Assurant's (AIZ) Q2 Earnings Top, Revenues Lag Estimates

Assurant, Inc. (NYSE:AIZ) reported second-quarter 2016 net operating income of $1.42 per share that beat the Zacks Consensus Estimate by 0.7%. However, the bottom line plunged 24.5% from $1.88 per share earned in the year-ago quarter. The ongoing normalization of the lender-placed insurance business, lower service contract contributions from North American retailers, loss of a tablet program and higher tax expense at Corporate led to the year-over-year deterioration.

Total revenue came in at $1.65 billion, down 37.2% year over year, due to lower premiums earned and a decline in net investment income. Also, it missed the Zacks Consensus Estimate of $1.70 billion by 2.9%.

Net investment income, excluding Assurant Health runoff operations, declined 28.6% year over year to $119.8 million.

Total benefits, losses and expenses decreased 40% to $1.6 billion mainly due to a significant decline in policyholder benefits and selling, underwriting, general and administrative expenses.

Segmental Performance

Net earned premiums, fees and others at Assurant Solutions inched up 2.9% to $958.2 million year over year on growth in mobile programs as well as vehicle protection business. However, effect of foreign exchange volatility and the loss of the tablet program partially offset the improvement.

Net operating income was up approximately 1% year over year to $61.4 million.

Net earned premiums, fees and others at Assurant Specialty Property declined 12.1% year over year to $561.2 million. The decrease was primarily attributable to the ongoing normalization of the lender-placed insurance business including the loss of business as well as lower real-estate owned policy volume. Growth in mortgage solutions and multi-family housing businesses partially offset the downside.

Net operating income of $56.9 million plunged 34.9% year over year. The downside was attributable to the ongoing normalization of the lender-placed insurance business including the loss of business, lower real-estate owned policy volume and higher weather-related claims.

Financial Position

Assurant’s financial position remains strong with around $725 million in corporate capital as of Jun 30, 2016. As of Jun 30, 2016, total assets amounted to $29.8 billion, down 0.8% year over year.

Share Repurchase and Dividends Update

The company’s total share buybacks and dividends amounted to $226 million in the second quarter. Also, Assurant bought back around 2.3 million shares worth $193 million over the same period. Through Jul 22, 2016, the company spent about $32 million to repurchase an additional 0.4 million shares and has $469 million remaining in the current repurchase authorization. Moreover, the company paid dividends worth $33 million to its shareholders.

Business Update

In the second quarter, Assurant invested $9 million in mobile technology capabilities. In addition, the company set aside an amount of $45 million for the Jul 1, 2016 closing of a title and valuation services company.

2016 Outlook

The company expects Assurant Solutions’ net earned premiums, fees and net operating income to improve from the 2015 levels. The insurer anticipates an improvement in overall results in the second half of 2016 owing to new mobile programs, realized expense savings and improved international profitability. However, foreign exchange volatility, lower service contract revenues from legacy North American retail clients as well as continued declines in credit insurance are likely to adversely impact results.

Assurant Specialty Property’s net earned premiums and net operating income are likely to decline due to the ongoing normalization of lender-placed insurance business. However, increased efficiencies and expense-saving initiatives will somewhat mitigate the deterioration. Through gain in market shares, the company envisions expansion in multi-family housing and mortgage solutions businesses. However, overall results are likely to be affected by catastrophe losses incurred in the quarter.

Assurant Health is anticipated to fully exit the health insurance market in 2016. During the remainder of the period before exit, the company is likely to incur $13–$23 million pre-tax of extra exit-related charges and overhead expenses, which had been excluded from the premium deficiency reserve calculation. Dividends from this segment are expected to be around $475 million for the full year, of which $149 million was received in the first six months of 2016.

Zacks Rank and Performance of Other Insurers

Currently, Assurant carries a Zacks Rank #4 (Sell). Among the other players from the insurance industry that have reported their second-quarter earnings so far, the bottom line at RLI Corp. (NYSE:RLI) and Progressive Corp. (NYSE:PGR) missed their respective Zacks Consensus Estimates, while Brown & Brown Inc.’s (NYSE:BRO) earnings beat the same.

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