A.M. Best Co. has affirmed the financial strength ratings (FSR) and issuer credit ratings (ICR) of the property/casualty and life/health insurance subsidiaries of Assurant, Inc. (Assurant) (headquartered in New York, NY) [NYSE: AIZ]. Additionally, A.M. Best has affirmed the ICR of “bbb” and debt ratings of Assurant. The outlook for all ratings is 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 capitalization. As of September 30, 2012, Assurant’s unadjusted debt-to-capital and debt-to-tangible capital ratios were 18.2% and 21.9%, respectively, with a fixed charge coverage ratio that is well supportive of the ratings. Assurant also maintains a $350 million commercial paper program, which is secured by a back-up $350 million credit facility. The organization also has no debt maturing until 2014, and it maintains solid liquidity. The ratings for the property/casualty subsidiaries of Assurant, which comprises its property/casualty operations, reflect Assurant’s established presence in various specialty markets, its continued favorable underwriting and operating performance and solid risk-adjusted capitalization. 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 and extended service contracts, as well as a vast customer base through its large number of distribution sources in North America. As a result of its diversified product and distribution platforms and technology focus, the group has delivered strong operating earnings over the last five years, despite periods of significant catastrophe losses and the adverse impact of poor macroeconomic conditions on revenue in recent years, particularly for the service contract business. Somewhat offsetting these positive ratings factors are the property/casualty group’s natural catastrophe exposure, which has increased significantly over the past five years, primarily due to growth in specialty property (both 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 (CAT) 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.
As usage of many of the property/casualty products are driven by use of consumer credit, the property/casualty group may be challenged to maintain current premium levels and also may continue to experience a worsening loss performance through higher utilization, given current economic pressures. A.M. Best will continue to monitor the effect of continued difficult 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 for Assurant’s life/health operations, which comprise four distinct business units—employee benefits, health, credit life and preneed—acknowledges their continued good operating results and sound capitalization, as well as each segment’s established presence in its specific target market. The ratings of Assurant’s employee benefits companies (known as AEB) reflect their established position as a major writer of group dental, disability and group life insurance in the smaller case market (i.e., under 500 lives). AEB has marketed products on a traditional (“true group”) and voluntary basis for many years and continues to expand its voluntary product suite. AEB’s voluntary business represented nearly half of its sales and one-third of its premiums in the third quarter of 2012. A.M. Best views favorably AEB’s innovative approach to product design and marketing as well as its effective underwriting practices and technological innovations. However, the weakened U.S. economy has hindered top and bottom line results across most domestic employee benefits companies, and A.M. Best believes this segment could continue to face challenges related to high unemployment and lower wage growth as well as the low interest rate environment. Assurant’s health companies have a recognized presence in the individual and small group major medical market. The health segment’s ratings reflect their solid stand-alone capitalization, recent organizational restructuring and core product focus and overall improvement in operating results. The ratings also recognize the strength and parental support available to the companies from their parent as they navigate the potential challenges regarding the current and future implementation of health care reform (HCR) mandates. In response to HCR, the group continues to revise its business strategy by offering new and innovative health care solutions to its individual and small group customer target market while maintaining strong partnerships with existing distribution channels. Additionally, Assurant’s health operations continue to focus on business simplification programs and expense reductions to offset the impact of the imposed 80% minimum loss ratio (MLR).
The ratings of Assurant’s credit life companies (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 contracting premiums due to economic pressures in the United States and Puerto Rico and focus efforts on diversification into international markets as an offset to competing non-insurance credit-related products (i.e., debt deferment) in the domestic space. However, A.M. Best recognizes that Assurant remains a recognizable name in the North American (including Puerto Rico) credit insurance and related markets.The ratings of Assurant's preneed companies acknowledge their consistent statutory premium growth trends, good operating earnings and adequate risk-adjusted capital positions. These operations encompass one of the largest writers of preneed life insurance in the United States as well as the dominant writer in the Canadian preneed market. Assurant’s domestic preneed business sales are tied to Service Corporation International (SCI), the world’s largest funeral organization, in North America; thus, exposing it to significant concentration risk. Additionally, the extended low interest rate environment has presented challenges for companies marketing preneed and final expense products. Nevertheless, Assurant’s preneed companies continue to implement innovative distribution tactics and product options, and sales and operating earnings continue to be favorable despite currently unfavorable macroeconomic factors. 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 the ratings or if operating performance falls markedly short of A.M. Best’s expectations. This includes the impact that the poor macroeconomic environment may have on Assurant’s revenue, profitability and distribution partners. For a complete listing of Assurant, Inc. and its subsidiaries’ FSRs, ICRs and debt ratings, please visit www.ambest.com/press/112907assurant.pdf. 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. Key criteria utilized include: “Risk Management and the Rating Process for Insurance Companies”; “Catastrophe Analysis in A.M. Best’s Ratings”; “Insurance Holding Company and Debt Ratings”; “The Treatment of Terrorism Risk in the Rating Evaluation”; “Understanding BCAR for Property/Casualty Insurers”; “Rating Members of Insurance Groups”; and “Understanding BCAR for Life/Health Insurers.” Best’s Credit Rating Methodology can be found at www.ambest.com/ratings/methodology. Founded in 1899, 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 © 2012 by A.M. Best Company, Inc. ALL RIGHTS RESERVED.