Assurant 2014 Annual Report Download - page 48

34 ASSURANT, INC. – 2014 Form 10-K
PART II
ITEM 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations
General
We report our results through fi ve segments: Assurant Solutions,
Assurant Specialty Property, Assurant Health, Assurant Employee
Benefi ts, and Corporate and Other. The Corporate and Other
segment includes activities of the holding company, fi nancing
and interest expenses, net realized gains (losses) on investments
and investment income earned from short-term investments
held. The Corporate and Other segment also includes the
amortization of deferred gains associated with the sales of FFG
and LTC, through reinsurance agreements as described below.
The following discussion covers the twelve months ended
December 31, 2014 (“Twelve Months 2014”), twelve months
ended December 31, 2013 (“Twelve Months 2013”) and twelve
months ended December 31, 2012 (“Twelve Months 2012”).
Please see the discussion that follows, for each of these
segments, for a more detailed analysis of the fl uctuations.
Executive Summary
Consolidated net income decreased $18,000, or 4%, to $470,907
for Twelve Months 2014 from $488,907 for Twelve Months 2013.
The decrease was primarily related to lower net income at
Assurant Specialty Property, a net loss at Assurant Health and
a $19,400 (after-tax) loss associated with a divested business.
Please see Note 4 to the Consolidated Financial Statements
for further information. These items were partially offset
by improved results in our Assurant Solutions and Assurant
Employee Benefi ts segments, lower expenses in the Corporate
and Other segment, an increase in net realized gains on
investments and a favorable change in tax liabilities.
Assurant Solutions net income increased $93,796, or 75%, to
$218,948 for Twelve Months 2014 from $125,152 for Twelve
Months 2013. The increase was primarily due to continued
growth in covered mobile devices and favorable domestic loss
experience. Results also benefi ted from operational effi ciencies
achieved from restructuring efforts that began in 2013.
Net earned premiums and fees increased 19.2% primarily
refl ecting continued growth in mobile subscribers and mobile
client marketing programs. In addition, net earned premiums
grew due to contributions from a large service contract client,
as well as from increased sales of vehicle service contracts.
These items were partially offset by the unfavorable impact of
changes in foreign exchange rates in Latin America and Canada.
Overall, we expect Assurant Solutions 2015 net income and net
earned premiums and fees to approximate Twelve Months 2014
amounts. Continued growth from our mobile and vehicle service
contract businesses will be offset by the loss of a domestic
mobile tablet program, reduced mobile carrier marketing
programs and declines at certain domestic retailers. Foreign
currency exchange rate volatility will also impact results.
Assurant Specialty Property net income decreased $81,829, or
19%, to $341,757 for Twelve Months 2014 from $423,586 for
Twelve Months 2013. The decrease was primarily due to lower
placement and premium rates and higher non-catastrophe
losses in our lender-placed insurance business.
Net earned premiums and fees increased in Twelve Months
2014 compared with Twelve Months 2013. The increase was
mainly attributable to the residual benefi t of the previously
disclosed discontinuation of a client quota share reinsurance
agreement and recent acquisitions. These items were partially
offset by lower placement and premium rates.
The Twelve Months 2014 expense ratio increased 400 basis
points compared with Twelve Months 2013. The increase
was primarily due to growth in fee-based businesses, which
have higher expense ratios than our insurance products, and
lower lender placed premiums.
For 2015, we expect Assurant Specialty Property net income
and net earned premiums to decrease compared with Twelve
Months 2014, refl ecting continued normalization of lender-
placed insurance business, the previously announced loss
of client business and the sale of ARIC. Contributions from
multi-family housing and mortgage solutions businesses to
partially offset the decline. Overall results may be affected
by catastrophe losses.
Assurant Health results decreased $69,605, or 1,188%, to a
net loss of $63,748 for Twelve Months 2014 from net income
of $5,857 for Twelve Months 2013. The loss was primarily
attributable to increased claims from new Affordable Care Act
qualifi ed policies, refl ecting the guaranteed issue requirements
and the health profi les of many fi rst-time buyers, as well
as higher non-deductible expenses and reform fees related
to the Affordable Care Act. 2014 pricing assumptions were
made prior to last year’s open enrollment period regarding
the risk pool of consumers buying policies in a guaranteed
issue environment. At that time, we believed that existing
policyholders who were required to transition to Affordable
Care Act plans would be healthier than new enrollees.
However, rule changes announced in November 2013 and
March 2014 allowed policyholders to extend their existing
coverage through 2016. This resulted in Affordable Care Act
business having worse morbidity characteristics than we
had assumed and 2014 policy pricing could not be modifi ed.
Increased claims were partially offset by estimated recoveries
from the Affordable Care Act risk mitigation programs.
Estimated recoveries from the Risk Adjuster program are based
on each carrier’s risk relative to that of the overall market.
The expense ratio for Twelve Months 2014 declined
200 basis points compared with Twelve Months 2013 primarily
due to continued operational discipline. Twelve Months
2014 includes a $19,937 annual insurer fee related to the
Affordable Care Act.
In 2015 we expect Assurant Health’s results to vary based
on claims development on Affordable Care Act policies and