Assurant 2014 Annual Report Download - page 38

ASSURANT, INC. – 2014 Form 10-K24
PART I
ITEM 1A Risk Factors
Due to the structure of our commission
program, we are exposed to risks related to
the creditworthiness and reporting systems of
some of our agents, third party administrators
and clients in Assurant Solutions and Assurant
Specialty Property.
We are subject to the credit risk of some of the clients
and agents with which we contract in Assurant Solutions
and Assurant Specialty Property. For example, we advance
agents’ commissions as part of our preneed insurance product
offerings. These advances are a percentage of the total face
amount of coverage. There is a one-year payback provision
against the agency if death or lapse occurs within the fi rst
policy year. If SCI, which receives the largest shares of
such agent commissions, were unable to fulfi ll its payback
obligations, this could have an adverse effect on our operations
and fi nancial condition.
In addition, some of our clients, third party administrators
and agents collect and report premiums or pay claims on our
behalf. These parties’ failure to remit all premiums collected
or to pay claims on our behalf on a timely and accurate basis
could have an adverse effect on our results of operations.
The inability of our subsidiaries to pay
suffi cient dividends to the holding company
could prevent us from meeting our obligations
and paying future stockholder dividends.
As a holding company whose principal assets are the capital
stock of our subsidiaries, Assurant, Inc. relies primarily on
dividends and other statutorily permissible payments from
our subsidiaries to meet our obligations for payment of
interest and principal on outstanding debt obligations, to
repurchase shares, to acquire new businesses and to pay
dividends to stockholders and corporate expenses. The
ability of our subsidiaries to pay dividends and to make such
other payments depends on their statutory surplus, future
statutory earnings, rating agency requirements and regulatory
restrictions. Except to the extent that Assurant, Inc. is a
creditor with recognized claims against our subsidiaries,
claims of the subsidiaries’ creditors, including policyholders,
have priority over creditors’ claims with respect to the assets
and earnings of the subsidiaries. If any of our subsidiaries
should become insolvent, liquidate or otherwise reorganize,
our creditors and stockholders will have no right to proceed
against their assets or to cause the liquidation, bankruptcy
or winding-up of the subsidiary under applicable liquidation,
bankruptcy or winding-up laws. The applicable insurance laws
of the jurisdiction where each of our insurance subsidiaries
is domiciled would govern any proceedings relating to that
subsidiary, and the insurance authority of that jurisdiction
would act as a liquidator or rehabilitator for the subsidiary.
Both creditors and policyholders of the subsidiary would
be entitled to payment in full from the subsidiary’s assets
before Assurant, Inc., as a stockholder, would be entitled to
receive any distribution from the subsidiary.
The payment of dividends by any of our regulated domestic
insurance company subsidiaries in excess of specifi ed amounts
(i.e., extraordinary dividends) must be approved by the
subsidiary’s domiciliary state department of insurance.
Ordinary dividends, for which no regulatory approval is
generally required, are limited to amounts determined
by a formula, which varies by state. The formula for the
majority of the states in which our subsidiaries are domiciled
is based on the prior year’s statutory net income or 10%
of the statutory surplus as of the end of the prior year.
Some states limit ordinary dividends to the greater of these
two amounts, others limit them to the lesser of these two
amounts and some states exclude prior year realized capital
gains from prior year net income in determining ordinary
dividend capacity. Some states have an additional stipulation
that dividends may only be paid out of earned surplus. If
insurance regulators determine that payment of an ordinary
dividend or any other payments by our insurance subsidiaries
to us (such as payments under a tax sharing agreement or
payments for employee or other services) would be adverse
to policyholders or creditors, they may block such payments
that would otherwise be permitted without prior approval.
Future regulatory actions could further restrict the ability
of our insurance subsidiaries to pay dividends. For more
information on the maximum amount our subsidiaries could pay
us in 2015 without regulatory approval, see “Item 5—Market
For Registrant’s Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities—Dividend Policy.”
Assurant, Inc.’s credit facilities also contain limitations on
our ability to pay dividends to our stockholders if we are in
default or such dividend payments would cause us to be in
default of our obligations under the credit facilities.
Any additional material restrictions on the ability of insurance
subsidiaries to pay dividends could adversely affect Assurant,
Inc.’s ability to pay any dividends on our common stock and/
or service our debt and pay our other corporate expenses.
The success of our business strategy depends
on the continuing service of key executives and
the members of our senior management team,
and any failure to adequately provide for the
succession of senior management and other key
executives could have an adverse effect on our
results of operations.
Our business and results of operations could be adversely
affected if we fail to adequately plan for and successfully
carry out the succession of our senior management and other
key executives.