Business Context and Reporting Period
Company: Assurant, Inc.
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: March 31, 2007
Business Overview: Assurant is a holding company providing specialized insurance products and services in North America and selected international markets. Operations are organized into five segments: Assurant Solutions, Assurant Specialty Property, Assurant Health, Assurant Employee Benefits, and Corporate & Other.
Key Financial Metrics
| Metric (in thousands) | Q1 2007 | Q1 2006 |
|---|---|---|
| Total Revenues | $2,057,263 | $1,929,782 |
| Net Income | $179,457 | $162,472 |
| Earnings Per Share (Diluted) | $1.45 | $1.23 |
| Net Investment Income | $216,896 | $192,562 |
| Net Cash from Operating Activities | $171,958 | $57,003 |
| Total Assets | $25,461,049 | $25,165,148 |
| Total Debt | $971,796 | $971,774 |
| Cash and Cash Equivalents | $759,835 | $987,672 |
Material Changes vs. Prior Period
- Profitability: Net income increased by 12% ($18.5 million) compared to Q1 2006. This was driven by growth in Assurant Specialty Property's creditor-placed homeowners business and favorable investment income in Assurant Employee Benefits.
- Revenue Growth: Total revenues rose 7% to $2.06 billion. Net earned premiums increased by $86.9 million, primarily due to growth in service contracts and international business within Assurant Solutions and Specialty Property.
- Investment Performance: Net investment income increased 13% to $216.9 million, largely due to higher income from real estate partnerships ($33.5 million in Q1 2007 vs. $14.7 million in Q1 2006).
- Cash Flow: Operating cash flow improved significantly by $115 million to $172 million, attributed to fewer hurricane loss settlements compared to the prior year.
- Segment Performance:
- Assurant Specialty Property: Net income rose 16% to $74.4 million, driven by a 45% increase in net earned premiums.
- Assurant Employee Benefits: Net income surged 51% to $28.9 million due to favorable group disability and life experience.
- Assurant Health: Net income declined 10% to $40.5 million due to a continuing decline in small employer group premiums.
Guidance, Outlook, Risks, and Unusual Items
- Accounting Changes: The company adopted SOP 05-1 and FIN 48 on January 1, 2007. These resulted in a cumulative charge of $5.8 million to retained earnings (not affecting current period net income). Q1 2006 included a $1.5 million cumulative effect of change in accounting principle related to FAS 123R.
- Capital Allocation: The company repurchased 1.42 million shares of common stock for $77.5 million during the quarter. A dividend of $0.10 per share was paid.
- Liquidity: The company maintains a $500 million commercial paper program and a $500 million revolving credit facility. No amounts were outstanding under the commercial paper program or credit facility at March 31, 2007.
- Risks and Contingencies:
- London Market Reinsurance: Ongoing disputes regarding excess of loss reinsurance programs from 1995-1997. Management believes current reserves are adequate, but outcomes remain uncertain.
- Regulatory Investigations: The company is cooperating with SEC and U.S. Attorney investigations into loss mitigation products and finite risk insurance. Management concluded a verbal side agreement existed regarding one reinsurer but believes the impact is immaterial.
Investor Verification Checklist
- Real Estate Investment Income: Verify the sustainability of the significant increase in investment income from real estate partnerships ($33.5M vs $14.7M prior year).
- Assurant Health Decline: Monitor the continuing decline in small employer group premiums and membership in the Assurant Health segment.
- Combined Ratios: Review the deterioration in combined ratios for Assurant Solutions (Domestic: 100.9%, International: 102.1%) and Assurant Specialty Property (75.8%) due to expansion costs and specific client experience.
- Reinsurance Reserves: Assess the adequacy of reserves related to the ongoing London market reinsurance disputes and potential future settlements.
- Share Repurchases: Confirm the remaining capacity under the share repurchase program ($496 million remaining as of Q1 2007).