Assurant 2013 Annual Report Download - page 38

ASSURANT, INC. – 2013 Form 10-K26
PART I
ITEM 1A Risk Factors
to the NYDFS. In addition, among other things, ASIC and ABIC
agreed to modify certain business practices in accordance
with requirements that apply to all New York-licensed lender-
placed insurers of properties in the state, and fi led our new
lender-placed program and new rates in New York. Proposed
changes to the program would affect annual lender-placed
hazard and real estate owned policies issued in the State of
New York, which accounted for approximately $101,000 and
$79,000 of Assurant Specialty Property’s net earned premiums
for full year 2013 and 2012, respectively.
In October 2012, ASIC reached an agreement with the
California Department of Insurance to reduce premium
rates for lender-placed hazard insurance products by 30.5%.
The rate reduction refl ects factors specifi c to California
such as continued favorable loss experience in the state and
different assumptions about future experience compared to
our previous rate fi ling. The new rates in California began to
apply to policies newly issued or renewed with effective dates
on or after January 19, 2013. ASIC recorded approximately
$106,000 and $111,000 of net earned premiums ($99,000
and $154,000 of gross written premium) in California for
the type of policies that are subject to the rate reduction
for full year 2013 and 2012, respectively.
Lender-placed insurance products accounted for approximately
73% and 71% of Assurant Specialty Property’s net earned
premiums for full year 2013 and 2012, respectively. The
approximate corresponding contributions to segment net
income in these periods were 87% and 90%, respectively. The
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.
The Company fi 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. The results of such reviews may vary. 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
further reviews by state departments of insurance lead to
signifi cant decreases in premium rates for the Company’s
lender-placed insurance products, our results of operations
could be materially adversely affected.
Further, actions by certain regulators—including but not limited
to the NYDFS, FOIR and Federal Housing Finance Agency
(“FHFA”)—may cause changes to the structure of the lender-
placed insurance industry, including the arrangements under
which we issue insurance and track coverage on mortgaged
properties. These changes could materially adversely affect
the results of operations of Assurant Specialty Property and the
results of operations and fi nancial condition of the Company.
In addition, the Company is involved in a variety of litigation
relating to its current and past business operations and may
from time to time become involved in other such actions.
In particular, the Company is a defendant in class actions
in a number of jurisdictions regarding its lender-placed
insurance programs. These cases allege a variety of claims
under a number of legal theories. The plaintiffs seek premium
refunds and other relief. The Company continues to defend
itself vigorously in these class actions.
We may participate in settlements on terms that we consider
reasonable in light of the strength of our defenses; however,
the results of any pending or future litigation and regulatory
proceedings are inherently unpredictable and involve
signifi cant uncertainty. Unfavorable outcomes in litigation
or regulatory proceedings, or signifi cant problems in our
relationships with regulators, could materially adversely
affect our results of operations and fi nancial condition, our
reputation, our ratings, and our ability to continue to do
business. They could also expose us to further investigations
or litigation. In addition, certain of our clients in the mortgage
and credit card and banking industries are the subject of
various regulatory investigations and litigation regarding
mortgage lending practices, credit insurance, debt-deferment
and debt cancelation products, and the sale of ancillary
products, which could indirectly affect our businesses.
Changes in regulation may reduce our
profi tability and limit our growth.
Legislation or other regulatory reform that increases the
regulatory requirements imposed on us or that changes the
way we are able to do business may signifi cantly harm our
business or results of operations in the future. If we were
unable for any reason to comply with these requirements,
it could result in substantial costs to us and may materially
adversely affect our results of operations and fi nancial
condition.
In addition, new interpretations of existing laws, or new
judicial decisions affecting the insurance industry, could
adversely affect our business.
Legislative or regulatory changes that could signifi cantly
harm our subsidiaries and us include, but are not limited to:
• imposed reductions on premium levels, limitations on
the ability to raise premiums on existing policies, or new
minimum loss ratios;
• increases in minimum capital, reserves and other fi nancial
viability requirements;
• enhanced or new regulatory requirements intended to
prevent future fi nancial crises or to otherwise ensure the
stability of institutions;
•new licensing requirements;
• restrictions on the ability to offer certain types of insurance
products;
• prohibitions or limitations on provider fi nancial incentives
and provider risk-sharing arrangements;