Assurant 2012 Annual Report Download - page 53

ASSURANT, INC.2012 Form10-K 45
PARTII
ITEM 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations
Regulatory Matters
As previously disclosed, in February2012, the Company and two of
its wholly owned insurance subsidiaries, 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 and provided additional
information 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 Twelve Months 2012 and Twelve Months 2011, respectively.  e
Company’s discussions with the NYDFS concerning this matter are
continuing.
 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. 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. During
Twelve Months 2012, ASIC recorded approximately $111,000 of net
earned premiums ($154,000 of gross written premium) in California
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.
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 Twelve Months 2012
and 70% for Twelve Months 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.
It is possible that other state departments of insurance and regulatory
authorities may choose to initiate or continue to review the
appropriateness of the Company’s premium rates for its lender-placed
insurance products. If in the aggregate such reviews lead to signi cant
decreases in premium rates for the Company’s lender-placed insurance
products, our results of operations could be materially adversely a ected.
Year Ended December 31, 2012 Compared to the Year
Ended December 31, 2011
Net Income
Segment 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 multi-family housing business and lower non-
catastrophe losses, partially o set by an increase in reportable catastrophe
losses of $60,165 (after-tax). Growth in lender-placed homeowners net
earned premiums is primarily due to growth in loan portfolios from
both new and existing clients and increased placement rates.
Total Revenues
Total revenues increased $168,755, or 8%, to $2,255,989 for Twelve
Months 2012 from $2,087,234 for Twelve Months 2011.  e main
drivers of the increase are growth in lender-placed homeowners and
renters insurance net earned premiums as well as fee income from growth
in our resident bond products. Growth in lender-placed homeowners
net earned premiums is primarily due to higher insurance placement
rates and increased loans tracked attributable to client loan portfolio
acquisitions that occurred in 2012 and late 2011.
Total Benefi ts, Losses and Expenses
Total bene ts, losses and expenses increased $166,396, or 10%, to
$1,793,445 for Twelve Months 2012 from $1,627,049 for Twelve
Months 2011.  e loss ratio increased 120 basis points primarily due
to higher reportable catastrophe losses which increased the loss ratio
390 basis points. Twelve Months 2012 includes $250,206 of reportable
catastrophe losses, mainly due to Superstorm Sandy, compared to
$157,645 of reportable catastrophe losses in Twelve Months 2011.
Reportable catastrophe losses include only individual catastrophic
events that generated losses to the Company in excess of $5,000, pre-
tax and net of reinsurance.  e non-catastrophe loss ratio declined 270
basis points primarily due to a decrease in loss frequency across most
product lines.  e expense ratio increased 40 basis points primarily due
to higher operating costs to support business growth partially o set by
a decrease in commission expense.
Year Ended December 31, 2011 Compared to the Year
Ended December 31, 2010
Net Income
Segment net income decreased $120,808, or 29%, to $303,723 for
Twelve Months 2011 from $424,531 for Twelve Months 2010.  e
decline was primarily due to an increase in reportable catastrophe losses
of $87,673 (after-tax) in Twelve Months 2011. Increased frequency of
non-catastrophe weather related losses during Twelve Months 2011
compared with Twelve Months 2010 also contributed to the decline.