Assurant 2011 Annual Report Download - page 23

ASSURANT, INC.2011 Form10-K 15
PARTI
ITEM 1A Risk Factors
member economies, and likewise a ect U.S.  nancial institutions, the
stability of the global  nancial markets and any economic recovery.
In addition, general in ationary pressures may a ect the costs of
medical and dental care, as well as repair and replacement costs on our
real and personal property lines, increasing the costs of paying claims.
In ationary pressures may also a ect the costs associated with our
preneed insurance policies, particularly those that are guaranteed to grow
with the Consumer Price Index (or“CPI”). Conversely, de ationary
pressures may a ect the pricing of our products.
Our earnings and book value per share could be
materially aff ected by an impairment of goodwill.
Goodwill represented $639,097 of our $27,115,445 in total assets as
of December31,2011. We review our goodwill annually in the fourth
quarter for impairment or more frequently if circumstances indicating
that the asset may be impaired exist. Such circumstances could include a
sustained signi cant decline in our share price, a decline in our actual or
expected future cash  ows or income, a signi cant adverse change in the
business climate, or slower growth rates, among others. Circumstances
such as those mentioned above could trigger an impairment of some or
all of the remaining goodwill on our balance sheet, which could have
a material adverse e ect on our pro tability and book value per share.
For more information on our annual goodwill impairment testing and
the goodwill of our segments, please see “Item7—MD&A—Critical
Factors A ecting Results—Value and Recoverability of Goodwill.”
Competitive pressures or regulators could force us
to reduce our rates.
 e premiums we charge are subject to review by regulators. If they
consider our loss ratios to be too low, they could require us to reduce
our rates. In addition, competitive conditions may put pressure on
our rates. In either case, signi cant rate reductions could materially
reduce our pro tability.
Catastrophe losses, including man-made catastrophe
losses, could materially reduce our profi tability and have
a material adverse eff ect on our results of operations
and fi nancial condition.
Our insurance operations expose us to claims arising out of catastrophes,
particularly in our homeowners, life and other personal lines of business.
We have experienced, and expect to experience, catastrophe losses that
materially reduce our pro tability or have a material adverse e ect on
our results of operations and  nancial condition. Catastrophes can
be caused by various natural events, including, but not limited to,
hurricanes, windstorms, earthquakes, hailstorms, severe winter weather,
 res, epidemics and the long-term e ects of climate change, or can be
man-made catastrophes, including terrorist attacks or accidents such
as airplane crashes. While the frequency and severity of catastrophes
are inherently unpredictable, increases in the value and geographic
concentration of insured property, the geographic concentration of
insured lives, and the e ects of in ation could increase the severity of
claims from future catastrophes.
Catastrophe losses can vary widely and could signi cantly exceed our
expectations.  ey may cause substantial volatility in our  nancial
results for any  scal quarter or year and could materially reduce our
pro tability or materially adversely a ect our  nancial condition. Our
ability to write new business also could be a ected.
Accounting rules do not permit insurers to reserve for such catastrophic
events before they occur. In addition, the establishment of appropriate
reserves, including reserves for catastrophes, is an inherently uncertain
and complex process.  e ultimate cost of losses may vary materially
from recorded reserves and such variance may have a material adverse
e ect on our results of operations and  nancial condition.
If the severity of an event were su ciently high (for example, in the
event of an extremely large catastrophe), it could exceed our reinsurance
coverage limits and could have a material adverse e ect on our results of
operations and  nancial condition. We may also lose premium income
due to a large-scale business interruption caused by a catastrophe
combined with legislative or regulatory reactions to the event.
We use catastrophe modeling tools that help estimate our exposure
to such events, but these tools are based on historical data and other
assumptions that may provide projections that are materially di erent
from the actual events.
Because Assurant Specialty Property’s lender-placed homeowners and
lender-placed manufactured housing insurance products are designed
to automatically provide property coverage for client portfolios, our
concentration in certain catastrophe-prone states like Florida, California
and Texas may increase in the future. Furthermore, the withdrawal of
other insurers from these or other states may lead to adverse selection
and increased use of our products in these areas and may negatively
a ect our loss experience.
 e exact impact of the physical e ects of climate change is uncertain.
It is possible that changes in the global climate may cause long-term
increases in the frequency and severity of storms, resulting in higher
catastrophe losses, which could materially a ect our results of operations
and  nancial condition.
Our group life and health insurance operations could be materially
impacted by catastrophes such as a terrorist attack, a natural disaster, a
pandemic or an epidemic that causes a widespread increase in mortality
or disability rates or that causes an increase in the need for medical
care. In addition, with respect to our preneed insurance policies, the
average age of policyholders is approximately 73 years.  is group is
more susceptible to certain epidemics than the overall population, and
an epidemic resulting in a higher incidence of mortality could have a
material adverse e ect on our results of operations and  nancial condition.
A.M. Best, Moody’s, and S&P rate the fi nancial strength
of our insurance company subsidiaries, and a decline
in these ratings could aff ect our standing in the insurance
industry and cause our sales and earnings to decrease.
Ratings are an important factor in establishing the competitive position
of insurance companies. A.M. Best rates most of our domestic operating
insurance subsidiaries. Moody’s rates six of our domestic operating
insurance subsidiaries and S&P rates seven of our domestic operating
insurance subsidiaries.  ese ratings are subject to periodic review by
A.M. Best, Moody’s, and S&P, and we cannot assure that we will be able
to retain them. In 2011 for example, S&P lowered the  nancial strength
rating of two of our rated life and health insurance subsidiaries from
BBB+ to BBB, citing pressure on Assurant Health’s earnings resulting
from changes related to the A ordable Care Act. Moody’s currently has