Assurant, Inc. (NYSE:AIZ) reported fourth-quarter 2017 net operating income of $1.84 per share, which beat the Zacks Consensus Estimate by 16.5%. Also, the figure skyrocketed 300% from the year-ago period. Lower reportable catastrophe loss and the absence of lender-placed regulatory expenses in Global Housing, drove this improvement.
The company remains optimistic on building a strong foundation in 2018 with the closing of its buyout of The Warranty Group and leveraging the company’s expanded scale and experience in key Housing and Lifestyle markets in order to achieve sustainable long-term, profitable growth.
Total revenues declined 2.8% year over year to $1.7 billion, mainly due to lower premiums earned, fees and other income plus net investment income. However, the top line surpassed the Zacks Consensus Estimate by 3.9%.
Net investment income deteriorated 12.2% year over year to $118.6 million.
Total benefits, losses and expenses decreased 10.6% to $1.5 billion, mainly owing to a substantial decline in policyholder benefits as well as selling, underwriting, general and administrative expenses.
For 2017, Assurant reported net operating income per share of $3.98, surpassing the Zacks Consensus Estimate by 7.6% but deteriorating 10.9% year over year.
Total revenues of $6.3 billion fell 9.6% year over year.
Assurant has revised its reportable segments in keeping with its evolved global operating model, which supported its multi-year transformation. As of fourth-quarter 2016, Assurant reported through four segments — Global Housing (formerly known as the Assurant Specialty), Global Lifestyle (formerly included in the Assurant Solutions), Global Preneed (formerly included in the Assurant Solutions) and Corporate & Other.
Net earned premiums, fees and others at Global Housing fell about 1.5% year over year to $562.8 million, primarily due to anticipated lower lender-placed insurance revenue, net of reduced catastrophe premiums. Also, reduced demand for originations and field services in mortgage solutions led to this downside. However, growth in multi-family housing and revenues from new lender-placed loans onboarded in 2017, partially offset this downside.
The company reported net operating income of $89.6 million, which skyrocketed 729.6% from the year-ago quarter. This stellar performance was mainly attributable to lower reportable catastrophes and the absence of lender-placed regulatory expenses compared with the prior-year quarter.
Net earned premiums, fees and others at Global Lifestyle slipped 1.7% year over year to $913.6 million. This deterioration was primarily attributable to a change in program structure for a large service contract client in this particular segment.
Net operating income of $42.8 million increased 23.7% year over year. The upside was driven by higher contributions from Connected Living, fueled by global mobile programs including a $5 million client recoverable and growth from vehicle protection. However, results were partially offset by declines in credit insurance.
Net earned premiums, fees and others at Global Preneed grew 9% year over year to $45.9 million, primarily owing to growth in Canada along with realization of revenues from prior period sales of the Final Need product in the United States.
Net operating income plunged 57.8% year over year to $4.6 million, mainly due to a software impairment worth $5 million.
Net operating loss at Corporate & Other was $29.1 million, substantially wider than the year-ago quarter’s net operating loss of $20.3 million. Lower net investment income and a charge related to workforce reductions, worth $4.6 million, were responsible for the deterioration.
Assurant’s financial position remains strong with around $540 million in corporate capital as of Dec 31, 2017. Total assets rose 7.2% to $31.8 billion as of Dec 31, 2017 from $29.7 billion at year-end 2016.
Share Repurchase and Dividend Update
The company’s total share buybacks and dividends amounted to $169 million in the fourth quarter. While share buyback totaled $139 million, dividend payout totaled $30 million.
The company has $293.4 million remaining under the current repurchase authorization.
Assurant estimates net operating income (excluding reportable catastrophe loss) to grow between 10% and 14% from the reported results of $412 million in 2017. The growth in earnings is likely to reflect a lower effective tax rate and considerable rise in underlying segment earnings (while adjusting for $12.5 million of net benefits in 2017 disclosed items). Declines in lender-placed insurance and credit insurance might be offset by a profitable increase in Connected Living and multi-family housing as well as vehicle protection.
Notably, with the sanction of the U.S. Tax Cuts and Jobs Act, Assurant’s consolidated effective tax rate is anticipated to decrease to 22-23% from 33% with nearly one-third of the savings to be reinvested to support future growth.
Assurant projects operating earnings per share (excluding catastrophe loss) to grow in excess of net operating income, representing the benefit of a lower consolidated effective tax rate, moderate growth in underlying earnings as well as capital management.
The company expects Global Housing to witness a year-over-year decline in its net operating income excluding reportable catastrophe loss before taking into consideration the recently sanctioned tax reform. Further, decline in the ongoing lender-placed insurance normalization is anticipated as the housing market continues to improve. However, continued growth in multi-family housing and better performance in mortgage solutions are likely to partially offset this downside. Additional savings from expense management efforts are to be realized toward the end of 2018 and further into 2019. Higher net operating income is expected after reflecting a lower effective tax rate of about 20%. Revenues are projected to be close to 2017 levels as decrease in lender-placed insurance normalization are offset by growth in multi-family housing and mortgage solutions.
Global Lifestyle’s net operating income is likely to increase before taking into consideration the recently sanctioned tax reform. Profitable growth is likely to be fueled by newly introduced mobile programs as well as higher contributions from vehicle protection as well as expense efficiencies. The ongoing decline in credit insurance will partially offset this probable upside. Lower effective tax rate with a portion of the tax savings to be reinvested for future growth, is anticipated to boost results. Moreover, the company projects revenues to improve from growth in Connected Living and vehicle protection, globally.
Global Preneed is anticipated to experience an increase in its revenues and earnings, mainly on the back of the company’s alignment with market leaders before taking into consideration the recently sanctioned tax reform. Lower effective tax rate with a portion of the tax savings to be reinvested for future growth, is anticipated to boost results.
Assurant expects full-year net operating loss to be close to 2017’s loss of $63 million before considering the recently sanctioned tax reform at Corporate & Other. The loss will increase after taking into account an effective tax rate of about 20%.
Assurant carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Performance of Other Insurers
Among other players from the insurance industry having reported fourth-quarter earnings, the bottom line of Brown & Brown, Inc. (NYSE:BRO) , MGIC Investment Corporation (NYSE:MTG) and The Progressive Corporation (NYSE:PGR) beat the respective Zacks Consensus Estimate.
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