Assurant 2012 Annual Report Download - page 24

ASSURANT, INC.2012 Form10-K16
PARTI
ITEM 1A Risk Factors
be caused by various natural events, including, but not limited to,
hurricanes, windstorms, earthquakes, hailstorms, severe winter weather,
 res, epidemics and the long-term e ects of climate change, or can be
man-made catastrophes, including terrorist attacks or accidents such
as airplane crashes. While the frequency and severity of catastrophes
are inherently unpredictable, increases in the value and geographic
concentration of insured property, the geographic concentration of
insured lives, and the e ects of in ation could increase the severity of
claims from future catastrophes.
Catastrophe losses can vary widely and could signi cantly exceed our
expectations.  ey may cause substantial volatility in our  nancial
results for any  scal quarter or year and could materially reduce our
pro tability or materially adversely a ect our  nancial condition. Our
ability to write new business also could be a ected.
Accounting rules do not permit insurers to reserve for such catastrophic
events before they occur. In addition, the establishment of appropriate
reserves, including reserves for catastrophes, is an inherently uncertain
and complex process.  e ultimate cost of losses may vary materially
from recorded reserves and such variance may have a material adverse
e ect on our results of operations and  nancial condition.
If the severity of an event were su ciently high (for example, in the
event of an extremely large catastrophe), it could exceed our reinsurance
coverage limits and could have a material adverse e ect on our results of
operations and  nancial condition. We may also lose premium income
due to a large-scale business interruption caused by a catastrophe
combined with legislative or regulatory reactions to the event.
We use catastrophe modeling tools that help estimate our exposure
to such events, but these tools are based on historical data and other
assumptions that may provide projections that are materially di erent
from the actual events.
Because Assurant Specialty Property’s lender-placed homeowners and
lender-placed manufactured housing insurance products are designed
to automatically provide property coverage for client portfolios, our
concentration in certain catastrophe-prone states like Florida, California
and Texas may increase in the future. Furthermore, the withdrawal of
other insurers from these or other states may lead to adverse selection
and increased use of our products in these areas and may negatively
a ect our loss experience.
 e exact impact of the physical e ects of climate change is uncertain.
It is possible that changes in the global climate may cause long-term
increases in the frequency and severity of storms, resulting in higher
catastrophe losses, which could materially a ect our results of operations
and  nancial condition.
Our group life and health insurance operations could be materially
impacted by catastrophes such as a terrorist attack, a natural disaster, a
pandemic or an epidemic that causes a widespread increase in mortality
or disability rates or that causes an increase in the need for medical
care. In addition, with respect to our preneed insurance policies, the
average age of policyholders is approximately 73 years.  is group is
more susceptible to certain epidemics than the overall population, and
an epidemic resulting in a higher incidence of mortality could have a
material adverse e ect on our results of operations and  nancial condition.
A.M. Best, Moody’s, and S&P rate the  nancial strength
ofour insurance company subsidiaries, and a decline
inthese ratings could a ect our standing in the insurance
industry and cause our sales and earnings to decrease.
Ratings are an important factor in establishing the competitive position
of insurance companies. A.M. Best rates most of our domestic operating
insurance subsidiaries. Moody’s rates six of our domestic operating
insurance subsidiaries and S&P rates seven of our domestic operating
insurance subsidiaries.  ese ratings are subject to periodic review by
A.M. Best, Moody’s, and S&P, and we cannot assure that we will be able
to retain them. Moody’s currently has a negative outlook on two of our
life and health insurance subsidiaries primarily citing the adverse revenue
and earnings pressures of the A ordable Care Act on these subsidiaries.
Rating agencies may change their methodology or requirements
for determining ratings, or they may become more conservative in
assigning ratings. Rating agencies or regulators could also increase capital
requirements for the Company or its subsidiaries. Any reduction in our
ratings could materially adversely a ect the demand for our products
from intermediaries and consumers, and materially adversely a ect
our results. In addition, any reduction in our  nancial strength ratings
could materially adversely a ect our cost of borrowing.
As of December31, 2012, contracts representing approximately 19% of
Assurant Solutions’ and 22% of Assurant Specialty Property’s net earned
premiums and fee income contain provisions requiring the applicable
subsidiaries to maintain minimum A.M. Best  nancial strength ratings
ranging from “A” or better to “B” or better, depending on the contract.
Our clients may terminate these contracts or fail to renew them if the
subsidiaries’ ratings fall below these minimums. Under our marketing
agreement with SCI, American Memorial Life Insurance Company
(“AMLIC”), one of our subsidiaries, is required to maintain an A.M.
Best  nancial strength rating of “B” or better throughout the term of
the agreement. If AMLIC fails to maintain this rating for a period of
180 days, SCI may terminate the agreement.
Additionally, certain contracts in the DRMS business, representing
approximately 5% of Assurant Employee Bene ts’ net earned premiums
for the year ended December31, 2012 contain provisions requiring
the applicable subsidiaries to maintain minimum A.M. Best  nancial
strength ratings of “A-” or better. DRMS clients may terminate
the agreements and, in some instances, recapture in-force business
if the ratings of applicable subsidiaries fall below “A-”. Similarly,
distribution and service agreements representing approximately 19%
of Assurant Health’s earned premiums gross of rebates for the year
ended December31, 2012 contain provisions requiring the applicable
subsidiaries to maintain minimum A.M. Best  nancial strength ratings
of “A-” or better, for the distribution agreements, or “B+” or better,
for the service agreement. If the ratings of applicable Assurant Health
subsidiaries fall below these threshold ratings levels, distribution and
service partners could terminate their agreements. Termination or
failure to renew these agreements could materially and adversely a ect
our results of operations and  nancial condition.