Assurant 2012 Annual Report Download - page 28

ASSURANT, INC.2012 Form10-K20
PARTI
ITEM 1A Risk Factors
Item1A, “Risk Factors—Risks related to our business—We face risks
associated with our international operations.” If third party providers do not
perform as anticipated, we may not fully realize the anticipated economic
and other bene ts of these outsourcing projects, which could adversely
a ect our results of operations and  nancial condition.
System security risks, data protection breaches
and cyber-attacks could adversely a ect our business
andresults of operations.
Our information technology systems are vulnerable to threats from
computer viruses, natural disasters, unauthorized access, cyber attack
and other similar disruptions. Although we have network security
measures in place, experienced computer programmers and hackers may
be able to penetrate our network and misappropriate or compromise
con dential information, create system disruptions or cause shutdowns.
As an insurer, we receive and are required to protect con dential
information from customers, vendors and other third parties that may
include personal health or  nancial information. To the extent any
disruption or security breach results in a loss or damage to our data,
or inappropriate disclosure of our con dential information or that of
others, it could cause signi cant damage to our reputation, a ect our
relationships with our customers and clients, lead to claims against
the Company, result in regulatory action and ultimately harm our
business. In addition, we may be required to incur signi cant costs
to mitigate the damage caused by any security breach, or to protect
against future damage.
We may be unable to accurately predict and price
forbene ts, claims and other costs, which could reduce
ourpro tability.
Our pro tability could vary depending on our ability to predict and
price for bene ts, claims and other costs including, but not limited
to, medical and dental costs, disability claims and the frequency and
severity of property claims.  is ability could be a ected by factors
such as in ation, changes in the regulatory environment, changes in
industry practices, changes in legal, social or environmental conditions,
new treatments or technologies. Political or economic conditions can
also a ect the availability of programs on which our business may
rely to accurately predict bene ts and claims. For example, Assurant
Employee Bene ts pays disability claims to insureds who may also be
entitled to the payment of monthly disability bene ts from the U.S.
Social Security Administration (the “SSA”). Under the insurance policy,
a portion, or the total amount, of the monthly bene t from the SSA
may be o set from the monthly disability bene t payable to the insured.
 e inability to accurately predict and price for bene ts, claims and
other costs could materially adversely a ect our results of operations
and  nancial condition.
Reinsurance may not be available or adequate to protect
us against losses, and we are subject to the credit risk
ofreinsurers.
As part of our overall risk and capacity management strategy, we
purchase reinsurance for certain risks underwritten by our various
operating segments. Although the reinsurer is liable to us for claims
properly ceded under the reinsurance arrangements, we remain liable
to the insured as the direct insurer on all risks reinsured. Ceded
reinsurance arrangements therefore do not eliminate our obligation to
pay claims. We are subject to credit risk with respect to our ability to
recover amounts due from reinsurers.  e inability to collect amounts
due from reinsurers could materially adversely a ect our results of
operations and our  nancial condition.
Reinsurance for certain types of catastrophes could become unavailable
or prohibitively expensive for some of our businesses. In such a situation,
we might also be adversely a ected by state regulations that prohibit
us from excluding catastrophe exposures or from withdrawing from
or increasing premium rates in catastrophe-prone areas.
Our reinsurance facilities are generally subject to annual renewal. We
may not be able to maintain our current reinsurance facilities and,
even where highly desirable or necessary, we may not be able to obtain
other reinsurance facilities in adequate amounts and at favorable rates.
Inability to obtain reinsurance at favorable rates or at all could cause us
to reduce the level of our underwriting commitments, to take more risk,
or to incur higher costs.  ese developments could materially adversely
a ect our results of operations and  nancial condition.
We have sold businesses through reinsurance that could
again become our direct  nancial and administrative
responsibility if the purchasing companies were to become
insolvent.
In the past, we have sold, and in the future we may sell, businesses
through reinsurance ceded to third parties. For example, in 2001 we
sold the insurance operations of our Fortis Financial Group (“FFG”)
division to  e Hartford Financial Services Group, Inc. (“ e Hartford”)
and in 2000 we sold our Long Term Care (“LTC”) division to John
Hancock Life Insurance Company (“John Hancock”), now a subsidiary
of Manulife Financial Corporation. Most of the assets backing reserves
coinsured under these sales are held in trusts or separate accounts.
However, if the reinsurers became insolvent, we would be exposed
to the risk that the assets in the trusts and/or the separate accounts
would be insu cient to support the liabilities that would revert to us.
On September27, 2012,  e Hartford announced that it had reached an
agreement to sell its Individual Life Operations to Prudential Financial,
Inc. (“Prudential”). Included in this transaction are the individual
life policies remaining in force that were originally transferred to  e
Hartford as part of the sale of FFG.  e assets backing the reserves
coinsured from  e Hartford to Prudential continue to be held in trusts
or separate accounts, and we are subject to the risk that the trust and/
or separate account assets are insu cient to support the liabilities that
would revert to us. In addition, we face risks related to any administrative
system changes Prudential implements in administering the business.
 e A.M. Best ratings of  e Hartford and John Hancock are currently
A and A+, respectively. A.M. Best currently maintains a stable outlook
on John Hancock’s  nancial strength ratings.  e Hartford’s rating is
under review with negative implications.
We also face the risk of again becoming responsible for administering
these businesses in the event of reinsurer insolvency. We do not currently
have the administrative systems and capabilities to process these
businesses. Accordingly, we would need to obtain those capabilities
in the event of an insolvency of one or more of the reinsurers. We
might be forced to obtain such capabilities on unfavorable terms with