Assurant 2014 Annual Report Download - page 37

ASSURANT, INC. – 2014 Form 10-K 23
PART I
ITEM 1A Risk Factors
We may be unable to accurately predict and
price for benefi ts, claims and other costs, which
could reduce our profi tability.
Our profi tability could vary depending on our ability to predict
and price for benefi ts, claims and other costs including, but
not limited to, medical and dental costs, disability claims and
the frequency and severity of property claims. This ability
could be affected by factors such as infl 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 affect the availability of programs (for example, the
Social Security disability program) on which our business may
rely to accurately predict benefi ts and claims. The inability
to accurately predict and price for benefi ts, claims and
other costs could materially adversely affect our results of
operations and fi 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. The inability to collect
amounts due from reinsurers could materially adversely
affect our results of operations and our fi 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
affected 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. These developments
could materially adversely affect our results of operations
and fi nancial condition.
We have sold businesses through reinsurance
that could again become our direct fi 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 The Hartford Financial
Services Group, Inc. (“The 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 insuffi cient
to support the liabilities that would revert to us.
In January 2013, The Hartford sold 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 The Hartford as part of
the sale of FFG. The assets backing the reserves coinsured
from The 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 insuffi cient
to support the liabilities that would revert to us. Although
The Hartford remains responsible for the suffi ciency of the
assets backing the reserves, we face risks related to any
administrative system changes Prudential implements in
administering the business.
The A.M. Best ratings of The Hartford and John Hancock
are currently A- and A+, respectively. A.M. Best currently
maintains a stable outlook on both The Hartford’s and John
Hancock’s fi nancial strength ratings.
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 a
resulting material adverse effect on our results of operations
and fi nancial condition. In addition, third parties to whom
we have sold businesses in the past may in turn sell these
businesses to other third parties, and we could face risks
related to the new administrative systems and capabilities
of these third parties in administering these businesses.
For more information on these arrangements, including the
reinsurance recoverables and risk mitigation mechanisms
used, please see “Item 7A—Quantitative and Qualitative
Disclosures About Market Risks—Credit Risk.”