Assurant 2014 Annual Report Download - page 65

51ASSURANT, INC. – 2014 Form 10-K
PART II
ITEM 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations
Reinsurance
This is a transitional program for 2014-2016, with decreasing
benefi t over the three years. All commercial individual and
group medical health plans are required to contribute to the
funding of the program. Only individual health plans that are
compliant with the essential health benefi ts of the Affordable
Care Act are eligible to receive benefi ts from the program.
We are required to make contributions, which are recorded
quarterly, based on both our Affordable Care Act and non-
Affordable Care Act business. Contributions based on our
non-Affordable Care Act business are included in selling,
underwriting and general expenses and contributions based
on our Affordable Care Act business are included as ceded
premiums. Recoveries are recorded quarterly as ceded
policyholder benefi ts and refl ect the anticipated experience
of our Affordable Care Act plans based on our analysis of
current and historical claim data.
For the Twelve Months 2014, we recorded reinsurance
contributions of $5,894 and reinsurance recoveries of $276,980 in
our consolidated statements of operations. As of December 31,
2014, we recorded reinsurance contributions payable of $5,894
and reinsurance recoverables of $276,980 on our consolidated
balance sheets. Both contributions and recoveries for the 2014
program are scheduled to be settled in 2015.
Risk adjustment
This is a permanent program to transfer funds between
health insurers based on the average health risk scores of
their Affordable Care Act insured populations. Insurers with
below-average risk scores will contribute into the pool.
Insurers with above-average risk scores will receive payments
out of the pool.
Risk scores are evaluated at the state, market, and legal
entity level for Affordable Care Act-compliant policies. Risk
adjustment amounts payable and receivable are refl ected
as adjustments to net earned premiums, and are recorded
quarterly based on our current estimated loss experience
of our Affordable Care Act business.
Based on the demographics of our Affordable Care Act
population, extensive analytical evaluations, current and
historical claim data as well as other internal and external data
sources, external market studies and other published data,
we believe that our average risk scores will be signifi cantly
higher than the industry averages.
For the Twelve Months 2014, we recorded net risk adjustment
premiums of $121,888 in our consolidated statements of
operations, and we carried net risk adjustment receivables
of $121,888 on our consolidated balance sheets. Risk transfer
payments and receipts for the 2014 program are scheduled
to be settled in 2015.
Risk corridor
This is a temporary risk-sharing program for 2014-2016. Based
on ratios of allowable costs to target costs as defi ned by the
Affordable Care Act, health insurers will make payments to
the Department of Health and Human Services (“HHS”) or
receive funds from HHS. Because Assurant Health did not
participate in any public insurance marketplaces for 2014,
risk corridors have no impact on our 2014 operations. Because
the reinsurance and risk-adjustment programs are brand
new and historical results are not available, estimates of
amounts receivable from them are subject to considerable
uncertainty. Actual amounts received may vary substantially
from our estimates.
Year Ended December 31, 2014 Compared
to the Year Ended December 31, 2013
Net (Loss) Income
Segment 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 decrease was primarily
attributable to increased claims from the 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 a higher non-deductible expenses and
reform fees related to the Affordable Care Act. These items
were partially offset by estimated recoveries from Affordable
Care Act risk mitigation programs.
Total Revenues
Total revenues increased $373,634, or 23%, to $2,020,837 for
Twelve Months 2014 from $1,647,203 for Twelve Months 2013.
Net earned premiums from our individual medical business
increased $370,827, or 32%, due to growth in individual major
medical product sales, and estimated recoveries from the
Affordable Care Act’s risk adjustment program.
Total Benefi ts, Losses and Expenses
Total benefi ts, losses and expenses increased $466,826, or
29%, to $2,071,451 for Twelve Months 2014 from $1,604,625
for Twelve Months 2013. Policyholder benefi ts increased
$406,558, or 35%, and the benefi t loss ratio increased to
81.0% from 73.9%. The increases in policyholder benefi ts and
the benefi t loss ratio were primarily attributable to higher
volumes of individual business and higher loss experience
on individual Affordable Care Act medical policies. Selling,
underwriting and general expenses increased $60,268, or 14%,
due to higher commissions on new sales and health reform
fees. Fourth quarter 2013 included $4,589 of severance
expense.
Year Ended December 31, 2013 Compared
to the Year Ended December 31, 2012
Net Income
Segment net income decreased $46,143, or 89%, to $5,857
for Twelve Months 2013 from $52,000 for Twelve Months 2012.
The decrease was primarily attributable to a higher provision
for income taxes in connection with the Affordable Care Act
due to a change in estimated non-deductible compensation