Assurant, Inc. (AIZ)
Q1 2010 Earnings Call Transcript
April 29, 2010 8:00 am ET
Melissa Kivett – SVP, IR
Rob Pollock – President and CEO
Mike Peninger – EVP and CFO
Chris Pagano – EVP and Treasurer; President and Chief Investment Officer, Assurant Asset Management
Ed Spehar – Bank of America-Merrill Lynch
John Nadel – Sterne, Agee
Steven Schwartz – Raymond James & Associates
Mark Hughes – SunTrust
Mark Finkelstein – Macquarie
Sam Hoffman – Lincoln Square Capital
Previous Statements by AIZ
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Good day, everyone, and welcome to the Assurant first quarter 2010 financial results conference call. Today’s call is being recorded. All lines will be in a listen-only mode for the duration of the call and there will be an opportunity to ask questions following the prepared remarks.
I would now like to turn the call over to Ms. Melissa Kivett, Senior Vice President, Investor Relations. Please go ahead, Ms. Kivett.
Great. Thanks so much. Welcome to Assurant’s 2010 First Quarter Earnings Conference Call. Joining me with prepared remarks are Rob Pollock, our President and Chief Executive Officer, Mike Peninger, our Chief Financial Officer. Prepared remarks will last about 20 minutes and then we will open the call to questions. Chris Pagano, our Chief Investment Officer and Treasurer, is also here for questions.
Yesterday, we issued a news release announcing our first quarter 2010 financial results. The news release as well as the corresponding supplemental financial information is available on our Web site at assurant.com.
Some of the statements we make during today’s call may contain forward-looking information and our actual results may differ materially from those projected in these forward-looking statements. We caution you about relying on these forward-looking statements and direct you to consider the discussions of risks and uncertainties associated with our business and results of operations contained in our 2009 Form 10-K and subsequently filed forms 10-Q and 8-K, which also can be found on our Web site.
The Company undertakes no obligation to update or revise any forward-looking statements. Additionally, this presentation will contain non-GAAP financial measures, which we believe are meaningful in evaluating the Company’s performance. For more detailed disclosures on these non-GAAP measures, the most comparable GAAP measures, and a reconciliation of the two, please refer to yesterday’s earnings release and the supplementary financial information that we posted on our Web site.
Now, I’d like to turn the call over to Rob Pollock.
Thanks, Melissa, and good morning, everyone. 2010 is off to a good start for Assurant. We reported solid results for the first quarter across our mix of businesses. Specific actions initiated in 2009 are gaining traction and improving profitability. We continue to create opportunities for growth instead of waiting for economic recovery. Our strong financial position allows us to deploy corporate capital. At the same time we remain mindful of the challenges that the sluggish economy in many parts of the world and health care reform legislation that was recently enacted.
Let me begin by providing some financial highlights on the quarter as well as our 2010 business outlook. In the first quarter we generated an annualized operating return on equity of 12.9%. Results were driven by strong performance at Assurant’s Specialty property and favorable operating results at Assurant benefits. We grew our book value per diluted share by 3% from year-end. This excludes the impact of accumulated other comprehensive income for AOCI.
We have repurchased shares of what we believe are very attractive prices and below book value per share. Through last Friday, April, 23, we have repurchased 4.8 million shares for about a $157 million. These actions are consistent with our capital management strategy and highlight the free cash flow we’re able to generate.
Now, let me make a few comments on the businesses. Specialty Property had a terrific quarter. We achieved an excellent combined ratio driven by both favorable expense and mass ratios. Although our top line results were good we continue to expect pressure on our revenues looking ahead for three reasons.
First, the overall number of mortgage loans number of mortgage loans outstanding is declining, particularly, subprime since new loan originations are at low levels. Second, we expect placement rates to peak soon and return to more normal levels in the years ahead. And finally, portfolio consolidation will tighten margins requiring us to be even more vigilant in managing expenses. The team at Specialty Property continues to execute at a high level and maintains its leading position in the credit replace business.
At Assurant Solutions, we were satisfied with our growth in target areas under difficult market conditions. Our business continues to be impacted by high unemployment in the UK. In addition, the European economy is struggling to recover. We were pleased to see sequential improvement in the international combined ratio. We have made solid progress in reshaping our European business during the past several months and we expect international combined ratios to continue to improve on average by 100 basis points to 200 basis points per quarter for the rest of the year.
In the U.S. Assurant Solutions continues to create opportunities to grow rather than wait for economic recovery. We were pleased to enter into a contract with Lowe’s the home improvement retailer which will be later this year.
Our strategy to partner with original equipment manufacturers is also gaining traction and we are benefiting from our preneed partnership with SCI which continues to add new funeral homes.