Assurant 2010 Annual Report Download - page 26

20 ASSURANT, INC.  2010 Form 10K
PART I
ITEM 1A Risk Factors
policyholders of the subsidiary would be entitled to payment in full from
the subsidiary’s assets before we, as a stockholder, would be entitled to
receive any distribution from the subsidiary.
 e payment of dividends by any of our regulated 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.  e 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, the regulators 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 2011 without
regulatory approval, see “Item 5—Market For Registrant’s Common
Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities—Dividend Policy.”
Our 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 aff ect our ability to pay any dividends
on our common stock and/or service our debt and pay our other
corporate expenses.
 e 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 eff ect on our results of operations.
Our business and results of operations could be adversely aff ected if
we fail to adequately plan for the succession of our senior management
and other key executives. Although we have succession plans for key
executives, this does not guarantee that they will stay with us.
Risks Related to Our Industry
Reform of the health insurance industry could make our
health insurance business unprofi table.
In March 2010, President Obama signed the Aff ordable Care Act into
law. Provisions of the Aff ordable Care Act and related reforms have and
will become eff ective at various dates over the next several years and will
make sweeping and fundamental changes to the U.S. health care system
that are expected to signifi cantly aff ect the health insurance industry.
For more information on the Aff ordable Care Act, please see Item 1,
“Business—Regulation—Federal Regulation—Patient Protection and
Aff ordable Care Act.”
 e Aff ordable Care Act requires Assurant Health, for some products,
to increase benefi ts, to limit rescission to cases of intentional fraud and,
eventually, to insure pre-existing conditions in all lines of insurance, among
other things. If, for those products, Assurant Health’s actual loss ratios fall
short of required minimum loss ratios (by state and legal entity), we are
required to rebate the diff erence to consumers. We have made, and are
continuing to make, signifi cant changes to the operations and products of
Assurant Health to adapt to the new environment. In 2011, we expect the
operations of Assurant Health to break even, but Assurant Health could
lose money in 2011 and beyond if our plans for operating in the new
environment are unsuccessful or if there is less demand than we expect
for our products in the new environment.
Our business is subject to risks related to litigation
and regulatory actions.
From time to time, we may be subject to a variety of legal and regulatory
actions relating to our current and past business operations, including,
but not limited to:
• disputes over coverage or claims adjudication including, but not
limited to, pre-existing conditions in individual medical contracts
and rescissions of policies;
• disputes over our treatment of claims, where states or insured may
allege that we failed to make required payments or to meet prescribed
deadlines for adjudicating claims;
• disputes regarding sales practices, disclosures, premium refunds,
licensing, regulatory compliance, underwriting and compensation
arrangements;
• disputes with agents, brokers or network providers over compensation
and termination of contracts and related claims;
• actions by state regulatory authorities that may challenge our ability
to increase or maintain our premium rates and/or require us to reduce
current premium rates;
•disputes alleging packaging of credit insurance products with other
products provided by fi nancial institutions;
• disputes with tax and insurance authorities regarding our tax liabilities;
• disputes relating to customers’ claims that the customer was not
aware of the full cost or existence of the insurance or limitations on
insurance coverage; and
• industry-wide investigations regarding business practices including,
but not limited to, the use and the marketing of certain types of
insurance policies or certifi cates of insurance.
Unfavorable outcomes in litigation or regulatory proceedings, or
signifi cant problems in our relationships with regulators, could materially
adversely aff ect our results of operations and fi nancial condition, our
reputation, and our ability to continue to do business.  ey could also
expose us to further investigations or litigations.