Assurant Inc., a provider of specialized insurance and insurance-related products and services, reported its results for the year and fourth quarter ended Dec. 31, 2003.
J. Kerry Clayton, president and CEO, said, “We are pleased with our operating performance. Our 2003 net operating income of over $329 million represents the best year in our 25-year history. This performance demonstrates the merits of our diversified market approach and proven strategy of building leading specialty insurance businesses.”
Assurant reported 2003 net income of $185.7 million, or $1.30 per pro forma diluted share (see footnote 1 at the end of this release). This compares to 2002 net income before cumulative effect of change in accounting principle of $259.7 million, or $1.83 per pro forma diluted share. Per share calculations are based on 142,268,106 shares currently outstanding.
Assurant reported 2003 net operating income (see footnote 2 at the end of this release) of $329.2 million, or $2.31 per pro forma diluted share, compared to 2002 net operating income of $327.0 million, or $2.30 per pro forma diluted share. Net operating income excludes capital gains and losses, IPO related expenses, and interest premium on redemption of preferred securities of subsidiary trusts.
For the fourth quarter of 2003, Assurant reported a net loss of ($77.6) million, or ($0.55) per pro forma diluted share, versus net income of $60.4 million, or $0.42 per pro forma diluted share, in the fourth quarter of 2002.
Assurant reported net operating income for the most recent quarter of $74.8 million, or $0.53 per pro forma diluted share, versus net operating income for the year-ago quarter of $77.3 million, or $0.54 per pro forma diluted share.
Net earned premiums in 2003 grew 8.4% to $6.2 billion from $5.7 billion in 2002. This was driven by growth in Assurant’s two largest segments, Assurant Solutions and Assurant Health.
Net investment income in the most recent year decreased 3.9 percent to $607.3 million from $631.8 million in 2002, as the yield on average invested assets decreased to 5.61 percent in 2003 from 6.20 percent in 2002 due to the low interest rate environment. Total invested assets increased 11.1 percent to $11.9 billion in 2003 from $10.7 billion in 2002.
Fourth quarter 2003 net earned premiums grew 10.8 percent to $1.6 billion from $1.5 billion in the fourth quarter of 2002. Net investment income in the most recent quarter decreased 5.5 percent to $150.7 million from $159.5 million in the same quarter last year.
“Having completed our IPO on February 5th, we are looking forward to our first year as an independent public company with confidence,” said Clayton. “Our business model is strong and we are well capitalized to take advantage of an improving economic climate for many of our product lines. We will maintain our focus on specialty insurance markets and we will continue to emphasize profitability by leveraging our unique capabilities – disciplined risk management, complex administration and system skills, and strong distribution relationships with market leaders.”
Assurant Solutions 2003 net operating income was $133.2 million, up slightly from 2002 net operating income of $132.2 million. Fourth quarter 2003 net operating income of $33.1 million grew 4.7 percent from $31.6 million in the fourth quarter of 2002.
Assurant Solutions 2003 net earned premiums grew 13.7 percent to $2.4 billion from $2.1 billion in 2002. Net earned premiums in the fourth quarter 2003 grew 10.9 percent to $625.0 million from $563.5 million in the fourth quarter of 2002.
Net operating income increased modestly despite higher catastrophe losses, including those related to the California wildfires and Hurricane Isabel, lower investment income as a result of the low interest rate environment, and increased expenses related to the growth in new business. Assurant Solutions premium growth for the full year and fourth quarter 2003 was due to growth in the specialty property and extended service contracts product lines.
Assurant Health 2003 net operating income grew 28.1 percent to $121.0 million from $94.4 million in 2002. Net operating income for the fourth quarter 2003 grew 46.4 percent to $28.4 million from $19.4 million in the year-ago quarter.
Assurant Health 2003 net earned premiums grew 9.6 percent to $2.0 billion from $1.8 billion in 2002. Net earned premiums in the fourth quarter of 2003 grew 14.0 percent to $533.7 million from $468.2 million in the fourth quarter of 2002.
Improved profitability in 2003 and in the fourth quarter was mainly attributable to premium growth in individual medical and to improved benefit loss ratios. Assurant Health membership at the end of 2003 totaled 1.137 million, an increase of about 11 percent from membership of 1.025 million at the end of 2002.
Assurant Employee Benefits
Assurant Employee Benefits 2003 net operating income increased 7.9 percent to $61.6 million from $57.1 million in 2002. Fourth quarter 2003 net operating income decreased 35.8 percent to $12.9 million from $20.1 million in the same period in 2002.
Assurant Employee Benefits 2003 net earned premiums grew 1.9 percent to $1.3 billion from $1.2 billion in 2002. Net earned premiums in the fourth quarter of 2003 grew 10.8 percent to $336.1 million from $303.5 million in the fourth quarter of 2002.
Net operating income for 2003 reflected the results of a reserve adequacy study conducted in the third quarter that resulted in a net reduction in reserves of approximately $12 million after-tax. 2003 results were adversely affected by lower net investment income. Underlying experience in 2003 improved in disability, remained the same in dental, and worsened in group life compared to 2002. Fourth quarter 2003 results were in line with the first three quarters, adjusting for the reserve reduction. In 2003, management’s focus on maintaining underwriting discipline in an increasingly competitive environment resulted in a reduction of new business sales.
Assurant Preneed 2003 net operating income declined 27.5 percent to $36.0 million from $49.7 million in 2002. Fourth quarter 2003 net operating income decreased 24.4 percent to $8.2 million from $10.8 million in the same period of 2002.
Assurant Preneed 2003 net earned premiums decreased 1.6 percent to $529.3 million from $537.7 million in 2002. Assurant Preneed fourth quarter 2003 net earned premiums decreased 0.6 percent to $128.4 million from $129.2 million in the fourth quarter of 2002.
Net operating income for the year and fourth quarter 2003 decreased mainly due to lower spreads between investment yields generated by the investment portfolio and rates credited on reserves. Management has lowered crediting rates on new business and in-force blocks of business that it has the ability to adjust and has taken cost cutting initiatives. The decrease in net earned premiums for the year and fourth quarter 2003 was primarily due to a decrease in sales from a major distributor.
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