Specialty insurance provider Assurant Inc. (AIZ) has declared an increase in its share buyback authorization program, which comes on the heels of an approval to increase dividend announced last week.
The board of directors of Assurant approved the repurchase of up to $600 million of its shares. The new authorization comes on top of $170 million remaining under the existing program as of April 30, 2012.
Assurant will use its healthy cash flow from operations to buyback shares. The company ended the first quarter with $600 million in total holding company capital and has a strong balance sheet with a low debt ratio of 18.2% and no debt maturing until 2014.
Assurant has been aggressively buying back shares. In the first four months of 2012, the company has already bought back 3.3 million shares for a total of $135 million.
The company has bought back approximately 43% of its common shares over the past eight years. It, however, suspended share repurchases in September 2007, when the company faced a SEC investigation regarding certain loss mitigation products. However, the company resumed its buyback plan a year later.
Assurant has a consistent track record of paying back money to its shareholders. Last week, the company hiked its annual dividend payment by 17%, representing the ninth dividend increase since 2004.
Assurant has kept its shareholders happy by actively managing its capital via dividend payment and share buybacks. Share buyback along with dividend payments constituted a total payout ratio of 135% in 2011, which implies that the company distributed 135% of its net income for paying dividends and buying back shares.
Assurant’s different business units are challenged by macroeconomic weakness. While its Employment Benefits business is suffering from a weak payroll, its health business outlook remains uncertain given the impending Health Care Reform decision.
Though its Specialty property business is performing well, earnings from this segment are expected to decline given increased regulatory scrutiny over the rate reduction of forced place insurance. The company’s Solutions business is also suffering from weakness in the U.K though the domestic results continue to be favorable.
Overall, we expect top-line growth at Assurant to remain weak, at least till first half of 2013. In such a scenario, the company’s attractive capital deployment plan will play an important role in maintaining investor confidence.
Assurant closely competes with Allstate Corp. (ALL), W. R. Berkley Corp. (WRB), The Travelers Companies Inc. (TRV). The stock currently retains a Zacks # 3 Rank, which translates into a short-term Hold rating. Considering the fundamentals, we are also maintaining our long-term Neutral recommendation on the shares.
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