If one division is sabotaging an otherwise profitable firm, it’s often best to simply eliminate the lagging segment. When the odds of improvement are questionable, management probably won’t be doing shareholders any favors by attempting a costly turnaround.

Such moves may seem difficult, but in the end, management will have much more latitude to invest resources in segments with higher returns.  

It’s a strategy that New York City-based Assurant, Inc. (NYSE: AIZ) is wisely pursuing with its struggling health insurance division.

In April, the broad-based insurer announced plans to sell or close the division, Assurant Health, which has been unable to compete with large health insurance providers since the Affordable Care Act, or ACA, took effect. Like many other smaller industry players, Assurant couldn’t efficiently handle ACA-related administrative costs, nor could it comply with onerous requirements regarding the allocation of premiums.

Thus, a once-profitable segment is now deep in the red. After reporting a net operating loss of nearly $64 million for all of last year, Assurant Health bled another $84 million in the first quarter of this year. The loss was primarily responsible for a 64% drop in company-wide net operating income from the year-ago quarter.

Big changes are already afoot, though. In June, Assurant ceased sales of individual major medical, small-group and short-term health insurance policies. It plans to stop selling individual and family health coverage on ACA-established exchanges next year. The goal is to exit the health insurance business by the end of 2016, though existing policies will remain in effect.

Also in June, management announced that it found a buyer — specialty insurer National General Holdings Corp. (Nasdaq: NGHC) — for the health insurance segment’s small-employer and supplemental health insurance plans. Assurant’s relatively small employee benefits lineup, which includes dental, disability and life coverage, is also up for sale. Management expects to divest those assets within a few months.

The total cost to exit the health insurance market will be in the $175-to-$250 million range. However, the move could free up about $400 million in cash, according to analysts at Macquarie Research. Thus, Assurant should soon have ample resources available for investment in other parts of the business, along with capital distributions to shareholders.

Assurant already returned $101 million to shareholders in the first quarter through dividends and share buybacks. Management was distributing most of the $114 million proceeds from the January 2015 divestiture of American Reliable Insurance, a provider of agricultural insurance and certain other types of narrowly-focused coverage. The unit had limited growth prospects in the face of mandated regulatory price controls and other factors.

Looking ahead, the company plans to invest in its two big profit centers: Assurant Solutions and Assurant Specialty Property. With combined annual revenue of more than $7 billion, the two segments account for roughly 70% of Assurant’s top line. And both are generating double-digit growth.

The larger of the two, Assurant Solutions, offers numerous forms of specialty coverage for individuals and businesses, such as insurance for mobile devices, electronic goods and jewelry. The segment also sells extended warranties on electronics and appliances.

Assurant commonly achieves preferred-provider status through contracts with industry leaders such as Sprint Corp. (NYSE: S) and Service Corporation International (NYSE: SCI), which is the largest provider of funeral products and services in the United States. Assurant Solutions sells prepaid funeral insurance to SCI’s customers and protection plans to Sprint’s wireless customers.

Assurant Specialty Property follows a similar strategy, partnering with leaders in the financial, real estate and other industries to market a broad line of unique property coverage. For example, it offers renters insurance through Wells Fargo & Co. (NYSE: WFC) and extended auto warranties through USAA (a diversified financial services firm based in Texas). Other key offerings include homeowners policies, federal flood insurance, antique home and auto coverage and identity theft insurance.

Assurant is boosting both segments through acquisitions, such as last October’s $71 million purchase of French mobile insurance broker CWI Group. At the time of the buyout, CWI had policies on 420,000 mobile devices and annual revenue of $39 million. The deal augments Assurant Solution’s relatively small, but growing European presence, which also includes operations in Britain, Germany, Italy and Spain.

Last year, Assurant Specialty Property invested nearly $80 million in two acquisitions — StreetLinks LLC and eMortgage Logic — that conferred a variety of sought-after mortgage-related services such as appraisals, property condition reports and market analytics. StreetLinks and eMortgage Logic nicely complement Field Asset Services, Inc., another small firm that Assurant purchased in 2013 for its capabilities in property inspection and restoration.

Risks To Consider: Increased regulation of product-related insurance could pose meaningful headwinds. For example, Morningstar analysts warn that the Consumer Financial Protection Bureau has been evaluating extended warranties, which have drawn fire because of their cost. This could lead to regulations that render such warranties less profitable for Assurant and other providers.

Action To Take –> By eliminating its health insurance and benefits operations, Assurant is taking the right steps to unlock shareholder value. Between divestiture costs and lost revenue, the firm is expected to post near-term tepid results. Profits are expected to slip this year, while sales are expected to shrink around 17% next year. Yet after the upcoming divestitures, investors will more squarely focus on the two remaining business segments, each of which should drive solid long-term profitability, as well as steady growth of Assurant’s dividend (currently $1.20 a share with a decent 1.8% yield.)

Note to bargain hunters: With a price-to-earnings ratio of 12.6, Assurant’s stock trades at nearly a 20% discount to the insurance industry. Yet upside potential exceeds 85% in the coming five years, based on estimates for earnings to compound 8% annually during that time.

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