Assurant 2015 Annual Report Download - page 30

ASSURANT, INC. – 2015 Form 10-K18
PART I
ITEM 1A Risk Factors
Because Assurant Specialty Property’s lender-placed
homeowners and lender-placed manufactured housing
insurance products are designed to automatically provide
property coverage for client portfolios, our concentration in
certain catastrophe-prone states like Florida, California, Texas
and New York may increase. Furthermore, the withdrawal of
other insurers from these or other states may lead to adverse
selection and increased use of our products in these areas
and may negatively affect our loss experience.
The exact impact of the physical effects of climate change
is uncertain. It is possible that changes in the global climate
may cause long-term increases in the frequency and severity
of storms, resulting in higher catastrophe losses, which could
materially affect our results of operations and nancial
condition�
Our group life and health insurance operations could be
materially impacted by catastrophes such as a terrorist attack,
a natural disaster, a pandemic or an epidemic that causes a
widespread increase in mortality or disability rates or that
causes an increase in the need for medical care. In addition,
with respect to our preneed insurance policies, the average
age of policyholders is approximately 73 years. This group
is more susceptible to certain epidemics than the overall
population, and an epidemic resulting in a higher incidence
of mortality could have a material adverse effect on our
results of operations and nancial condition.
A.M. Best, Moody’s, and S&P rate the
nancial strength of our insurance company
subsidiaries, and a decline in these ratings
could affect our standing in the insurance
industry and cause our sales and earnings
to decrease.
Ratings are important considerations in establishing the
competitive position of insurance companies. A.M. Best rates
most of our domestic operating insurance subsidiaries� Moody’s
rates six of our domestic operating insurance subsidiaries
and S&P rates seven of our domestic operating insurance
subsidiaries. These ratings are subject to periodic review by
A.M. Best, Moody’s, and S&P, and we cannot assure that we
will be able to retain them. In 2015, Time Insurance Company
and John Alden Life Insurance Company experienced multiple
rating actions as a result of Assurant’s decision to exit the
health insurance market in 2016 and higher than anticipated
losses in 2015. The following actions took place: A.M. Best
downgraded the companies from A- to B+, Moody’s downgraded
the companies from Baa2 to Ba1 and revised the outlook
to negative, and S&P downgraded the companies from BBB
to BB+� A�M� Best also placed the ratings of Union Security
Insurance Company and Union Security Life Insurance Company
of New York under review with negative implications due to
the possible diminished business prole of the entities after
the close of the Assurant Employee Benets sale.
Rating agencies may change their methodology or
requirements for determining ratings, or they may become
more conservative in assigning ratings. Rating agencies or
regulators could also increase capital requirements for the
Company or its subsidiaries� Any reduction in our ratings could
materially adversely affect the demand for our products
from intermediaries and consumers and materially adversely
affect our results. In addition, any reduction in our nancial
strength ratings could materially adversely affect our cost
of borrowing.
As of December 31, 2015, contracts representing approximately
33% of Assurant Solutions’ and 27% of Assurant Specialty
Property’s net earned premiums and fee income contain
provisions requiring the applicable subsidiaries to maintain
minimum A.M. Best nancial strength ratings ranging from
“A” or better to “B” or better, depending on the contract�
Our clients may terminate these contracts or fail to renew
them if the subsidiaries’ ratings fall below these minimums.
Termination or failure to renew these agreements could
materially and adversely affect our results of operations
and nancial condition.
Additionally, certain contracts in the DRMS business,
representing approximately 5% of Assurant Employee Benets’
net earned premiums for the year ended December 31, 2015
contain provisions requiring the applicable subsidiaries to
maintain minimum A.M. Best nancial strength ratings of
“A-” or better. DRMS clients may terminate the agreements
and, in some instances, recapture in-force business if the
ratings of applicable subsidiaries fall below “A-”.
We face risks associated with our international
operations.
Our international operations face political, legal, operational
and other risks that we may not face in our domestic
operations. For example, we may face the risk of restrictions
on currency conversion or the transfer of funds; burdens and
costs of compliance with a variety of foreign laws; political or
economic instability in countries in which we conduct business,
including possible terrorist acts; ination and foreign exchange
rate uctuations; diminished ability to enforce our contractual
rights; differences in cultural environments and unexpected
changes in regulatory requirements, including changes in
regulatory treatment of certain products; exposure to local
economic conditions and restrictions on the repatriation of
non-U.S. investment and earnings; and potentially substantial
tax liabilities if we repatriate the cash generated by our
international operations back to the U.S.
If our business model is not successful in a particular country,
we may lose all or most of our investment in that country.
As we continue to expand in select worldwide markets, our
business becomes increasingly exposed to these risks identied
above where certain countries have recently experienced
economic instability�
In addition, as we engage with international clients, we have
made certain up-front commission payments and similar
cash outlays, which we may not recover if the business does
not materialize as we expect. These up-front payments are
typically supported by various protections, such as letters
of guarantee, but we may not recover our initial outlays and
other amounts owed to us fully or timely. As our international
business grows, we rely increasingly on fronting carriers or