Assurant 2014 Annual Report Download - page 63

49ASSURANT, INC. – 2014 Form 10-K
PART II
ITEM 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations
ASIC made a $14,000 (non tax-deductible) settlement payment
to the NYDFS. In addition, among other things, ASIC and ABIC
agreed to modify certain business practices in accordance
with requirements that apply to all New York-licensed lender-
placed insurers of properties in the state, and fi led their new
lender-placed program and new rates in New York, which
were approved in August 2014. The changes to the program
affect annual lender-placed hazard and real estate owned
policies issued in the State of New York, which accounted for
approximately $120,000 and $101,000 of Assurant Specialty
Property’s net earned premiums for Twelve Months 2014 and
Twelve Months 2013, respectively.
On October 7, 2013, the Company reached an agreement with
the Florida Offi ce of Insurance Regulation to fi le for a 10%
reduction in lender-placed hazard insurance rates in Florida.
The rates have been fi led and approved, and were effective
for new and renewing policies starting in the fi rst quarter of
2014. As part of the agreement, ASIC eliminated commissions
and client quota-share reinsurance arrangements to meet
new requirements of lender-placed insurance providers in
Florida. ASIC recorded approximately $283,000 and $547,000
of direct earned premiums in Florida for Twelve Months 2014
and Twelve Months 2013, respectively, for the type of policies
that are subject to the rate reduction.
At the federal level, in early 2013, the Consumer Financial
Protection Bureau published mortgage servicing guidelines
that incorporate certain requirements mandated by the
Dodd-Frank Act. In addition, the Federal Housing Finance
Agency (“FHFA”) issued new mortgage servicer guidelines,
which became effective in June 2014, that eliminated lender-
placed insurance-related commissions and client quota
share arrangements on properties securing government-
sponsored entity loans. At the directive of the FHFA, Federal
National Mortgage Association and Federal Home Loan
Mortgage Corporation each issued bulletins in December
2013 implementing these mortgage servicer guidelines.
Lender-placed insurance products accounted for 71% and 73%
of net earned premiums for Twelve Months 2014 and Twelve
Months 2013, respectively. The approximate corresponding
contributions to the segment net income in these periods
were 73% and 87%, respectively. The portion of total segment
net income attributable to lender-placed products may vary
substantially over time depending on the frequency, severity
and location of catastrophic losses, the cost of catastrophe
reinsurance and reinstatement coverage, the variability of
claim processing costs and client acquisition costs, and other
factors. In addition, we expect placement rates for these
products to decline.
Year Ended December 31, 2014 Compared
to the Year Ended December 31, 2013
Net Income
Segment net income decreased $81,829, or 19%, to $341,757
for Twelve Months 2014 from $423,586 for Twelve Months
2013. The decrease is primarily due to lower placement
and premium rates and higher non-catastrophe losses in
our lender-placed insurance business. Twelve Months 2013
results included a $14,000 (non-tax deductible) regulatory
settlement with the NYDFS.
Total Revenues
Total revenues increased $296,939, or 11%, to $2,909,053
for Twelve Months 2014 from $2,612,114 for Twelve Months
2013. The increase was primarily due to growth in lender-
placed homeowners insurance net earned premiums, as
well as fee income from the acquisitions of Field Asset
Services (“FAS”) and StreetLinks. Growth in lender-placed
homeowners insurance was primarily due to the previously
disclosed discontinuation of a client quota share reinsurance
agreement and loan portfolios added in 2013 and was partially
offset by the impact of lower placement and premium rates.
Total Benefi ts, Losses and Expenses
Total benefi ts, losses and expenses increased $431,943 or
22%, to $2,390,625 for Twelve Months 2014 from $1,958,682
for Twelve Months 2013. The loss ratio increased to 43.3% for
Twelve Months 2014 from 37.4% for Twelve Months 2013 due
to higher non-catastrophe losses from severe weather, high
severity fi re claims and lower premium rates from the new
lender-placed homeowners insurance product. Reportable
catastrophe losses for Twelve Months 2014 were $28,410
compared to reportable catastrophe losses for Twelve Months
2013 of $29,503. Reportable catastrophe losses include only
individual catastrophic events that generated losses to the
Company in excess of $5,000, pre-tax and net of reinsurance.
The expense ratio increased to 46.5% for Twelve Months 2014
from 42.5% for Twelve Months 2013 primarily due to growth in
fee-based businesses. Twelve Months 2013 included a $14,000
(non-tax deductible) regulatory settlement with the NYDFS.
Year Ended December 31, 2013 Compared
to the Year Ended December 31, 2012
Net Income
Segment net income increased $118,635, or 39%, to $423,586
for Twelve Months 2013 from $304,951 for Twelve Months
2012. The increase is primarily due to a $143,457 (after-tax)
decrease in reportable catastrophe losses and an increase in
lender-placed homeowners net earned premiums attributable
to newly added loan portfolios and the discontinuation
of a client quota share reinsurance agreement. Partially
offsetting these items were higher non-catastrophe losses, an
increase in operating expenses to support new loan portfolios,
additional customer service initiatives and increased legal
and regulatory expenses, including a $14,000 (non tax-
deductible) regulatory settlement noted above and expenses
related to pending class actions related to our lender-placed
insurance programs.
Total Revenues
Total revenues increased $356,125, or 16%, to $2,612,114
for Twelve Months 2013 from $2,255,989 for Twelve Months
2012. Growth in lender-placed homeowners insurance was