Assurant 2011 Annual Report Download - page 38

ASSURANT, INC.2011 Form10-K30
PARTII
ITEM 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations
General
We report our results through  ve segments: Assurant Solutions, Assurant
Specialty Property, Assurant Health, Assurant Employee Bene ts, and
Corporate and Other.  e Corporate and Other segment includes
activities of the holding company,  nancing expenses, net realized
gains (losses) on investments, interest income earned from short-term
investments held, interest income from excess surplus of insurance
subsidiaries not allocated to other segments, run-o Asbestos business,
and additional costs associated with excess of loss reinsurance and ceded
to certain subsidiaries in the London market between 1995 and 1997.
 e Corporate and Other segment also includes the amortization of
deferred gains associated with the portions of the sales of FFG and LTC,
which were sold through reinsurance agreements as described below.
The following discussion covers the twelve months ended
December31,2011 (“Twelve Months 2011”), twelve months ended
December31,2010 (“Twelve Months 2010”) and twelve months
ended December31,2009 (“Twelve Months 2009”). Please see the
discussion that follows, for each of these segments, for a more detailed
analysis of the  uctuations.
Executive Summary
Net income increased $266,662 to $545,839 for Twelve Months
2011 from $279,177 for Twelve Months 2010. Twelve Months 2010
included a $306,381 non-cash goodwill impairment charge. Absent
this charge, net income decreased $39,719 or 7%.  e decline is
primarily attributable to decreased net income in our Assurant Specialty
Property segment mainly due to an increase in reportable catastrophe
losses of $87,673 (after-tax) in Twelve Months 2011 and declines in
net income at our Assurant Health and Assurant Employee Bene ts
segments. Partially o setting these items was improved net income in
our Assurant Solutions segment and an $80,000 release of a capital
loss valuation allowance related to deferred tax assets during Twelve
Months 2011.
Assurant Solutions net income increased to $141,553 for Twelve Months
2011 from $103,206 for Twelve Months 2010. Twelve Months 2010
included an intangible asset impairment charge of $30,948 (after-tax)
related to a client noti cation of non-renewal of a block of domestic
service contract business. Consumer spending remains sluggish in the
U.S. and economic uncertainty persists in Europe. However, revenues
from our service contract o erings, including wireless, especially in
Latin America, are expanding. Client contract renewals remain strong,
driven by our ability to respond to evolving customer needs. Preneed
sales increased in 2011 compared with 2010, primarily due to our strong
relationship with SCI. Total net earned premiums and fees declined
slightly in 2011 due to an approximate $160,000 reduction in premiums
from the continued run-o of the domestic credit business and service
contracts sold through former clients. Overall, modest premium growth
is expected in 2012, even with the recent noti cation of an upcoming
loss of a domestic wireless client. We continue to allocate resources to
the wireless business due to its potential for growth and its intersection
with our core capabilities.
Assurant Specialty Property net income decreased $119,222, to $305,065
for Twelve Months 2011 from $424,287 for Twelve Months 2010.
 e decline is primarily due to an increase in reportable catastrophe
losses of $87,673 (after-tax) in Twelve Months 2011.  ere are fewer
mortgage loans originating in the U.S. and foreclosures are projected
to increase. Despite these trends, our alignment with market leaders,
speci cally specialty servicers, has allowed us to gain new portfolios,
which have helped to o set a decline of loans in the overall marketplace.
 is was evident during the fourth quarter of 2011 as our clients gained
new loan portfolios, mitigating the overall decrease in the number
of tracked loans. We placed a signi cant portion of our reinsurance
program in January2012, including issuing a new catastrophe bond.
 e integration of the June2011 SureDeposit acquisition has allowed
us to expand our product o erings in the multi-family housing market.
We expect net earned premiums and fees in 2012 to be consistent
with 2011 amounts, re ecting growth in multi-family housing and
a modest decline in lender-placed homeowners premiums. As our
product mix changes, we anticipate our expense and non-catastrophe
loss ratios will rise. Overall results are subject to catastrophe losses,
changes in placement rates for lender-placed policies, and mortgage
loan origination volume.
Assurant Health net income decreased to $40,886 for Twelve Months
2011 from $54,029 for Twelve Months 2010.  e decrease was partly
attributable to accrued premium rebates of $27,033 (after-tax) associated
with the MLR requirement included in the A ordable Care Act for
our comprehensive health coverage business. Our 2011 operating costs
dropped signi cantly due to organizational and operational expense
initiatives that will better position us to succeed under health care reform.
We have redesigned many of our products in response to health care
reform. Sales of lower cost products, o ering more limited bene ts than
traditional major medical insurance, grew in 2011 and we expect that
trend to continue in 2012. Our new relationship with Aetna Signature
Administrators® broadens the network of health care providers to which
our major medical customers have access and improves a ordability
of those products, while improving engagement with our distributers.
We expect this new relationship to improve our major medical sales.
Beginning in 2012, any favorable loss development relative to 2011
reserves will increase the MLR rebate liability instead of  owing into
earnings as was the case in 2011.
Assurant Employee Bene ts net income decreased to $43,113 for
Twelve Months 2011 from $63,538 for Twelve Months 2010. Lower
results were primarily attributable to less favorable disability and life
insurance loss experience, partially o set by improved dental insurance
experience. During the fourth quarter of 2011 our disability incidence
rates increased compared with prior years. We expect continued growth
in net earned premiums of our voluntary and supplemental products.
However, overall growth in our Assurant Employee Bene ts business
will be challenging in the near term, due to the loss of two DRMS
clients and the lack of small employers’ payroll growth. Our strategic
focus on distribution through key brokers and our expanded o erings
continue to improve sales of voluntary, or employee-paid products.
In addition, savings from expense initiatives are being redeployed to
targeted growth initiatives.