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Assurant, Inc. (AIZ) recently made its debut in The Value Line Investment Survey. Although it is an insurance company, which are complicated but fit a relatively understandable mold, it is very different than most of its peers. In fact, it might be more precise to say that it doesn’t really have any directly comparable peers, but is still an insurance provider.

The company has four main business units: Solutions, Specialty Property, Health, and Employee Benefits. With the exception of the cryptically named Solutions group, the others would seem to be somewhat straight forward, but, in fact, none of these operations fits into an industry standard category.

Assurant Solutions provides such products as extended service contracts and warranties, preneed life insurance, and credit insurance. This group offers protection both domestically and internationally. The products are generally provided through third parties like death care providers (preneed life insurance), credit card companies (credit insurance), and retailers (service contracts and warranties). Assurant believes that its relationships with these intermediaries are an important and differentiating aspect of its business model, and such relationships take on a material level of importance since the loss of an intermediary could have a major impact on revenues and profits. This group represented 36% of the top line in 2011 and 27% of the bottom line.

Assurant Health offers medical insurance and short-term medical insurance to individuals, families, and small employers. Sold primarily through independent insurance agents, the company focuses on offering a flexible array of products that meet customer needs for coverage and cost. The group is currently the smallest contributor to the overall company, representing 23% of the top line, but just 8% of the bottom line. Assurant believes that the proposed health care law changes will prove beneficial to this unit over the long-term, as more customers will be created by the proposed insurance mandate. Part of the logic behind this is based on the company’s focus on small contracts (individuals, single families, and companies with fewer than 50 employees).

Assurant Employee Benefits provides group disability, dental, vision, life and supplemental worksite products as well as individual dental products. Group products can be funded by the employer or voluntarily by the employee. Assurant also provides reinsurance of disability and life products through its wholly owned Disability Reinsurance Management Services, Inc. subsidiary. This segment accounts for 15% of the top line and 8% of the bottom line. This is likely the most “normal” business line the company offers—though at 15% of the top line it is not nearly as material as the other operating divisions.

The last category of products the company offers is also its most important, Assurant Specialty Property. This group is not the largest contributor to revenues, representing 26% of the top line, but is by far the largest with regard to the bottom line, representing 57% of profits. This makes the group incredibly important to the company’s long-term performance. Here, Assurant works with mortgage companies to monitor the insurance coverage on the homes on which the mortgage companies have written mortgages. If there is a lapse in coverage, Assurant attempts to contact the person who took out the mortgage to remedy the situation. If no proof of coverage is provided, Assurant writes a policy on the dwelling, but not the contents of the dwelling. This is logical, as the company’s customer is the mortgage provider, which only cares about the dwelling. The interesting thing here is that the housing malaise of recent years has actually been beneficial to this business line in some ways.

There are intricacies involved in each of the individual insurance products offered by the company, but what should be clear is that it is a niche provider in virtually all that it does. In several markets it has a material presence, but that presence is still in a non-standard market. So, a direct comparison to other insurers is difficult. That can, however, be a good thing, as it can lead the company’s performance to diverge from typical insurers (such as benefiting from the housing crisis). Note, however, that the Specialty Property group is more highly exposed to catastrophes than many other insurers because it covers a disproportionate number of homes in areas prone to earnings destroying weather events, i.e. hurricanes. 

Inherent to the insurance business model is using the money from policies to invest. Here, Assurant has done a good job of maintaining its returns in spite of difficult times. That said, investing in any capacity has risks and no matter how conservatively or adeptly a portfolio is managed, there is always the risk of sub-par performance. One or two years of relatively poor returns, however, are unlikely to materially undermine Assurant’s long-term prospects.

As an insurance company, Assurant is subject to a lengthy list of regulations. It must comply with rules at the local, state, and federal levels, and, for its foreign businesses, the rules imposed in the non-U.S. markets in which it operates. Running afoul of any of the many regulations it faces could have a material top and bottom line impact. Regulatory changes are of similar importance.

Also meaningful is the financial strength ratings provided by third parties, such as Moody’s and A.M. Best. Although Assurant currently has a solid financial strength rating, a drop could quickly result in a reduced flow of business. The company must manage its business in a manner that maintains its good standing.

Another important aspect of Assurant’s business model is acquisitions. The company has historically made use of this method of growth to good effect, but buying and integrating companies can be difficult and distracting to management. Any problems here could result in a period of poor performance or write-downs of the value of the acquired business. Note, too, that access to capital to fund purchases are important—any market disruption that impacts Assurant’s access to the public markets for debt and equity could make deals more difficult to consummate.

Assurant is not your run of the mill insurance company. That can be both a positive and a negative trait. Regardless, the company is well worth examining for investors seeking diversification. Interested subscribers should monitor Value Line’s quarterly coverage of the company, while keeping an eye out for Supplementary reports highlighting late-breaking news.


At the time of this article's writing, the author did not have positions in any of the companies mentioned.