|Edgar Online, Inc.|
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and accompanying notes which appear elsewhere in this report. It contains forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those discussed below and elsewhere in this report, particularly under the headings "Item 1A-Risk Factors" and "Forward-Looking Statements." General We report our results through five segments: Assurant Solutions,
AssurantSpecialty Property, Assurant Health, Assurant Employee Benefits, and Corporate and Other. The Corporate and Other segment includes activities of the holding company, financing and interest expenses, net realized gains (losses) on investments and interest income earned from short-term investments held. The Corporate and Other segment also includes the amortization of deferred gains associated with the sales of FFG and LTC, through reinsurance agreements as described below. The following discussion covers the twelve months ended December 31, 2012("Twelve Months 2012"), twelve months ended December 31, 2011("Twelve Months 2011") and twelve months ended December 31, 2010("Twelve Months 2010"). Please see the discussion that follows, for each of these segments, for a more detailed analysis of the fluctuations. 42
Consolidated net income decreased
$55,251, or 10%, to $483,705for Twelve Months 2012 from $538,956for Twelve Months 2011. The decrease is primarily due to an $80,000release of a capital loss valuation allowance related to deferred tax assets during Twelve Months 2011. Partially offsetting this item was improved net income in our Assurant Healthand Assurant Employee Benefitssegments and an increase of $20,652(after-tax) in net realized gains on investments. Twelve Months 2012 includes $162,634(after-tax) of Assurant Specialty Property reportable catastrophe losses, primarily due to Superstorm Sandy, compared to $102,469(after-tax) of reportable catastrophe losses in Twelve Months 2011. Higher catastrophe losses in Twelve Months 2012 were offset by growth in lender-placed homeowners net earned premiums and lower non-catastrophe losses. Assurant Solutions net income decreased $12,297, or 9%, to $123,753for Twelve Months 2012 from $136,050for Twelve Months 2011. This decrease was largely due to a fourth quarter charge of $20,373(after-tax) for the impairment of certain other intangible assets established primarily in connection with acquisitions of two U.K.mortgage insurance brokers in 2007, and a fourth quarter workforce restructuring charge of $7,724(after-tax) primarily relating to our domestic credit and European operations. Twelve Months 2012 also included $6,362(after-tax) of income from client related settlements. Absent these items, international results improved primarily from continued growth and favorable experience in Latin America. Overall, Assurant Solutions' international combined ratio was 104.8%. In 2013, we expect this combined ratio to continue to improve primarily from expected profitable growth in Latin Americaand additional expense initiatives in Europe. Domestic results declined primarily from the previously disclosed loss of a mobile client, effective October 2012, increased expenses in our mobile and vehicle services businesses to enhance our technology platform and support new business growth, and less favorable underwriting experience in our service contract business. These factors increased our domestic combined ratio to 98.9%. We expect the domestic combined ratio to remain near our target of 98.0% in 2013.
Fee income and sales from our preneed business also improved during Twelve Months 2012, primarily due to our strong relationship with SCI.
Overall, we expect modest premium growth at Assurant Solutions in 2013. We also expect to continue our expense management initiatives in this segment.
Assurant Specialty Property net income increased
$1,228, or less than 1%, to $304,951for Twelve Months 2012 from $303,723for Twelve Months 2011. The increase is due to increased lender-placed homeowners net earned premiums, growth in our multifamily housing business and lower non-catastrophe losses, mainly offset by an increase in reportable catastrophe losses of $60,165(after-tax). The growth in net earned premiums was driven by lender-placed loan portfolio additions and increased placement rates. Our placement rate for Twelve Months 2012 was 2.87% compared to 2.75% in Twelve Months 2011. The 2.87% placement rate is high, compared to historical standards, due to the impact of the new loan portfolios added throughout 2012. We expect placement rates in the near term to fluctuate, reflecting the state of the housing market and the changing composition of our tracked loan portfolios, but we expect placement rates to ultimately decline as the housing market stabilizes. In late 2012, we began a multi-phased roll-out of our new next generation product to respond to the changed environment following the housing crisis. Features of the product include: expanded geographic rating, added premium rating flexibility and continued enhancements to our customer notification process. Our next generation product is available in 14 states and we expect to implement it in 14 more states by the end of the second quarter 2013, with a full roll-out to all other states by the end of 2013. As we have disclosed, we continue to engage in discussions with various state and federal regulatory departments regarding our lender-placed insurance program. For additional detail on certain of these discussions please refer to Assurant Specialty Property's results of operations section further below in this Item 7. 43 -------------------------------------------------------------------------------- For 2013, we expect Assurant Specialty Property's revenue to increase slightly from 2012 due to growth in our lender-placed portfolio and multi-family housing products. We expect overall results to continue to be influenced by placement rate trends, premium rate changes, loan portfolio activity, client renewals, and catastrophe losses. We expect our expense ratio to remain approximately level with 2012 as we continue to improve efficiency while further improving client and customer service. We also expect our non-catastrophe loss ratio to increase due to anticipated higher frequency of such losses compared to a mild winter in 2012.