Assurant 2014 Annual Report Download - page 32

ASSURANT, INC. – 2014 Form 10-K18
PART I
ITEM 1A Risk Factors
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 different 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, Texas
and New York may increase. 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 affect our loss experience.
The exact impact of the physical effects 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 affect our results of operations and fi 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. This 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 effect on our
results of operations and fi 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 affect our standing in the insurance
industry and cause our sales and earnings
to decrease.
Ratings are important considerations 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. These 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 July 2014, Moody’s downgraded
the fi nancial strength ratings for Time Insurance Company
and John Alden Life Insurance Company from Baa1 to Baa2
due to pressures on earnings and concerns about the impact
of the Affordable Care Act.
Rating agencies may change their methodology or
requirements for determining ratings, or they may become
more conservative in assigning ratings. Rating agencies or
regulators could also increase capital requirements for the
Company or its subsidiaries. Any reduction in our ratings could
materially adversely affect the demand for our products
from intermediaries and consumers and materially adversely
affect our results. In addition, any reduction in our fi nancial
strength ratings could materially adversely affect our cost
of borrowing.
As of December 31, 2014, contracts representing approximately
28% of Assurant Solutions’ and 25% of Assurant Specialty
Property’s net earned premiums and fee income contain
provisions requiring the applicable subsidiaries to maintain
minimum A.M. Best fi nancial strength ratings ranging from
“A” or better to “B” or better, depending on the contract.
Our clients may terminate these contracts or fail to renew
them if the subsidiaries’ ratings fall below these minimums.
Additionally, certain contracts in the DRMS business,
representing approximately 5% of Assurant Employee Benefi ts’
net earned premiums for the year ended December 31, 2014
contain provisions requiring the applicable subsidiaries to
maintain minimum A.M. Best fi nancial strength ratings of “A-”
or better. DRMS clients may terminate the agreements and, in
some instances, recapture in-force business if the ratings of
applicable subsidiaries fall below “A-”. Similarly, distribution
and service agreements representing approximately 19% of
Assurant Health’s earned premiums gross of rebates for the
year ended December 31, 2014 contain provisions requiring
the applicable subsidiaries to maintain minimum A.M. Best
fi nancial strength ratings of “A-” or better, for the distribution
agreements, or “B+” or better, for the service agreement.
If the ratings of applicable Assurant Health subsidiaries fall
below these threshold ratings levels, distribution and service
partners could terminate their agreements. Termination or
failure to renew these agreements could materially and
adversely affect our results of operations and fi nancial
condition.
We face risks associated with our international
operations.
Our international operations face political, legal, operational
and other risks that we may not face in our domestic operations.
For example, we may face the risk of restrictions on currency
conversion or the transfer of funds; burdens and costs of
compliance with a variety of foreign laws; political or economic
instability in countries in which we conduct business, including
possible terrorist acts; infl ation and foreign exchange rate
fl uctuations; diminished ability to enforce our contractual
rights; differences in cultural environments and unexpected
changes in regulatory requirements, including changes in
regulatory treatment of certain products; exposure to local
economic conditions and restrictions on the repatriation of
non-U.S. investment and earnings; and potentially substantial
tax liabilities if we repatriate the cash generated by our
international operations back to the U.S.
If our business model is not successful in a particular country,
we may lose all or most of our investment in that country.
As we continue to expand in select worldwide markets, our
business becomes increasingly exposed to these risks identifi ed
above where certain countries have recently experienced
economic instability.