Assurant 2015 Annual Report Download - page 35

ASSURANT, INC. – 2015 Form 10-K 23
PART I
ITEM 1A Risk Factors
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 nancial condition.
Through reinsurance, we have sold businesses
that could again become our direct nancial
and administrative responsibility if the
reinsurers 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 insuf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 insufcient
to support the liabilities that would revert to us. Although
The Hartford remains responsible for the suf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 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 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.”
Due to the structure of our commission
program, we are exposed to risks related
to the creditworthiness and reporting
systems of some of our agents, third party
administrations and clients in Assurant
Solutions and Assurant Specialty Property.
We are subject to the credit risk of some of the clients
and agents with which we contract in Assurant Solutions
and Assurant Specialty Property. For example, we advance
agents’ commissions as part of our preneed insurance product
offerings. These advances are a percentage of the total face
amount of coverage. There is a one-year payback provision
against the agency if death or lapse occurs within the rst
policy year. If SCI, which receives the largest shares of
such agent commissions, were unable to fulll its payback
obligations, this could have an adverse effect on our operations
and nancial condition.
In addition, some of our clients, third party administrators
and agents collect and report premiums or pay claims on our
behalf� These parties’ failure to remit all premiums collected
or to pay claims on our behalf on a timely and accurate basis
could have an adverse effect on our results of operations.
The inability of our subsidiaries to pay
sufcient dividends to the holding company
could prevent us from meeting our obligations
and paying future stockholder dividends.
As a holding company whose principal assets are the capital
stock of our subsidiaries, Assurant, Inc. relies primarily on
dividends and other statutorily permissible payments from
our subsidiaries to meet our obligations for payment of
interest and principal on outstanding debt obligations, to
repurchase shares, to acquire new businesses and to pay
dividends to stockholders and corporate expenses. The
ability of our subsidiaries to pay dividends and to make such
other payments depends on their statutory surplus, future
statutory earnings, rating agency requirements and regulatory
restrictions. Except to the extent that Assurant, Inc. is a
creditor with recognized claims against our subsidiaries,
claims of the subsidiaries’ creditors, including policyholders,
have priority over creditors’ claims with respect to the assets
and earnings of the subsidiaries. If any of our subsidiaries
should become insolvent, liquidate or otherwise reorganize,