Assurant 2010 Annual Report Download - page 34

28 ASSURANT, INC.  2010 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.  e Corporate and Other segment includes
activities of the holding company, fi nancing expenses, net realized
gains (losses) on investments, interest income earned from short-term
investments held, interest income from excess surplus of insurance
subsidiaries not allocated to other segments, run-off Asbestos business,
and additional costs associated with excess of loss reinsurance and ceded
to certain subsidiaries in the London market between 1995 and 1997.
 e Corporate and Other segment also includes the amortization of
deferred gains associated with the portions of the sales of FFG and LTC,
which were sold through reinsurance agreements as described below.
The following discussion covers the twelve months ended
December 31, 2010 (“Twelve Months 2010”), twelve months ended
December 31, 2009 (“Twelve Months 2009”) and twelve months
ended December 31, 2008 (“Twelve Months 2008”). Please see the
discussion that follows, for each of these segments, for a more detailed
analysis of the fl uctuations.
Executive Summary
Net income decreased $151,397, or 35%, to $279,177 for Twelve Months
2010 from $430,574 for Twelve Months 2009. Twelve Months 2010
includes $107,075 (after-tax) of improved operating segment results and
$66,300 (after-tax) of increased realized gains on investments, compared
with Twelve Months 2009. However, results decreased primarily due to
a non-cash goodwill impairment charge of $306,381 in Twelve Months
2010 compared with an $83,000 non-cash goodwill impairment charge
in Twelve Months 2009. In addition, Twelve Months 2009 includes
an $83,542 (after-tax) favorable legal settlement.
Assurant Solutions net income decreased to $103,206 for Twelve Months
2010 compared with $120,052 for Twelve Months 2009. Excluding
a $30,948 (after-tax) intangible asset impairment charge, net income
increased $14,102.  is charge was related to a client notifi cation in
Fourth Quarter 2010 of a non renewal of a block of domestic service
contract business eff ective June 1, 2011. During 2010, Assurant Solutions
continued to focus on developing new client relationships and distribution
channels while managing expenses.  ese eff orts generated increased
gross written premiums of $232,578 compared with prior year. In our
domestic business, we are diversifying our client base by growing the
Original Equipment Manufacturer channel.  e Twelve Months 2010
international combined ratio improved 480 basis points compared with
Twelve Months 2009, led by improvements in the United Kingdom
(“U.K.”). In addition, we added new international wireless clients in
markets we believe continues to off er growth opportunities. We also
added new Latin American service contracts and credit insurance clients,
a trend we expect will continue in 2011. Growth in Europe is proving
to be more challenging, but we believe our product off erings position
us well for when the European economy recovers. Our preneed life
insurance business continued to deliver strong results as new sales and
operating profi ts improved 43% and 15%, respectively, over prior year.
We expect this business to continue its solid performance in 2011.
Assurant Specialty Property produced another strong year as segment
results increased to $424,287 for Twelve Months 2010, from $405,997
for Twelve Months 2009. Assurant Specialty Property implemented
many process improvements in 2010 that controlled expenses while
adding new clients and tracking more loans. During 2010 and 2009,
the lack of major catastrophic storm activity has helped drive strong
results. However, during the fourth quarter of 2010, we experienced
$9,811 (after-tax) of catastrophe-related losses due to wind and hail
storms in Arizona. Loan counts, a key performance indicator, increased
in 2010 compared with 2009 primarily due to the addition of new
clients. Placement rate for prime loans during the fourth quarter of
2010 were at their highest levels ever and we expect them to remain
elevated through 2011. However, subprime placement rates declined to
their lowest levels since September 2008. In the aggregate, placement
rates continue to rise, though we believe that total placement rates
and loan inventories will decline to historical levels over the next
several years.  e classifi cation between prime and subprime is blurring
due to loan portfolio movement within the industry and inconsistent
classifi cations by lenders. We believe the clients we added in 2010
combined with our alignment with leading mortgage servicers should
help off set these declines.
Assurant Health increased its net income to $54,029 for Twelve
Months 2010 from a net loss of $(30,220) for Twelve Months 2009
while preparing to operate in an environment with new regulations
and changing dynamics in 2011.  is improved fi nancial performance
was driven by pricing actions, plan design changes, and substantial
cost reductions. Our sales, like most of our competitors, have slowed
as consumers and agents adjust to the post-reform environment.  e
Aff ordable Care Act has altered and created disruption in the health
insurance marketplace that will likely continue for some time. We have
implemented transformational actions in the business during 2010,
most notably a reduced commission structure for our distributors,
which will better position us to compete in the future. We anticipate
adapting our strategy as we more fully understand how consumers,
providers, and distributors adjust to the new health care environment.
2011 will be a transition year at Assurant Health, as we continue to
streamline and simplify our operations, while enhancing service for
our customers. Please see “Results of Operations-Assurant Health”
that follows for further information.
Assurant Employee Benefi ts net income increased to $63,538 for
Twelve Months 2010 compared with $42,156 for Twelve Months
2009 driven by favorable claims experience and expense management.
Assurant Employee Benefi ts continues to emphasize worksite and
voluntary products, which provide aff ordable solutions that meet
the needs of employers and employees. However, until employment
rates increase and payrolls expand, revenue growth will be challenged.
We expect our dental business results to continue to improve due to
pricing actions taken, but we expect life and disability loss experience
to revert to more traditional levels. We plan to lower our discount rate
for new long-term disability claims in 2011, as interest rates remain
at low levels.  is low interest rate environment will also continue to
pressure our investment income.