OLDWICK, N.J.--(BUSINESS WIRE)--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.
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