Assurant 2012 Annual Report Download - page 31

ASSURANT, INC.2012 Form10-K 23
PARTI
ITEM 1A Risk Factors
disclosures to consumers; type, amount and valuation of investments;
assessments or other surcharges for guaranty funds and companies’
ability to recover assessments through premium increases; and market
conduct and sales practices.
For a discussion of various laws and regulations a ecting our business,
please see Item1, “Business—Regulation.”
If regulatory requirements impede our ability to conduct certain
operations, our results of operations and  nancial condition could
be materially adversely a ected. In addition, we may be unable to
maintain all required licenses and approvals and our business may not
fully comply with the wide variety of applicable laws and regulations,
or the relevant regulators’ interpretation of these laws and regulations.
In such events, the insurance regulatory authorities could preclude
or temporarily suspend us from operating, limit some or all of our
activities, or  ne us.  ese types of actions could materially adversely
a ect our results of operations and  nancial condition.
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:
• actions by regulatory authorities that may challenge our ability to
increase or maintain our premium rates, require us to reduce premium
rates, impose  ne or penalties and/or result in other fees;
• disputes regarding our lender-placed insurance products including
those relating to rates, agent compensation, consumer disclosure,
continuous coverage requirements, loan tracking services and other
services that we provide to mortgage servicers;
• 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, in which states or insureds 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;
• disputes alleging bundling of credit insurance and warranty products
with other products provided by  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 certi cates of insurance.
As previously disclosed, in fall 2011, Assurant, along with other insurers
and with mortgage servicers, received a request for information from
the New York Department of Financial Services (the “NYDFS”)
regarding its lender-placed insurance business. In February2012,
the Company and two of its wholly owned insurance subsidiaries,
American Security Insurance Company (“ASIC”) and American
Bankers Insurance Company of Florida, received subpoenas from the
NYDFS regarding the Company’s lender-placed insurance business and
related document retention practices. Over the next several months,
the Company responded to the subpoenas, participated in depositions,
responded to additional information requests from the NYDFS on the
Company’s lender-placed insurance program and, along with other
companies in the industry, participated in public hearings conducted
by the NYDFS.  e Company was subsequently served with an order
by the NYDFS requiring the Company to propose and justify amended
rates for its lender-placed insurance products sold in the State of New
York, to which it responded in early July2012.  e Company has since
engaged in discussions with the NYDFS concerning its lender-placed
insurance program in the State of New York. Proposed changes to
the program would a ect annual lender-placed hazard and real estate
owned policies issued in the State of New York, which accounted for
approximately $79,000 and $64,000 of Assurant Specialty Property’s
net earned premiums for the years ended December31, 2012 and
2011, respectively.  e Company’s discussions with the NYDFS
concerning this matter are continuing. While the Company cannot
predict the outcome of these discussions, such outcome could have a
material adverse e ect on the results of operations of Assurant Specialty
Property and/or the consolidated Company.
As the Company disclosed on October22, 2012, ASIC reached an
agreement with the California DOI to reduce premium rates for
lender-placed hazard insurance products by 30.5%.  is rate reduction
re ects factors speci c to California such as continued favorable loss
experience in the state and di erent assumptions about future experience
compared to our previous rate  ling.  e new rates in California began
to apply to all policies issued or renewed with e ective dates on or after
January19, 2013. ASIC recorded approximately $111,000 of net earned
premiums ($154,000 of gross written premium) for full year 2012 for
the type of policies subject to the rate reduction.  e actual e ect of
the California rate decrease on the Company’s net earned premiums
and net income over the course of 2013 and beyond will depend on
a variety of factors, including the Company’s mix of lender-placed
insurance products, lapse rates, rate and timing of renewals, placement
rates, changes in client contracts and actual expenses incurred.
As previously disclosed, Assurant Specialty Property’s business strategy
has been to pursue long-term growth in lender-placed homeowners
insurance and adjacent markets with similar characteristics, such as
lender-placed  ood insurance and lender-placed mobile home insurance.
Lender-placed insurance products accounted for approximately 71%
of Assurant Specialty Property’s net earned premiums for full year
2012 and 70% for full year 2011.  e approximate corresponding
contributions to segment net income in these periods were 90% and
100%, respectively.  e portion of total segment net income attributable
to lender-placed products may vary substantially over time depending
on the frequency, severity and location of catastrophic losses, the cost
of catastrophe reinsurance and reinstatement coverage, the variability
of claim processing costs and client acquisition costs, and other factors.
In addition, we expect placement rates for these products to decline.
 e Company  les rates with the state departments of insurance in
the ordinary course of business. As previously disclosed, in addition
to this routine correspondence, the Company has been engaged in
discussions and proceedings with certain state regulators regarding
our lender-placed insurance business. Because assumptions used in