Growth; Cat Losses Raise Concern

On Jun 9, 2016, we issued an updated research report on Assurant, Inc. (NYSE:AIZ) .

The multi line insurer’s first-quarter 2016 earnings outperformed the Zacks Consensus Estimate but declined year over year due to higher tax expenses and employee-related benefit costs at Corporate. Lower contributions from the Solution segment’s mobile business and North American retailers also hampered the quarterly results.

Management projects at least 15% annual increase in operating earnings per share and 15% growth in return on equity (ROE) by 2020.

The company is also restructuring its business for long-term growth. Hence, the company strives to boost segments like Specialty Property and Casualty and Lifestyle Protection.

Assurant remains focused on enhancing its core operations and returning more to its shareholders. To this end, the insurer divested its Employee Benefits business and is on track to exit the health insurance market in 2016.

Further, the multi line insurer is directing capabilities to targeted markets and enhancing operating efficiency. Also, at Specialty Property, the company is building up the fee-based capital-light businesses that presently accounts for 27% of the segmental revenues. Management estimates double-digit growth from the business restructuring going forward. In addition, management targets at least 20% operating ROE in the longer term.

Assurant has a strong capital management policy in place. So far, Assurant had been utilizing 50% of its free cash flow to repurchase shares. Also, a low debt-to-capital ratio reflects a solid capital position. The company intends to return $1.5 billion to its shareholders by the end of 2017, of which it has already paid back about 25% via share buybacks and dividend payments as of Apr 22, 2016.

However, Assurant Specialty Property, which accounts for nearly 60% of the company’s earnings, has been underperforming over the past couple of years. The segment displayed weakness in the first quarter as well due to the ongoing normalization of the lender-placed insurance business including the loss of business.

Moreover, the company’s results are expected be affected by catastrophe losses.

Zacks Rank and Stocks to Consider

Currently, Assurant carries a Zacks Rank #3 (Hold). Some better-ranked stocks are FBL Financial Group Inc. (NYSE:FFG) , James River Group Holdings, Ltd. (NASDAQ:JRVR) and Loews Corporation (NYSE:L) . Each of these stocks holds a Zacks Rank #2 (Buy).

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