Assurant 2012 Annual Report Download - page 39

ASSURANT, INC.2012 Form10-K 31
PARTII
ITEM 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations
General
We report our results through  ve segments: Assurant Solutions, Assurant
Specialty Property, Assurant Health, Assurant Employee Bene ts, and
Corporate and Other.  e Corporate and Other segment includes
activities of the holding company,  nancing and interest expenses, net
realized gains (losses) on investments and interest income earned from
short-term investments held.  e Corporate and Other segment also
includes the amortization of deferred gains associated with the sales
of FFG and LTC, through reinsurance agreements as described below.
The following discussion covers the twelve months ended
December31,2012 (“Twelve Months 2012”), twelve months ended
December31, 2011 (“Twelve Months 2011”) and twelve months
ended December31, 2010 (“Twelve Months 2010”). Please see the
discussion that follows, for each of these segments, for a more detailed
analysis of the  uctuations.
Executive Summary
Consolidated net income decreased $55,251, or 10%, to $483,705 for
Twelve Months 2012 from $538,956 for Twelve Months 2011.  e
decrease is primarily due to an $80,000 release of a capital loss valuation
allowance related to deferred tax assets during Twelve Months 2011.
Partially o setting this item was improved net income in our Assurant
Health and Assurant Employee Bene ts segments and an increase of
$20,652 (after-tax) in net realized gains on investments. Twelve Months
2012 includes $162,634 (after-tax) of Assurant Specialty Property
reportable catastrophe losses, primarily due to Superstorm Sandy,
compared to $102,469 (after-tax) of reportable catastrophe losses in
Twelve Months 2011. Higher catastrophe losses in Twelve Months
2012 were o set by growth in lender-placed homeowners net earned
premiums and lower non-catastrophe losses.
Assurant Solutions net income decreased $12,297, or 9%, to $123,753
for Twelve Months 2012 from $136,050 for Twelve Months 2011.  is
decrease was largely due to a fourth quarter charge of $20,373 (after-
tax) for the impairment of certain other intangible assets established
primarily in connection with acquisitions of two U.K. mortgage
insurance brokers in 2007, and a fourth quarter workforce restructuring
charge of $7,724 (after-tax) primarily relating to our domestic credit
and European operations. Twelve Months 2012 also included $6,362
(after-tax) of income from client related settlements.
Absent these items, international results improved primarily from
continued growth and favorable experience in Latin America. Overall,
Assurant Solutions’ international combined ratio was 104.8%. In 2013,
we expect this combined ratio to continue to improve primarily from
expected pro table growth in Latin America and additional expense
initiatives in Europe.
Domestic results declined primarily from the previously disclosed loss
of a mobile client, e ective October2012, increased expenses in our
mobile and vehicle services businesses to enhance our technology platform
and support new business growth, and less favorable underwriting
experience in our service contract business.  ese factors increased our
domestic combined ratio to 98.9%. We expect the domestic combined
ratio to remain near our target of 98.0% in 2013.
Fee income and sales from our preneed business also improved during
Twelve Months 2012, primarily due to our strong relationship with SCI.
Overall, we expect modest premium growth at Assurant Solutions in
2013. We also expect to continue our expense management initiatives
in this segment.
Assurant Specialty Property net income increased $1,228, or less
than 1%, to $304,951 for Twelve Months 2012 from $303,723 for
Twelve Months 2011.  e increase is due to increased lender-placed
homeowners net earned premiums, growth in our multifamily housing
business and lower non-catastrophe losses, mainly o set by an increase
in reportable catastrophe losses of $60,165 (after-tax).  e growth
in net earned premiums was driven by lender-placed loan portfolio
additions and increased placement rates.
Our placement rate for Twelve Months 2012 was 2.87% compared
to 2.75% in Twelve Months 2011.  e 2.87% placement rate is high,
compared to historical standards, due to the impact of the new loan
portfolios added throughout 2012. We expect placement rates in the
near term to  uctuate, re ecting the state of the housing market and
the changing composition of our tracked loan portfolios, but we expect
placement rates to ultimately decline as the housing market stabilizes.
In late 2012, we began a multi-phased roll-out of our new next generation
product to respond to the changed environment following the housing
crisis. Features of the product include: expanded geographic rating,
added premium rating  exibility and continued enhancements to our
customer noti cation process. Our next generation product is available
in 14 states and we expect to implement it in 14 more states by the end
of the second quarter 2013, with a full roll-out to all other states by the
end of 2013. As we have disclosed, we continue to engage in discussions
with various state and federal regulatory departments regarding our
lender-placed insurance program. For additional detail on certain of
these discussions please refer to Assurant Specialty Property’s results
of operations section further below in this Item7.
For 2013, we expect Assurant Specialty Property’s revenue to increase
slightly from 2012 due to growth in our lender-placed portfolio and
multi-family housing products. We expect overall results to continue to be
in uenced by placement rate trends, premium rate changes, loan portfolio
activity, client renewals, and catastrophe losses. We expect our expense
ratio to remain approximately level with 2012 as we continue to improve
e ciency while further improving client and customer service. We also
expect our non-catastrophe loss ratio to increase due to anticipated higher
frequency of such losses compared to a mild winter in 2012.
Assurant Health net income increased $11,114, or 27%, to $52,000
for Twelve Months 2012 from $40,886 for Twelve Months 2011.  e
increase was primarily attributable to $13,856 (after-tax) of additional
investment income from a real estate joint venture partnership and
lower expenses associated with organizational and operational expense
reduction initiatives.