A.M. Best has affirmed the financial strength ratings
(FSR) and the issuer credit ratings (ICR) of the U.S.
property/casualty and life/health subsidiaries of Assurant,
Inc. (Assurant) (headquartered in New York, NY)(NYSE:AIZ).
Additionally, A.M. Best has affirmed the ICR of “bbb” and the debt
ratings of Assurant. The outlook for the ICR of the
property/casualty subsidiaries, the holding company and the debt
ratings remains positive, while the outlook for all other ratings
remains stable. (See link below for a detailed listing of the
companies and ratings.)
Assurant’s ratings recognize its diverse business mix,
established presence in numerous niche markets, strong operating
results and risk-adjusted capitalization. As of Sept. 30, 2014,
Assurant’s unadjusted debt-to-capital and debt-to-tangible capital
ratios were about 20% and 25%, respectively, with a fixed charge
coverage ratio that is well supportive of its ratings. Assurant
also maintains a $350 million commercial paper program, which is
secured by a back-up $400 million credit facility.
The affirmation of the ratings of Assurant’s property/casualty
subsidiaries, which comprise its property/casualty operations,
reflect Assurant’s strong underwriting and operating performance,
supportive risk-adjusted capitalization and well established
presence in various specialty markets. Offsetting these positive
rating factors are the group’s significant exposure to natural
catastrophe, its substantial use of third-party reinsurance and the
expectation for lower underwriting profitability due to premium
rate changes in and lower placement rates in its lender-placed
hazard product.
These positive rating attributes are derived from the
organization’s leadership position in the delivery of
credit-related insurance products, lender-placed homeowners
insurance, manufactured housing insurance, vehicle service
contracts, extended service contracts and mobile protection
insurance, as well as a vast customer base through its large number
of distribution sources in North America. The group’s diversified
product and distribution platforms and technology focus has
delivered strong earnings over the past five years, despite periods
of significant catastrophe losses and the adverse impact of weak
macroeconomic conditions on revenue, particularly for the service
contract business.
Somewhat offsetting these positive ratings factors are the
property/casualty group’s natural catastrophe exposure, which has
considerably increased over the years, primarily due to growth in
specialty property (organically and through acquisitions) and its
continued dependence on third-party reinsurance. These factors, in
conjunction with an increase in net retentions associated with its
property catastrophe treaty, expose the property/casualty group’s
earnings to a degree of variability. These concerns are somewhat
mitigated by its geographic spread of risk, management’s use of
risk management tools (including tracking aggregation of risks) and
product design.
Price reductions and lower placement rates in the group’s
lender-placed hazard product are expected to negatively impact
underwriting revenues from the insurance operations, although A.M.
Best anticipates underwriting profitability to remain strong. At
the enterprise level, expansion of non-insurance service products
is expected to diversify the mix of business and minimize the
impact of this reduction on overall revenues and returns over
time.
Also offsetting the positive rating factors is the importance of
consumer credit in driving usage of many of the property/casualty
products. The property/casualty group could be challenged to
sustain current premium levels due to lower credit usage. At the
same time, higher utilization may result in deteriorating loss
performance. A.M. Best will continue to monitor the effect of
macroeconomic conditions, including suppressed activity in the
mortgage service industry, on the property/casualty group’s
underwriting and operating profitability.
The affirmation of the ratings of Assurant’s life/health
operations, which include four distinct business units—health,
employee benefits, preneed and credit insurance—reflects continued
good operating results reported through the majority of the
segments, as well as sound capitalization across all of the
entities. The affirmations also reflect Assurant’s established
competitive positions and recognized presence within its specific
target markets.
Assurant’s health companies – Time Insurance Company and
John Alden Life Insurance Company (known collectively as
Assurant Health) – continue to have a recognized presence in the
individual and small group major medical market. The ratings
reflect its adequate risk-adjusted capitalization and its
unwavering approach to execution of a revised business strategy in
response to requirements of the Patient Protection and Affordable
Care Act. Recent results have been affected by a significant
regulatory change that took effect in late 2013, after rates on
metallic plans were filed and approved, allowing policyholders to
keep their plans (known as grandmothering). This ultimately
impacted the profitability of metallic plans by altering the level
of morbidity risk in the market versus what was priced for. As
such, Assurant Health reported higher than anticipated claims in
certain blocks of business, which was the primary driver of
significant operating losses. Additionally, the segment’s net
results for 2014 continue to be adversely impacted by unintended
consequences of the executive compensation rule, 162(m), due to the
overall structure of the Assurant organization.
A.M. Best remains concerned with the health segment’s exposure
to the changing regulatory environment, however, some benefit from
risk-mitigation programs may enhance profitability going forward.
A.M. Best notes that Assurant Health has benefited from sizable
capital infusions to maintain its targeted level of risk-adjusted
capitalization.
The ratings of Assurant’s employee benefits companies (known
collectively as AEB) acknowledge their sustained competitive
position as a major writer of group dental, disability and group
life insurance in the smaller case market (i.e., under 500 lives).
While AEB has marketed products on a traditional (true group) and
voluntary basis for many years, due to the evolving marketplace for
employee benefits, the segment continues to expand its voluntary
and worksite product portfolio and enhance its enrollment and
customer support capabilities. Assurant reported favorable sales
results during the first nine months of 2014, primarily driven by
the group’s diverse voluntary product suite and leading dental
network. Premium growth in the segment’s voluntary business
partially offset a decline in the employer-paid business as the
shift in healthcare and benefits responsibility continues to fall
increasingly on the employee. A.M. Best views favorably AEB’s
innovative marketing and value-added product design strategies, as
well as its more conservative underwriting philosophy and focus on
expense efficiencies and management.
The ratings of Assurant’s domestic and Canadian preneed
companies acknowledge their consistent statutory premium growth
trends, favorable operating earnings and adequate risk-adjusted
capital positions. Within these operations, American Memorial
Life Insurance Company (American Memorial) is one of the
largest writers of preneed life insurance in the United States, and
Assurant Life of Canada is by far the leading writer in the
Canadian preneed market. American Memorial’s preneed business sales
are primarily tied to Service Corporation International (SCI), the
world’s largest funeral organization; thus, exposing the segment to
significant concentration risk. However, this is somewhat offset by
the recent 10 year agreement extending the exclusive distribution
partnership between American Memorial and SCI. A.M. Best also notes
that distribution is much more diverse within the Canadian
operations.
Additionally, the extended low interest rate environment
continues to present challenges for companies marketing preneed and
final expense products. Nevertheless, Assurant’s preneed companies
have implemented some innovative distribution tactics and product
options and continue to explore opportunistic partnerships. As a
result, sales and operating earnings continue to be favorable
despite current unfavorable macroeconomic factors.
The ratings of Assurant’s credit life and health insurance
companies (a contracting part of Assurant’s Solutions segment)
recognize their stable earnings and solid capitalization, despite
historically sizeable dividends paid to the holding company, which
have moderated more recently. The companies continue to report
declining premiums due to economic pressures in the United States
and Puerto Rico, and their efforts to diversify into international
markets as industry changes have led to less emphasis on those
products in the domestic space. However, A.M. Best recognizes that
Assurant remains a recognizable name in the North American credit
insurance and related markets (including Puerto Rico).
Future positive rating actions may result from Assurant’s
continued strong operating performance, along with its strengthened
risk-adjusted capitalization. However, negative rating actions
could result if risk-adjusted capitalization deteriorates to a
level that does not support its ratings or if operating performance
falls markedly short of A.M. Best’s expectations.
For a complete listing of Assurant, Inc. and its subsidiaries’
FSRs, ICRs and debt ratings, please visit Assurant.
The methodology used in determining these ratings is Best’s
Credit Rating Methodology, which provides a comprehensive
explanation of A.M. Best’s rating process and contains the
different rating criteria employed in the rating process. Best’s
Credit Rating Methodology can be found at
www.ambest.com/ratings/methodology.
Key insurance criteria reports utilized:
- A.M. Best's Liquidity Model for U.S.
Life Insurers
- Analyzing Insurance Holding Company
Liquidity
- Catastrophe Analysis in A.M. Best
Ratings
- Equity Credit for Hybrid
Securities
- Insurance Holding Company and Debt
Ratings
- Rating Members of Insurance Groups
- Risk Management and the Rating Process
for Insurance Companies
- The Treatment of Terrorism Risk in the
Rating Evaluation
- Understanding BCAR for
Property/Casualty Insurers
- Understanding BCAR for U.S. and
Canadian Life/Health Insurers
- Understanding Universal BCAR
A.M. Best Company is the world's oldest and most
authoritative insurance rating and information source. For more
information, visit www.ambest.com.
Copyright © 2014 by A.M. Best Company,
Inc. ALL RIGHTS RESERVED.
A.M. BestBrian O’Larte, 908-439-2200, ext.
5138Senior Financial Analyst –
P/Cbrian.o'larte@ambest.comorJennifer Marshall,
908-439-2200, ext. 5327Assistant Vice President –
P/Cjennifer.marshall@ambest.comorKate Steffanelli,
908-439-2200, ext. 5063Senior Financial Analyst –
L/Hkathryn.steffanelli@ambest.comorAndrew Edelsberg,
908-439-2200, ext. 5182Vice President –
L/Handrew.edelsberg@ambest.comorChristopher Sharkey,
908-439-2200, ext. 5159Manager, Public
Relationschristopher.sharkey@ambest.comorJim Peavy,
908-439-2200, ext. 5644Assistant Vice President, Public
Relationsjames.peavy@ambest.com
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