ASSURANT INC – 10-Q – Management’s Discussion and Analysis of Financial Condition and Results of Operations

Edgar Online, Inc.

(Dollar amounts in thousands)

  This Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") addresses the financial condition of Assurant, Inc. and its subsidiaries (which we refer to collectively as "Assurant" or the "Company") as of June 30, 2013, compared with December 31, 2012, and our results of operations for the three and six months ended June 30, 2013 and 2012. This discussion should be read in conjunction with our MD&A and annual audited consolidated financial statements as of December 31, 2012 included in our Annual Report on Form 10-K for the year ended December 31, 2012 filed with the U.S. Securities and Exchange Commission (the "SEC") and the June 30, 2013 unaudited consolidated financial statements and related notes included elsewhere in this Form 10-Q. The 2012 Annual Report on Form 10-K, Second Quarter 2013 Form 10-Q, and other documents related to the Company are available free of charge through the SEC website at www.sec.gov and through our website at www.assurant.com.  Some of the statements in this MD&A and elsewhere in this report, particularly those anticipating future financial performance, business prospects, growth and operating strategies and similar matters, are forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. You can identify these statements by the fact that they may use words such as "will," "may," "anticipates," "expects," "estimates," "projects," "intends," "plans," "believes," "targets," "forecasts," "potential," "approximately," or the negative version of those words and other words and terms with a similar meaning. Any forward-looking statements contained in this report are based upon our historical performance and on current plans, estimates and expectations. The inclusion of this forward-looking information should not be regarded as a representation by us or any other person that the future plans, estimates or expectations contemplated by us will be achieved. Our actual results might differ materially from those projected in the forward-looking statements. The Company undertakes no obligation to update or review any forward-looking statement, whether as a result of new information, future events or other developments.  In addition to the factors described under "Critical Factors Affecting Results," the following risk factors could cause our actual results to differ materially from those currently estimated by management:    

(i) actions by governmental agencies or government sponsored entities or other

circumstances, including pending regulatory matters affecting our

lender-placed insurance business, that could result in reductions of the

      premium rates we charge, increases in the claims we pay, fines or       penalties, or other expenses;    

(ii) the effects of the Patient Protection and Affordable Care Act and the

Health Care and Education Reconciliation Act of 2010, and the rules and

regulations thereunder (together the "Affordable Care Act"), on our health

      and employee benefits businesses;    

(iii) loss of significant client relationships, distribution sources and

      contracts;    

(iv) unfavorable outcomes in litigation and/or regulatory investigations that

      could negatively affect our business and reputation;    

(v) current or new laws and regulations that could increase our costs and

      decrease our revenues;    

(vi) losses due to natural and man-made catastrophes;

(vii) a decline in our credit or financial strength ratings (including the risk

      of ratings downgrades in the insurance industry);    

(viii) deterioration in the Company's market capitalization compared to its book

       value that could result in further impairment of goodwill;    

(ix) risks related to outsourcing activities;

(x) failure to attract and retain sales representatives or key managers;

    (xi)  general global economic, financial market and political conditions

(including difficult conditions in financial, capital credit and currency

markets, the global economic slowdown, fluctuations in interest rates or a

prolonged period of low interest rates, monetary policies, unemployment and

      inflationary pressure);    

(xii) inadequacy of reserves established for future claims;

(xiii) failure to predict or manage benefits, claims and other costs;

(xiv) uncertain tax positions and unexpected tax liabilities;

(xv) fluctuations in exchange rates and other risks related to our international

      operations;    

(xvi) unavailability, inadequacy and unaffordable pricing of reinsurance

      coverage;    

(xvii) significant competitive pressures in our business;

(xviii) diminished value of invested assets in our investment portfolio (due to,

among other things, volatility in financial markets; the global economic

        slowdown; credit, currency and liquidity risk; other than temporary         impairments and increases in interest rates);    

(xix) insolvency of third parties to whom we have sold or may sell businesses

      through reinsurance or modified co-insurance;    

(xx) inability of reinsurers to meet their obligations;

(xxi) credit risk of some of our agents in Assurant Specialty Property and

      Assurant Solutions;    

(xxii) cyber security threats and cyber attacks

(xxiii) failure to effectively maintain and modernize our information systems;

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--------------------------------------------------------------------------------   Table of Contents (xxiv) data breaches compromising client information and privacy;     

(xxv) failure to find and integrate suitable acquisitions and new ventures;

(xxvi) inability of our subsidiaries to pay sufficient dividends;

(xxvii) failure to provide for succession of senior management and key

        executives; and    

(xxviii) cyclicality of the insurance industry.

For a more detailed discussion of the risk factors that could affect our actual results, please refer to "Item 1A-Risk Factors" and "Item 7-MD&A Critical Factors Affecting Results" in our 2012 Annual Report on Form 10-K and First Quarter 2013 Form 10-Q.

Executive Summary

Assurant has five reportable segments. Our four operating segments are Assurant Solutions, Assurant Specialty Property, Assurant Health, and Assurant Employee Benefits. These operating segments partner with clients who are leaders in their industries in the United States of America (the "U.S.") and select worldwide markets. The operating segments provide warranties and service contracts, pre-funded funeral insurance, debt protection administration, credit-related insurance, lender-placed homeowners insurance, renters insurance and related products, manufactured housing homeowners insurance, individual health and small employer group health insurance, group dental insurance, group disability insurance and reinsurance, group life insurance, group vision and supplemental insurance.  Our fifth segment, Corporate & Other, includes activities of the holding company, financing and interest expenses, net realized gains and losses on investments, interest income earned from short-term investments held and additional costs associated with excess of loss reinsurance programs reinsured and ceded to certain subsidiaries in the London market between 1995 and 1997. Corporate & Other also includes the amortization of deferred gains associated with the sales of Fortis Financial Group and Long-Term Care through reinsurance agreements.  The following discussion relates to the three and six months ended June 30, 2013 ("Second Quarter 2013" and "Six Months 2013") and the three and six months ended June 30, 2012 ("Second Quarter 2012" and "Six Months 2012").  Consolidated net income decreased $35,647, or 21%, to $133,523 in Second Quarter 2013, compared with $169,170 for Second Quarter 2012. For Six Months 2013, consolidated net income decreased $81,127, or 24%, to $251,303, compared with $332,430 for Six Months 2012.  Assurant Solutions net income decreased to $31,391 for Second Quarter 2013 from $40,363 for Second Quarter 2012. In our preneed business, results declined primarily due to lower investment yields and expenses increased as a result of higher amortization of selling expenses due to growth. In addition, Second Quarter 2013 results reflect a $2,741 (after-tax) charge for a reduction in force in Europe and the previously disclosed loss of a mobile client. Second Quarter 2012 results benefitted from $3,762 (after-tax) in client related settlements.  Net earned premiums and fees at Assurant Solutions increased to $774,565, or 7% for Second Quarter 2013 compared with $721,684 for Second Quarter 2012. Growth in domestic net earned premiums reflects promotional activity at an existing service contract client as well as increased vehicle service contract business. International net earned premiums increased primarily due to expansion in Brazil and Mexico.  We continue to expand our mobile business and recently announced that Assurant Solutions has added new programs with two large domestic mobile carriers. We expect the business from these programs to more than offset the previously disclosed loss of a mobile client.  The international combined ratio declined 250 basis points, excluding $5,700 of favorable client related settlements in Second Quarter 2012 and the $3,560 restructuring charge in Europe in Second Quarter 2013. Growth in Latin America and previous expense management actions contributed to the improvement. We expect these factors to continue to drive improvement in the international combined ratio through 2013. Our domestic combined ratio for Second Quarter 2013 decreased slightly to 97.6% from 97.9% in Second Quarter 2012, and remains below our long-term target of 98.0% due to expense savings actions taken in 2012.  

Overall, we expect modest premium growth at Assurant Solutions in 2013, reflecting increased sales in domestic and international service contracts. We also plan to continue our expense management efforts.

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  Assurant Specialty Property net income increased $14,198 to $106,520 for Second Quarter 2013 from $92,322 for Second Quarter 2012. The increase was primarily driven by revenue growth from lender-placed loan portfolios added during the past year and the continued expansion of our multi-family housing business. For Six Months 2013 we added 2.6 million loans and expect to add another 1.0 million loans during third quarter 2013. These additional 1.0 million loans will begin to produce net earned premiums later in the year. Our placement rate on lender-placed loans tracked was 2.81% for the Second Quarter 2013 compared with 2.83% in Second Quarter 2012. We continue to expect that placement rates will fluctuate in the near term, reflecting the composition of newly added loan portfolios, but will decline over the longer term.  On April 1, 2013, as a result of the discontinuation of a client quota share arrangement, we began retaining premiums and underwriting risk from a previously reinsured client. Premiums written prior to this date, and the associated claims, will continue to be ceded proportionately as they run off over the next year.  In 2012, we began a multi-phased roll-out of our new next generation lender-placed insurance product to respond to the changed environment following the housing downturn. This product is now available in 28 states and we expect it to be available in 10 more approved states by the end of the third quarter. We also filed new product forms and rates in Florida and New York, which are currently undergoing review.  As previously disclosed, we continue to engage in discussions with various state regulatory and federal departments regarding our lender-placed insurance program. During Six Months 2013 we reached a settlement with the New York Department of Financial Services ("NYDFS") regarding our lender-placed insurance program in that state. Please refer to Assurant Specialty Property's results of operations section further below in this Item 2 for details on this settlement.  Overall, we expect Assurant Specialty Property's revenues to increase compared to 2012 due to higher volume in lender-placed loan portfolios, the discontinuation of the above-mentioned client reinsurance agreement and growth in multi-family housing products. We expect overall results to continue to be affected by changes in placement rates, loan portfolio activity, premium rates and catastrophe losses. We expect our expense ratio, excluding the effect of the NYDFS settlement, to increase in 2013, primarily reflecting increased costs to support new loan portfolio growth and customer service enhancements. We also expect our non-catastrophe loss ratio to increase due to anticipated higher frequency of such losses compared to 2012.  Assurant Health's net income decreased to $4,083 for Second Quarter 2013 from $28,932 for Second Quarter 2012. The decrease was primarily due to the absence of $13,856 (after-tax) of net investment income from real estate joint venture partnerships that was included in Second Quarter 2012 results, and a higher effective income tax rate due to limitations on the deductibility of compensation.  

Assurant Health's loss ratio increased to 75.2% for Second Quarter 2013 from 73.0% for Second Quarter 2012, reflecting less favorable loss experience compared with prior period and pricing changes in response to the minimum medical loss ratio on our major medical business.

  We expect ongoing changes related to healthcare reform to continue to affect Assurant Health over the rest of 2013. We expect net earned premiums to decline compared with 2012 but overall insured lives to increase as consumers look for affordable health care alternatives. In addition, we will continue our expense management efforts. We continue to anticipate our effective tax rate will be elevated due to higher non-deductible compensation expenses.  At Assurant Employee Benefits, net income declined to $11,474 for Second Quarter 2013 from $18,621 for Second Quarter 2012. This decline was primarily due to less favorable disability results, reflecting lower recoveries in Second Quarter 2013, and the previously disclosed reduction in the discount rate for new disability claim reserves.  Net earned premiums increased slightly for Second Quarter 2013 compared with Second Quarter 2012, driven by higher dental sales. Assurant Employee Benefit continues to emphasize enrollment and administrative services for voluntary benefit plans.  

Overall, for 2013, we expect net earned premiums and fees to be consistent with 2012 due to continued growth in voluntary products.

Critical Factors Affecting Results and Liquidity

  Our results depend on the appropriateness of our product pricing, underwriting and the accuracy of our methodology for the establishment of reserves for future policyholder benefits and claims, returns on and values of invested assets and our ability to manage our expenses. Factors affecting these items, including unemployment, difficult conditions in financial markets and the global                                           46

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  economy, may have a material adverse effect on our results of operations or financial condition. For more information on these factors, see "Item 1A-Risk Factors" and "Item 7-MD&A Critical Factors Affecting Results" in our 2012 Annual Report on Form 10-K.  Management believes the Company will have sufficient liquidity to satisfy its needs over the next twelve months including the ability to pay interest on our debt and dividends on our common stock.  For the six months ended June 30, 2013, net cash provided by operating activities, including the effect of exchange rate changes on cash and cash equivalents, totaled $261,096; net cash used in investing activities totaled $(343,602) and net cash provided by financing activities totaled $443,497. We had $1,270,395 in cash and cash equivalents as of June 30, 2013. Please see "-Liquidity and Capital Resources," below for further details.  

Critical Accounting Policies and Estimates

  Our 2012 Annual Report on Form 10-K described the accounting policies and estimates that are critical to the understanding of our results of operations, financial condition and liquidity. The accounting policies and estimation process described in the 2012 Annual Report on Form 10-K were consistently applied to the unaudited interim consolidated financial statements for Second Quarter 2013.  The Assurant Health loss ratio reported on page 55 (the "GAAP loss ratio") differs from the loss ratio calculated under the minimum medical loss ratio ("MLR"). The most significant differences include the fact that the MLR is calculated separately by state and legal entity; the MLR calculation includes credibility adjustments for each entity, which are not applicable to the GAAP loss ratio; the MLR calculation applies only to some of our health insurance products, while the GAAP loss ratio applies to the entire portfolio, including products not governed by the Affordable Care Act; the MLR includes quality improvement expenses, taxes and fees; changes in reserves are treated differently in the MLR calculation; and the MLR premium rebate amounts are considered adjustments to premiums for GAAP reporting whereas they are reported as additions to incurred claims in the MLR rebate estimate calculations.  Assurant Health has estimated its Second Quarter 2013 impact of this regulation based on definitions and calculation methodologies outlined in the Interim Final Regulation from HHS released December 1, 2010 with Technical Corrections released December 29, 2010 and the HHS Final Regulation released December 7, 2011. An estimate was based on separate projection models for individual medical and small group business using projections of expected premiums, claims, and enrollment by state, legal entity and market for medical business subject to MLR requirements for the MLR reporting year. In addition, the projection models include quality improvement expenses, state assessments and taxes.                                           47

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  Table of Contents  Assurant Consolidated  Overview  The table below presents information regarding our consolidated results of operations:                                                 For the Three Months               For the Six Months                                                 Ended June 30,                    Ended June 30,                                             2013             2012             2013             2012 Revenues: Net earned premiums                      $ 1,916,414$ 1,792,236$ 3,766,862$ 3,569,297 Net investment income                        163,924          199,314          329,909          371,609 Net realized gains on investments             20,857           18,175           33,895           25,719 Amortization of deferred gain on disposal of businesses                         4,072            4,596            8,164            9,217 Fees and other income                        132,499          114,969          249,559          226,372  Total revenues                             2,237,766        2,129,290        4,388,389        4,202,214  Benefits, losses and expenses: Policyholder benefits                        916,950          872,027        1,774,311        1,728,385 Selling, underwriting and general expenses (1)                               1,088,529          977,528        2,160,289        1,929,370 Interest expense                              21,520           15,074           36,598           30,150 

Total benefits, losses and expenses 2,026,999 1,864,629

3,971,198 3,687,905

  Income before provision for income taxes                                        210,767          264,661          417,191          514,309 Provision for income taxes                    77,244           95,491          165,888          181,879  Net income                               $   133,523$   169,170$   251,303$   332,430

(1) Includes amortization of deferred acquisition costs ("DAC") and value of

business acquired ("VOBA").

   The following discussion provides a general overall analysis of how the consolidated results were affected by our four operating segments and our Corporate and Other segment for Second Quarter 2013 and Six Months 2013, and Second Quarter 2012 and Six Months 2012. Please see the discussion that follows, for each of these segments, for a more detailed analysis of the fluctuations.  

For the Three Months Ended June 30, 2013 Compared to the Three Months Ended June 30, 2012

Net Income

  The Company reported net income of $133,523 in Second Quarter 2013, a decrease of $35,647, or 21%, compared with $169,170 of net income for Second Quarter 2012. The decrease was primarily due to a $23,004 (after-tax) decline in net investment income, including $17,529 (after-tax) of additional investment income from real estate joint venture partnerships in Second Quarter 2012 compared with Second Quarter 2013. In addition, results in our Assurant Solutions, Assurant Health and Assurant Employee Benefits segments declined, partially offset by improved results in our Assurant Specialty Property segment.  

For the Six Months Ended June 30, 2013 Compared to the Six Months Ended June 30, 2012

  Net Income  The Company reported net income of $251,303 for Six Months 2013, a decrease of $81,127, or 24%, compared with $332,430 of net income for Six Months 2012. The decrease was primarily due to a $27,105 (after-tax) decline in net investment income, including $16,024 (after-tax) of additional investment income from real estate joint venture partnerships in Six Months 2012 compared with Six Months 2013. In addition, Six Months 2013 includes a $14,000 (non tax-deductible) settlement with the New                                           48 

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York Department of Financial Services ("NYDFS") and a $9,351 (after-tax) increase in reportable catastrophe losses in our Assurant Specialty Property segment. For additional detail on the NYDFS settlement, please refer to Assurant Specialty Property's results of operations section further below in this Item 2. Also contributing to the decline was a $10,205 tax liability increase due to a change in estimated non-deductible compensation expenses related to the Affordable Care Act.                                           49 

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  Table of Contents  Assurant Solutions  Overview  The tables below present information regarding Assurant Solutions' segment results of operations:                                               For the Three Months                   For the Six Months                                               Ended June 30,                        Ended June 30,                                          2013               2012               2013               2012 Revenues: Net earned premiums                   $   681,827$   645,465$ 1,371,327$ 1,272,413 Net investment income                      94,428            100,332            189,657            199,643 Fees and other income                      92,738             76,219            171,850            148,659  Total revenues                            868,993            822,016          1,732,834          1,620,715  Benefits, losses and expenses: Policyholder benefits                     209,713            210,188            421,450            419,996 Selling, underwriting and general expenses                                  608,948            551,044        

1,208,558 1,074,221

  Total benefits, losses and expenses                                  818,661            761,232        

1,630,008 1,494,217

  Segment income before provision for income taxes                           50,332             60,784            102,826            126,498 Provision for income taxes                 18,941             20,421             36,528             42,735  Segment net income                    $    31,391$    40,363$    66,298$    83,763   Net earned premiums: Domestic: Credit                                $    39,584$    41,283$    81,316$    84,115 Service contracts                         332,278            310,548            669,413            616,382 Other (1)                                  20,752             19,272             41,293             33,317  Total domestic                            392,614            371,103            792,022            733,814  International: Credit                                     95,962            109,666            192,740            216,056 Service contracts                         168,022            136,970            336,194            266,031 Other (1)                                   7,672              6,975             15,280             13,880  Total international                       271,656            253,611            544,214            495,967  Preneed                                    17,557             20,751             35,091             42,632  Total                                 $   681,827$   645,465$ 1,371,327$ 1,272,413  Fees and other income: Domestic: Debt protection                       $     7,526$     7,086$    14,022$    14,051 Service contracts                          43,131             31,182             76,551             62,197 Other (1)                                   1,412                778              4,099              2,223  Total domestic                             52,069             39,046             94,672             78,471  International                              10,160             12,690             18,587             21,837 Preneed                                    30,509             24,483             58,591             48,351  Total                                 $    92,738$    76,219$   171,850$   148,659  Gross written premiums (2): Domestic: Credit                                $    94,942$    98,122$   184,616$   191,364 Service contracts                         522,034            472,156            962,356            863,850 Other (1)                                  28,932             32,056             56,890             55,329  Total domestic                            645,908            602,334          1,203,862          1,110,543  International: Credit                                    243,814            249,001            486,361            496,330 Service contracts                         181,358            153,838            357,950            315,361 Other (1)                                  12,533             11,414             24,097             22,464  Total international                       437,705            414,253            868,408            834,155  Total                                 $ 1,083,613$ 1,016,587$ 2,072,270$ 1,944,698  Preneed (face sales)                  $   256,913$   233,987$   486,391$   446,150  Combined ratios (3): Domestic                                     97.6 %             97.9 %             97.2 %             97.1 % International                               102.1 %            101.1 %            102.2 %            101.4 %                                            50 

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(1) This includes emerging products and run-off product lines.

(2) Gross written premiums does not necessarily translate to an equal amount of

subsequent net earned premiums since Assurant Solutions reinsures a portion

of its premiums to insurance subsidiaries of its clients.

(3) The combined ratio is equal to total benefits, losses and expenses divided by

net earned premiums and fees and other income excluding the preneed business.

For the Three Months Ended June 30, 2013 Compared to the Three Months Ended June 30, 2012

Net Income

  Segment net income decreased $8,972, or 22%, to $31,391 for Second Quarter 2013 from $40,363 for Second Quarter 2012, primarily due to lower investment yields and higher selling expenses associated with growth in our preneed business as well as the previously disclosed loss of a mobile client. Results also include restructuring charges of $2,741 (after-tax) in Europe. Second Quarter 2012 included $3,762 (after-tax) of favorable client related settlements.  

Total Revenues

  Total revenues increased $46,977, or 6%, to $868,993 for Second Quarter 2013 from $822,016 for Second Quarter 2012. The increase was mainly the result of higher net earned premiums of $36,362, primarily in our international and domestic service contract businesses. International service contract net earned premiums increased primarily due to expansion in Latin America including mobile; this increase was partially offset by the unfavorable impact of changes in foreign exchange rates. Domestic net earned premiums increased mostly due to growth from an existing service contract client and in vehicle service contracts. Fees and other income increased $16,519, mostly driven by growth in our domestic wireless business, and increased sales in our preneed business. In addition Second Quarter 2012 included $5,700 of Latin American client-related settlements.  Gross written premiums increased $67,026, or 7%, to $1,083,613 for Second Quarter 2013 from $1,016,587 for Second Quarter 2012. Gross written premiums from our domestic service contract business increased $49,878 from both new and existing automotive and retail clients. Second Quarter 2012 included a one-time benefit of $33,200 related to a correction of a client reporting error, which had no impact on net income due to the recording of an offsetting deferred commission amount. Our international service contract business increased $27,520 primarily due to growth in Latin America from new and existing clients. This increase was partially offset by the unfavorable impact of changes in foreign exchange rates.                                           51 

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  Preneed face sales increased $22,926 or 10%, to $256,913 for Second Quarter 2013 from $233,987 for Second Quarter 2012. This increase was mostly attributable to growth from our exclusive distribution partnership with Service Corporation International ("SCI"), the largest funeral provider in North America. This exclusive distribution partnership is effective through September 29, 2014.  

Total Benefits, Losses and Expenses

  Total benefits, losses and expenses increased $57,429, or 8%, to $818,661 for Second Quarter 2013 from $761,232 for Second Quarter 2012. Policyholder benefits remained relatively consistent while selling, underwriting and general expenses increased $57,904. Commissions, taxes, licenses and fees, of which amortization of DAC is a component, increased $55,587 due to earnings in our domestic service contract and international businesses. General expenses increased $2,317 primarily due to higher restructuring charges in Europe, higher costs to support growth in Latin America and increased expenses related to a new domestic wireless program. These items were partially offset by expense savings in our domestic credit, domestic service contract, and European businesses.  

For the Six Months Ended June 30, 2013 Compared to the Six Months Ended June 30, 2012

  Net Income  Segment net income decreased $17,465, or 21%, to $66,298 for Six Months 2013 from $83,763 for Six Months 2012. The decrease was primarily due to the previously disclosed loss of a mobile client effective October 1, 2012 and reduced results in our preneed business due to lower investment yields, higher mortality experience and higher selling expenses associated with growth. Results also include restructuring charges of $2,741 (after-tax) in Europe, and higher expenses associated with business growth, primarily in Latin America. Six Months 2012 included favorable client-related settlements of $3,762 (after-tax) and a one-time premium tax liability release of $2,405 (after-tax) in Canada.  

Total Revenues

  Total revenues increased $112,119, or 7%, to $1,732,834 for Six Months 2013 from $1,620,715 for Six Months 2012. The increase was mainly the result of higher net earned premiums of $98,914, primarily in our international and domestic service contract businesses. International service contract net earned premiums increased due to growth in Latin America, partially offset by the unfavorable impact of changes in foreign exchange rates. Domestic service contract net earned premiums increased mostly from an existing service contract client as well as additional vehicle service contract clients, partially offset by a previously disclosed loss of a mobile client. Fees and other income increased $23,191, mostly driven by a new program in our domestic wireless business, and increased sales in our preneed business. In addition, Six Months 2012 included $5,700 of Latin American client-related settlements.  Gross written premiums increased $127,572, or 7%, to $2,072,270 for Six Months 2013 from $1,944,698 for Six Months 2012. Gross written premiums from our domestic service contract business increased $98,506 primarily from both new and existing automotive and retail clients. Six Months 2012 included a one-time benefit of $33,200 related to a correction of a client reporting error, which had no impact on net income due to the recording of an offsetting deferred commission amount. Our international service contract business increased $42,589 primarily due to growth from new and existing clients in Latin America and Europe, partially offset by the unfavorable impact of changes in foreign exchange rates.  

Preneed face sales increased $40,241, to $486,391 for Six Months 2013 from $446,150 for Six Months 2012. This increase was mostly attributable to growth from our exclusive distribution partnership with SCI.

Total Benefits, Losses and Expenses

  Total benefits, losses and expenses increased $135,791, or 9%, to $1,630,008 for Six Months 2013 from $1,494,217 for Six Months 2012. Policyholder benefits increased $1,454 primarily due to higher mortality experience in our preneed business, partially offset by decreases in certain domestic lines of business that are in run-off. Selling, underwriting and general expenses increased $134,337. Commissions, taxes, licenses and fees, of which amortization of DAC is a component, increased $140,997 due to higher earnings in our international and domestic service contract businesses. General expenses decreased $6,660 due to expense savings in our domestic credit and service contract businesses, as well as in Europe, as a result of a 2012 restructuring. These items were partially offset by restructuring charges in Europe, increased expenses related to a new domestic wireless program and the recognition of a one-time premium tax liability release in Canada of $3,700 in Six Months 2012.                                           52

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  Table of Contents  Assurant Specialty Property  Overview 

The tables below present information regarding Assurant Specialty Property's segment results of operations:

                                               For the Three Months                  For the Six Months                                               Ended June 30,                       Ended June 30,                                            2013             2012              2013               2012 Revenues: Net earned premiums                     $  585,760$ 491,989$ 1,115,559$   976,189 Net investment income                       25,142           27,686             50,904             52,387 Fees and other income                       26,229           23,489             52,416             47,628  Total revenues                             637,131          543,164          1,218,879          1,076,204  Benefits, losses and expenses: Policyholder benefits                      234,323          199,887            421,046            355,597 Selling, underwriting and general expenses                                   244,181          202,960            489,460            409,972  

Total benefits, losses and expenses 478,504 402,847

    910,506            765,569  Segment income before provision for income taxes                               158,627          140,317            308,373            310,635 Provision for income taxes                  52,107           47,995            107,609            105,309  Segment net income                      $  106,520$  92,322

$ 200,764$ 205,326

   Net earned premiums: Homeowners (lender-placed and voluntary)                              $  412,395$ 336,837$   774,872$   665,967 Manufactured housing (lender-placed and voluntary)                              56,464           50,631            110,917            101,454 Other (1)                                  116,901          104,521            229,770            208,768  Total                                   $  585,760$ 491,989$ 1,115,559$   976,189  Ratios: Loss ratio (2)                                40.0 %           40.6 %             37.7 %             36.4 % Expense ratio (3)                             39.9 %           39.4 %             41.9 %             40.0 % Combined ratio (4)                            78.2 %           78.2 %             78.0 %             74.8 %    

(1) This primarily includes lender-placed flood, miscellaneous specialty property

and multi-family housing insurance products.

(2) The loss ratio is equal to policyholder benefits divided by net earned

premiums.

(3) The expense ratio is equal to selling, underwriting and general expenses

divided by net earned premiums and fees and other income.

(4) The combined ratio is equal to total benefits, losses and expenses divided by

net earned premiums and fees and other income.

Regulatory Matters

  On March 21, 2013, the Company and two of its wholly owned subsidiaries, American Security Insurance Company ("ASIC") and American Bankers Insurance Company of Florida ("ABIC"), reached an agreement with the NYDFS regarding the Company's lender-placed insurance business in the State of New York. Under the terms of the agreement, and without admitting or denying any wrongdoing, ASIC made a $14,000 settlement payment to the NYDFS. In addition, among other things, ASIC and ABIC agreed to modify certain business practices in accordance with requirements that apply to all New York-licensed lender-placed insurers of properties in the state, and filed our new lender-placed program and new rates in New York.  Assurant Specialty Property's business strategy has been to pursue long-term growth in lender-placed homeowners insurance and adjacent markets with similar characteristics, such as lender-placed flood insurance and lender-placed mobile home insurance. Lender-placed insurance products accounted for approximately 72% and 71% of Assurant Specialty Property's net earned premiums for Six Months 2013 and full year 2012, respectively. The approximate corresponding contributions to segment net income in these periods were 86% and 90%, respectively. The portion of total segment net income attributable to lender-placed products may vary substantially over time depending on the frequency, severity and location of catastrophic losses, the cost of catastrophe reinsurance and reinstatement coverage, the variability of claim processing costs and client acquisition costs, and other factors. In addition, we expect placement rates for these products to decline.                                             53 

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For the Three Months Ended June 30, 2013 Compared to the Three Months Ended June 30, 2012

Net Income

  Segment net income increased $14,198, or 15%, to $106,520 for Second Quarter 2013 from $92,322 for Second Quarter 2012. The increase is primarily due to an increase in lender-placed homeowners net earned premiums attributable to loan portfolios that were added during the past twelve months and growth in our multi-family housing business. Partially offsetting these items is an increase in general expenses to support the growth in the homeowners business.  

Total Revenues

  Total revenues increased $93,967, or 17%, to $637,131 for Second Quarter 2013 from $543,164 for Second Quarter 2012, driven primarily by growth in lender-placed homeowners net earned premiums mainly due to loan portfolio growth and increased revenues from our multi-family housing business.  

Total Benefits, Losses and Expenses

  Total benefits, losses and expenses increased $75,657 or 19%, to $478,504 for Second Quarter 2013 from $402,847 for Second Quarter 2012. The loss ratio decreased 60 basis points primarily due to lower reportable catastrophe losses of $14,098 in Second Quarter 2013 compared to reportable catastrophe losses of $15,117 in Second Quarter 2012. Reportable catastrophe losses include only individual catastrophic events that generated losses to the Company in excess of $5,000, pre-tax and net of reinsurance. The expense ratio increased by 50 basis points in Second Quarter 2013 primarily due to an increase in operating costs to support loan portfolio growth.  

For the Six Months Ended June 30, 2013 Compared to the Six Months Ended June 30, 2012

  Net Income  Segment net income decreased $4,562, or 2%, to $200,764 for Six Months 2013 from $205,326 for six months 2012. The decrease is primarily due to a $14,000 (non tax-deductible) settlement with the NYDFS, and an increase in operating expenses to support loan portfolio growth. Reportable catastrophe losses also increased $9,351 (after-tax). Partially offsetting these items is increased lender-placed homeowners net earned premiums primarily due to loan portfolios added during the past twelve months.  Total Revenues  Total revenues increased $142,675, or 13%, to $1,218,879 for Six Months 2013 from $1,076,204 for Six Months 2012, driven primarily by growth in lender-placed homeowners net earned premiums, mainly due to loan portfolio growth and increased revenues from our multifamily housing business.  

Total Benefits, Losses and Expenses

  Total benefits, losses and expenses increased $144,937 or 19%, to $910,506 for Six Months 2013 from $765,569 for Six Months 2012. The loss ratio increased 130 basis points with a 110 basis point increase due to higher reportable catastrophe losses of $29,503 in Six Months 2013 compared to $15,117 of reportable catastrophe losses in Six Months 2012. Reportable catastrophe losses include only individual catastrophic events that generated losses to the Company in excess of $5,000, pre-tax and net of reinsurance. The expense ratio increased 190 basis points in Six Months 2013 primarily due to regulatory expenses including a $14,000 (non tax-deductible) settlement with the NYDFS and an increase in operating costs to support business growth.                                           54

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  Table of Contents  Assurant Health  Overview  The tables below present information regarding Assurant Health's segment results of operations:                                                     For the Three Months             For the Six Months                                                     Ended June 30,                  Ended June 30,                                                  2013            2012            2013            2012 Revenues: Net earned premiums                           $  395,566$ 403,029$ 774,775$ 810,502 Net investment income                              9,346          32,278          18,693          43,406 Fees and other income                              7,355           7,612          13,431          15,367  Total revenues                                   412,267         442,919         806,899         869,275  Benefits, losses and expenses: Policyholder benefits                            297,278         294,033         572,773         596,517 Selling, underwriting and general expenses       102,596         102,154    

207,265 206,505

  Total benefits, losses and expenses              399,874         396,187    

780,038 803,022

  Segment income before provision for income taxes                                             12,393          46,732          26,861          66,253 Provision for income taxes                         8,310          17,800          28,121          25,706  Segment net income (loss)                     $    4,083$  28,932$  (1,260 )$  40,547   Net earned premiums: Individual                                    $  296,049$ 298,317$ 577,655$ 599,470 Small employer group                              99,517         104,712         197,120         211,032  Total                                         $  395,566$ 403,029$ 774,775$ 810,502  Insured lives by product line: Individual                                                                           727             623 Small employer group                                                                 112             115  Total                                                                                839             738  Ratios: Loss ratio (1)                                      75.2 %          73.0 %          73.9 %          73.6 % Expense ratio (2)                                   25.5 %          24.9 %          26.3 %          25.0 % Combined ratio (3)                                  99.2 %          96.5 %          99.0 %          97.2 %    

(1) The loss ratio is equal to policyholder benefits divided by net earned

premiums.

(2) The expense ratio is equal to selling, underwriting and general expenses

divided by net earned premiums and fees and other income.

(3) The combined ratio is equal to total benefits, losses and expenses divided by

net earned premiums and fees and other income.

The Affordable Care Act

  Some provisions of the Affordable Care Act have taken effect already, and other provisions will become effective at various dates before the end of 2014. Given the sweeping nature of the changes represented by the Affordable Care Act, our results of operations and financial position could be materially adversely affected. For more information, see Item 1A, "Risk Factors - Risk related to our industry - Reform of the health care industry could make our health insurance business unprofitable" in our 2012 Annual Report on Form 10-K.                                           55

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For the Three Months Ended June 30, 2013 Compared to the Three Months Ended June 30, 2012

Net Income

  Segment net income decreased $24,849, or 86%, to $4,083 for Second Quarter 2013 from $28,932 for Second Quarter 2012. The decrease was primarily attributable to the absence of $13,584 (after-tax) of net investment income from real estate joint venture partnerships that was included in 2012 results, and a higher effective income tax rate due to limitations on the deductibility of compensation related to the Affordable Care Act.  

Total Revenues

  Total revenues decreased $30,652, or 7%, to $412,267 for Second Quarter 2013 from $442,919 for Second Quarter 2012. Net earned premiums from our individual markets business decreased $2,268, or 1%, due to a decline in individual major medical policies, partially offset by increased sales of lower priced supplemental and affordable choice products and premium rate increases. Net earned premiums from our small employer group business decreased $5,195, or 5%, due to fewer small group insured lives, partially offset by premium rate increases. Net investment income decreased $22,932, primarily due to less investment income from real estate joint venture partnerships. Second Quarter 2012 included $21,317 of investment income from real estate joint venture partnerships, while Second Quarter 2013 had $418.  

Total Benefits, Losses and Expenses

  Total benefits, losses and expenses increased $3,687, or 1%, to $399,874 for Second Quarter 2013 from $396,187 for Second Quarter 2012. Policyholder benefits increased $3,245, or 1%, and the benefit loss ratio increased to 75.2% from 73.0%. The increase in policyholder benefits was primarily attributable to less favorable loss experience, partially offset by a decline in business volume. The increase in the benefit loss ratio is due to less favorable loss experience and pricing changes in response to the medical minimum loss ratio related to our major medical business. Selling, underwriting and general expenses stayed relatively consistent.  

For the Six Months Ended June 30, 2013 Compared to the Six Months Ended June 30, 2012

  Net (Loss) Income  Segment results decreased $41,807 to a net loss of $1,260 for Six Months 2013 from net income of $40,547 for Six Months 2012. The decrease was primarily attributable to less favorable loss experience and a $10,205 tax liability increase in connection with the Affordable Care Act due to a change in estimated non-deductible compensation expenses. In addition, Six Months 2012 results included $13,359 (after-tax) more investment income from real estate joint venture partnerships than Six Months 2013.  

Total Revenues

  Total revenues decreased $62,376, or 7%, to $806,899 for Six Months 2013 from $869,275 for Six Months 2012. Net earned premiums from our individual markets business decreased $21,815, or 4%, due to a decline in individual major medical policies, partially offset by increased sales of lower priced supplemental and affordable choice products and premium rate increases. Net earned premiums from our small employer group business decreased $13,912, or 7%, due to fewer small group insured lives, partially offset by premium rate increases. Net investment income decreased $24,713, primarily due to less investment income from real estate joint venture partnerships.  

Total Benefits, Losses and Expenses

  Total benefits, losses and expenses decreased $22,984, or 3%, to $780,038 for Six Months 2013 from $803,022 for Six Months 2012. Policyholder benefits decreased $23,744, or 4%, while the benefit loss ratio increased to 73.9% from 73.6%. The decrease in policyholder benefits was primarily attributable to a decline in business volume, partially offset by higher loss experience. The slight increase in the benefit loss ratio was due to less favorable loss experience on individual major medical policies. Selling, underwriting and general expenses stayed relatively consistent.                                           56

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  Table of Contents  Assurant Employee Benefits  Overview 

The tables below present information regarding Assurant Employee Benefits' segment results of operations:

                                                For the Three Months           For the Six Months  Ended                                                 Ended June 30,                       June 30,                                               2013           2012             2013               2012 Revenues: Net earned premiums                        $  253,261$ 251,753$     505,201$ 510,193 Net investment income                          30,202         34,094             60,340           66,027 Fees and other income                           5,944          7,571             11,573           14,579  Total revenues                                289,407        293,418            577,114          590,799  Benefits, losses and expenses: Policyholder benefits                         174,174        167,919            357,580          356,275 Selling, underwriting and general expenses                                       97,861         97,286        

192,973 192,635

  Total benefits, losses and expenses           272,035        265,205        

550,553 548,910

  Segment income before provision for income taxes                                   17,372         28,213             26,561           41,889 Provision for income taxes                      5,898          9,592              9,004           14,204  Segment net income                         $   11,474$  18,621      $ 

17,557 $ 27,685

   Net earned premiums: Group dental                               $   95,031$  99,230$     191,065$ 198,697 Group disability                              101,289        101,152            201,475          206,991 Group life                                     48,465         46,462             96,094           95,300

Group supplemental and vision products 8,476 4,909

     16,567            9,205  Total                                      $  253,261$ 251,753$     505,201$ 510,193   Ratios: Loss ratio (1)                                   68.8 %         66.7 %             70.8 %           69.8 % Expense ratio (2)                                37.8 %         37.5 %             37.3 %           36.7 %    

(1) The loss ratio is equal to policyholder benefits divided by net earned

premiums.

(2) The expense ratio is equal to selling, underwriting and general expenses

    divided by net earned premiums and fees and other income.                                            57 

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For the Three Months Ended June 30, 2013 Compared to the Three Months Ended June 30, 2012

Net Income

  Segment net income decreased 38% to $11,474 for Second Quarter 2013 from $18,621 for Second Quarter 2012. The decline was primarily attributable to less favorable disability loss experience partially offset by favorable dental and life loss experience. Second Quarter 2013 results were also affected by lower net investment income compared to Second Quarter 2012. Additionally, Second Quarter 2013 results include a previously disclosed decrease in the new long-term disability claims reserve discount rate.  

Total Revenues

  Total revenues decreased 1% to $289,407 for Second Quarter 2013 from $293,418 for Second Quarter 2012. Second Quarter 2013 net earned premiums increased $1,508 or 1%. The increase in net earned premiums was primarily driven by growth in life and supplemental products partially offset by lower premiums from dental products. Net investment income decreased 11% or $3,892 driven by lower average invested assets as well as $2,393 less investment income from real estate joint venture partnerships in Second Quarter 2013 compared to Second Quarter 2012.  

Total Benefits, Losses and Expenses

  Total benefits, losses and expenses increased 3% to $272,035 for Second Quarter 2013 from $265,205 for Second Quarter 2012. The loss ratio increased to 68.8% from 66.7% primarily driven by unfavorable disability results partially offset by favorable dental and life loss experience. Disability results include a previously disclosed decrease in the reserve discount rate for new long-term disability claims. The expense ratio remained relatively flat compared to Second Quarter 2012.  

For the Six Months Ended June 30, 2013 Compared to the Six Months Ended June 30, 2012

  Net Income  Segment net income decreased 37% to $17,557 for Six Months 2013 from $27,685 for Six Months 2012. Results for Six Months 2013 were driven by unfavorable disability and life loss experience partially offset by favorable dental loss experience. Six Months 2013 results include a decrease in the reserve discount rate for new long-term disability claims. Additionally, Six Months 2013 results were also affected by lower net investment income compared to Six Months 2012.  

Total Revenues

  Total revenues decreased 2% to $577,114 for Six Months 2013 from $590,799 for Six Months 2012. Six Months 2013 net earned premiums decreased $4,992 or 1%. The decrease in net earned premiums was driven primarily by the previously disclosed loss of two assumed disability clients. Net investment income decreased 9% or $5,687 driven by lower average invested assets as well as $1,930 less investment income from real estate joint venture partnerships in Six Months 2013 compared to Six Months 2012.  

Total Benefits, Losses and Expenses

  Total benefits, losses and expenses increased less than 1% to $550,553 for Six Months 2013 from $548,910 for Six Months 2012. The loss ratio increased to 70.8% from 69.8% primarily driven by unfavorable disability and life loss experience partially offset by favorable dental loss experience. Expenses remained relatively flat.                                           58 

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Assurant Corporate & Other

  The table below presents information regarding the Corporate & Other segment's results of operations:                                                    For the Three Months             For the Six Months                                                    Ended June 30,                  Ended June 30,                                                 2013            2012            2013            2012 Revenues: Net investment income                        $    4,806$   4,924$  10,315$  10,146 Net realized gains on investments                20,857          18,175          33,895          25,719 Amortization of deferred gain on disposal of businesses                                     4,072           4,596           8,164           9,217 Fees and other income                               233              78             289             139  Total revenues                                   29,968          27,773          52,663          45,221  Benefits, losses and expenses: Policyholder benefits                             1,462               0           1,462               0 Selling, underwriting and general expenses                                         34,943          24,084          62,033          46,037 Interest expense                                 21,520          15,074          36,598          30,150  Total benefits, losses and expenses              57,925          39,158     

100,093 76,187

  Segment loss before benefit for income taxes                                           (27,957 )       (11,385 )       (47,430 )       (30,966 ) Benefit for income taxes                         (8,012 )          (317 )       (15,374 )        (6,075 )  Segment net loss                             $  (19,945 )$ (11,068 )$ (32,056 )$ (24,891 )

For the Three Months Ended June 30, 2013 Compared to the Three Months Ended June 30, 2012

Net Loss

  Segment net loss increased $8,877 to a net loss of $19,945 for Second Quarter 2013 compared with net loss of $11,068 for Second Quarter 2012. The increase is primarily related to increased employee benefit related expenses and additional investments in areas targeted for growth. In addition, interest expense increased $4,190 (after-tax) due to the issuance of senior notes with an aggregate principal amount of $700,000 on March 28, 2013.  

Total Revenues

  Total revenues increased $2,195 to $29,968 for Second Quarter 2013 compared with $27,773 for Second Quarter 2012. The increase in revenues is primarily due to increased net realized gains on investments.  

Total Benefits, Losses and Expenses

  Total expenses increased $18,767 to $57,925 for Second Quarter 2013 compared with $39,158 for Second Quarter 2012. The increase in expenses is primarily due to increased employee benefit related expenses, additional investments in areas targeted for growth and increased interest expense related to the March 28, 2013 debt issuance mentioned above.                                           59

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For the Six Months Ended June 30, 2013 Compared to the Six Months Ended June 30, 2012

  Net Loss  Segment net loss increased $7,165, to a net loss of $32,056 for Six Months 2013 compared with a net loss of $24,891 for Six Months 2012. The increase is primarily related to increased employee benefit related expenses and additional investments in areas targeted from growth. In addition, interest expense increased $4,190 (after-tax) due to the issuance of two series of senior notes with an aggregate principal amount of $700,000 on March 28, 2013. These items were partially offset by a $5,314 (after-tax) increase in net realized gains on investments.  Total Revenues  Total revenues increased $7,442, to $52,663 for Six Months 2013 compared with $45,221 for Six Months 2012. The increase in revenues is mainly due to increased net realized gains on investments.  

Total Benefits, Losses and Expenses

  Total expenses increased $23,906, to $100,093 in Six Months 2013 compared with $76,187 in Six Months 2012. The increase in expenses is mainly due to increased employee benefit related expenses, additional investments in areas targeted for growth and increased interest expense related to the March 28, 2013 debt issuance mentioned above.                                           60 

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Investments

The Company had total investments of $14,648,169 and $14,976,318 as of June 30, 2013 and December 31, 2012, respectively. For more information on our investments see Note 4 to the Notes to Consolidated Financial Statements included elsewhere in this report.

The following table shows the credit quality of our fixed maturity securities portfolio as of the dates indicated:

As of Fixed Maturity Securities by Credit Quality (Fair Value) June 30, 2013

               December 31, 2012 Aaa / Aa / A                                               $  7,368,870        64.5 %    $  7,704,911        63.2 % Baa                                                           3,335,151        29.2 %       3,730,850        30.7 % Ba                                                              476,612         4.2 %         472,773         3.9 % B and lower                                                     242,588         2.1 %         263,104         2.2 %  Total                                                      $ 11,423,221       100.0 %    $ 12,171,638       100.0 %   

Major categories of net investment income were as follows:

                                                   Three Months Ended               Six Months Ended                                                      June 30,                        June 30,                                                2013            2012            2013            2012  Fixed maturity securities                    $ 133,295$ 139,396$ 267,623$ 280,578 Equity securities                                6,856           6,148          13,743          12,020 Commercial mortgage loans on real estate        19,463          19,567          38,800          39,230 Policy loans                                       739             677           1,732           1,475 Short-term investments                             649           1,184           1,090           2,561 Other investments                                5,512          34,499          11,611          39,573 Cash and cash equivalents                        2,992           3,516           6,908           7,417  Total investment income                        169,506         204,987         341,507         382,854 Investment expenses                             (5,582 )        (5,673 )       (11,598 )       (11,245 )  Net investment income                        $ 163,924$ 199,314$ 329,909$ 371,609    Net investment income decreased $35,390, or 17.8%, to $163,924 for Second Quarter 2013 compared with $199,314 for Second Quarter 2012. Net investment income decreased $41,700, or 11.2%, to $329,909 for Six Months 2013 compared with $371,609 for Six Months 2012. The decrease for both periods was primarily related to $26,967 and $24,653 in additional investment income from real estate joint venture partnerships in Second Quarter 2012 and Six Months 2012, respectively, compared to Second Quarter 2013 and Six Months 2013. Also contributing to the decrease for both periods were lower investment yields.  

As of June 30, 2013, the Company owned $221,841 of securities guaranteed by financial guarantee insurance companies. Included in this amount was $204,472 of municipal securities, with a credit rating of A+ both with and without the guarantee.

  The Company has exposure to sub-prime and related mortgages within our fixed maturity securities portfolio. At June 30, 2013, approximately 3.3% of our residential mortgage-backed holdings had exposure to sub-prime mortgage collateral. This represented approximately 0.2% of the total fixed income portfolio and 1.7% of the total unrealized gain position. Of the securities with sub-prime exposure, approximately 14.1% are rated as investment grade. All residential mortgage-backed securities, including those with sub-prime exposure, are reviewed as part of the ongoing other-than-temporary impairment monitoring process.                                           61 

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Collateralized Transactions

  The Company engages in transactions in which fixed maturity securities, primarily bonds issued by the U.S. government and government agencies and authorities, and U.S. corporations, are loaned to selected broker/dealers. Collateral, greater than or equal to 102% of the fair value of the securities lent, plus accrued interest, is received in the form of cash and cash equivalents held by a custodian bank for the benefit of the Company. The use of cash collateral received is unrestricted. The Company reinvests the cash collateral received, generally in investments of high credit quality that are designated as available-for-sale. The Company monitors the fair value of securities loaned and the collateral received, with additional collateral obtained, as necessary. The Company is subject to the risk of loss to the extent there is a loss on the re-investment of cash collateral.  As of June 30, 2013 and December 31, 2012, our collateral held under securities lending, of which its use is unrestricted, was $96,014 and $94,729, respectively, and is included in the consolidated balance sheets under the collateral held/pledged under securities agreements. Our liability to the borrower for collateral received was $96,000 and $94,714, respectively, and is included in the consolidated balance sheets under the obligation under securities agreements. The difference between the collateral held and obligations under securities lending is recorded as an unrealized gain and is included as part of AOCI. There was one security in an unrealized loss position as of June 30, 2013 and it has been in an unrealized loss position for less than 12 months. All securities were in an unrealized gain position as of December 31, 2012. The Company includes the available-for-sale investments purchased with the cash collateral in its evaluation of other-than-temporary impairments.  

Cash proceeds that the Company receives as collateral for the securities it lends and subsequent repayment of the cash are regarded by the Company as cash flows from financing activities, since the cash received is considered a borrowing. Since the Company reinvests the cash collateral generally in investments that are designated as available-for-sale, the reinvestment is presented as cash flows from investing activities.

Liquidity and Capital Resources

Regulatory Requirements

Assurant, Inc. is a holding company and, as such, has limited direct operations of its own. Our holding company's assets consist primarily of the capital stock of our subsidiaries. Accordingly, our holding company's future cash flows depend upon the availability of dividends and other statutorily permissible payments from our subsidiaries, such as payments under our tax allocation agreement and under management agreements with our subsidiaries. The ability to pay such dividends and to make such other payments will be limited by applicable laws and regulations of the states in which our subsidiaries are domiciled, which subject our subsidiaries to significant regulatory restrictions. The dividend requirements and regulations vary from state to state and by type of insurance provided by the applicable subsidiary. These laws and regulations require, among other things, our insurance subsidiaries to maintain minimum solvency requirements and limit the amount of dividends these subsidiaries can pay to the holding company. For further information on pending amendments to state insurance holding company laws, including the NAIC's "Solvency Modernization Initiative," see "Item 1A-Risk Factors-Risks Related to Our Company- Changes in regulation may reduce our profitability and limit our growth" in our 2012 Annual Report on Form 10-K. Along with solvency regulations, the primary driver in determining the amount of capital used for dividends is the level of capital needed to maintain desired financial strength ratings from A.M. Best.  It is possible that regulators or rating agencies could become more conservative in their methodology and criteria, including increasing capital requirements for our insurance subsidiaries which, in turn, could negatively affect our capital resources. On March 12, 2013, Moody's Investor Services ("Moody's") downgraded the insurance financial strength ratings of two of Assurant's rated life and health subsidiaries from A3 to Baa1 due to pressures on earnings and concerns about the impact of the Affordable Care Act. Moody's outlook on these two subsidiaries remains negative. On June 24, 2013, Standard and Poor's ("S&P") upgraded the Senior Debt rating of Assurant, Inc from BBB to BBB+ and revised the outlook on the rating from positive to stable. In addition, S&P upgraded the financial strength ratings of American Security Insurance Company, American Bankers Insurance Company of Florida, American Bankers Life Assurance Company of Florida and American Memorial Life from A- to A and revised the outlook on the ratings from positive to stable. The upgrades reflect Assurant's strong earnings capability based on its well-diversified competitive position and very strong capital adequacy, as well as the company's strong financial flexibility supported by its strong leverage and coverage metrics. For further information on our ratings and the risks of ratings downgrades, see "Item 1-Business" and "Item 1A-Risk Factors-Risks Related to Our Company-A.M. Best, Moody's and S&P rate the financial strength of our insurance company subsidiaries, and a decline in these ratings could affect our standing in the insurance industry and cause our sales and earnings to decrease" in our 2012 Annual Report on Form 10-K. For 2013, the maximum amount of dividends our U.S. domiciled insurance subsidiaries could pay, under applicable laws and regulations without prior regulatory approval, is approximately $524,000. During Six Months 2013, we received dividends or returns of capital, net of infusions, of $206,393 from our subsidiaries. We expect 2013 dividends from the operating segments to approximate their earnings subject to the growth of the businesses, rating agency and regulatory capital requirements and investment performance.                                           62

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Liquidity

  As of June 30, 2013, we had $887,060 in holding company capital, excluding $476,280 from the March 28, 2013 debt offering which will be used to repay debt maturing in February 2014. We use the term "holding company capital" to represent cash and other liquid marketable securities held at Assurant, Inc., out of a total of $1,571,940, that we are not otherwise holding for a specific purpose as of the balance sheet date, but can be used for stock repurchases, stockholder dividends, acquisitions, and other corporate purposes. $250,000 of the $887,060 of holding company capital is intended to serve as a buffer against remote risks (such as large-scale hurricanes). Dividends or returns of capital, net of infusions, made to the holding company from its operating companies were $206,393 and $581,908 for Six Months 2013 and the year ended December 31, 2012, respectively. We use these cash inflows primarily to pay expenses, to make interest payments on indebtedness, to make dividend payments to our stockholders, to make subsidiary capital contributions, to fund acquisitions and to repurchase our outstanding shares.  In addition to paying expenses and making interest payments on indebtedness, our capital management strategy provides for several uses for the cash generated by our subsidiaries, including without limitation, returning capital to shareholders through share repurchases and dividends; investing in our businesses to support growth in targeted areas; and making prudent and opportunistic acquisitions. We made share repurchases and paid dividends to our stockholders of $237,668 and $472,103 during Six Months 2013 and the year ended December 31, 2012, respectively.  The primary sources of funds for our subsidiaries consist of premiums and fees collected, proceeds from the sales and maturity of investments and net investment income. Cash is primarily used to pay insurance claims, agent commissions, operating expenses and taxes. We generally invest our subsidiaries' excess funds in order to generate investment income.  We conduct periodic asset liability studies to measure the duration of our insurance liabilities, to develop optimal asset portfolio maturity structures for our significant lines of business and ultimately to assess that cash flows are sufficient to meet the timing of cash needs. These studies are conducted in accordance with formal company-wide Asset Liability Management ("ALM") guidelines.  To complete a study for a particular line of business, models are developed to project asset and liability cash flows and balance sheet items under a large, varied set of plausible economic scenarios. These models consider many factors including the current investment portfolio, the required capital for the related assets and liabilities, our tax position and projected cash flows from both existing and projected new business.  Alternative asset portfolio structures are analyzed for significant lines of business. An investment portfolio maturity structure is then selected from these profiles given our return hurdle and risk preference. Sensitivity testing of significant liability assumptions and new business projections is also performed.  Our liabilities generally have limited policyholder optionality, which means that the timing of payments is relatively insensitive to the interest rate environment. In addition, our investment portfolio is largely comprised of highly liquid fixed maturity securities with a sufficient component of such securities invested that are near maturity which may be sold with minimal risk of loss to meet cash needs. Therefore, we believe we have limited exposure to disintermediation risk.  Generally, our subsidiaries' premiums, fees and investment income, along with planned asset sales and maturities, provide sufficient cash to pay claims and expenses. However, there may be instances when unexpected cash needs arise in excess of that available from usual operating sources. In such instances, we have several options to raise needed funds, including selling assets from the subsidiaries' investment portfolios, using holding company cash (if available), issuing commercial paper, or drawing funds from our revolving credit facility. In addition, we have filed an automatically effective shelf registration statement on Form S-3 with the SEC. This registration statement allows us to issue equity, debt or other types of securities through one or more methods of distribution. The terms of any offering would be established at the time of the offering, subject to market conditions. If we decide to make an offering of securities, we will consider the nature of the cash requirement as well as the cost of capital in determining what type of securities we may offer.  We paid dividends of $0.25 per common share on June 11, 2013 to stockholders of record as of May 28, 2013. This represents a 19 percent increase above the quarterly dividend of $0.21 per common share paid on March 11, 2013 to stockholders of record as of February 25, 2013. Any determination to pay future dividends will be at the discretion of our Board of Directors and will be dependent upon: our subsidiaries' payment of dividends and/or other statutorily permissible payments to us; our results of operations and cash flows; our financial position and capital requirements; general business conditions; any legal, tax, regulatory and contractual restrictions on the payment of dividends; and any other factors our Board of Directors deems relevant.  On May 14, 2012, our Board of Directors authorized the Company to repurchase up to an additional $600,000 of its outstanding common stock. As of December 31, 2012, there was $502,900 remaining under the total repurchase authorization. During the six months ended June 30, 2013, we repurchased 4,246,113 shares of our outstanding common stock at a cost of $200,639, exclusive of commissions. As of June 30, 2013, $302,261 remained under the total repurchase authorization. The timing and the amount of future repurchases will depend on market conditions and other factors.                                           63 

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  Management believes the Company will have sufficient liquidity to satisfy its needs over the next twelve months, including the ability to pay interest on our Senior Notes and dividends on our common shares.  

Retirement and Other Employee Benefits

  Our qualified pension benefits plan (the "Plan") was under-funded by $21,969 and $107,666 (based on the fair value of Plan assets compared to the projected benefit obligation) at June 30, 2013 and December 31, 2012, respectively. This equates to a 97% and 87% funded status at June 30, 2013 and December 31, 2012, respectively. The change in under-funded projected benefit obligation status is mainly due to an increase in the discount rate used to determine the projected benefit obligation.  In prior years we established a funding policy in which service cost plus 15% of qualified plan deficit will be contributed annually. During Six Months 2013, we contributed $25,000 in cash to the Plan. Additional cash, up to $25,000, is expected to be contributed to the Plan over the remainder of 2013.  

Commercial Paper Program

  Our commercial paper program requires us to maintain liquidity facilities either in an available amount equal to any outstanding notes from the program or in an amount sufficient to maintain the ratings assigned to the notes issued from the program. Our commercial paper is rated AMB-2 by A.M. Best, P-2 by Moody's and A-2 by S&P. Our subsidiaries do not maintain commercial paper or other borrowing facilities. This program is currently backed up by a $350,000 senior revolving credit facility, of which $344,439 was available at June 30, 2013, due to outstanding letters of credit.  On September 21, 2011, we entered into a four-year unsecured $350,000 revolving credit agreement ("2011 Credit Facility") with a syndicate of banks arranged by JP Morgan Chase Bank, N.A. and Bank of America, N.A. The 2011 Credit Facility provides for revolving loans and the issuance of multi-bank, syndicated letters of credit and/or letters of credit from a sole issuing bank in an aggregate amount of $350,000 and is available until September 2015, provided we are in compliance with all covenants. The 2011 Credit Facility has a sublimit for letters of credit issued thereunder of $50,000. The proceeds of these loans may be used for our commercial paper program or for general corporate purposes. The Company may increase the total amount available under the 2011 Credit Facility to $525,000 subject to certain conditions. No bank is obligated to provide commitments above their current share of the $350,000 facility.  We did not use the commercial paper program during the six months ended June 30, 2013 or 2012, and there were no amounts outstanding relating to the commercial paper program at June 30, 2013 and December 31, 2012. The Company made no borrowings using the 2011 Credit Facility and no loans are outstanding at June 30, 2013. We had $5,561 of letters of credit outstanding under the 2011 Credit Facility as of June 30, 2013.  The 2011 Credit Facility contains restrictive covenants and requires that the Company maintain certain specified minimum ratios and thresholds. Among others, these covenants include maintaining a maximum debt to capitalization ratio and a minimum consolidated adjusted net worth. At June 30, 2013, we were in compliance with all covenants, minimum ratios, and thresholds.  

Senior Notes

  On March 28, 2013, we completed an issuance of two series of senior notes with an aggregate principal amount of $700,000 (the "2013 Senior Notes"). The first series is $350,000 in principal amount, bears interest at 2.50% per year and is payable in a single installment due March 15, 2018. The second series is $350,000 in principal amount, bears interest at 4.00% per year and is payable in a single installment due March 15, 2023.  The net proceeds from the sale of the 2013 Senior Notes was $698,093, which represents the principal amount less the discount before offering expenses. The Company intends to use the net proceeds of the 2013 Senior Notes offering for general corporate purposes, including to repay $476,280 of remaining debt maturing in 2014.  

In addition, we have two series of senior notes outstanding in an aggregate principal amount of $975,000 (the "2004 Senior Notes"). The first series is $500,000 in principal amount, bears interest at 5.63% per year and is due February 15, 2014. The second series is $475,000 in principal amount, bears interest at 6.75% per year and is due February 15, 2034.

  During the three months ended , the Company repurchased $23,720 of the 2004 Senior Notes through open market transactions. The $774 difference between the reacquisition price and the net carrying amount of the extinguished debt was recorded as an extinguishment loss and is included in the consolidated statement of operations as part of interest expense.                                           64

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  Interest on our 2004 Senior Notes is payable semi-annually on February 15 and August 15 of each year. The interest expense incurred related to the 2004 Senior Notes was $15,003 and $15,074 for the three months ended June 30, 2013 and 2012, respectively, and $30,081 and $30,150 for the six months ended June 30, 2013 and 2012, respectively. There was $22,070 and $22,570 of accrued interest at June 30, 2013 and 2012, respectively. The 2004 Senior Notes are unsecured obligations and rank equally with all of our other senior unsecured indebtedness. The 2004 Senior Notes are not redeemable prior to maturity.  Interest on our 2013 Senior Notes is payable semi-annually on March 15 and September 15 of each year. The interest expense incurred related to the 2013 Senior Notes was $5,743 for both the three and six months ended June 30, 2013. There was $5,688 of accrued interest at June 30, 2013. The 2013 Senior Notes are unsecured obligations and rank equally with all of our other senior unsecured indebtedness. The 2013 Senior Notes are not redeemable prior to maturity.  

Cash Flows

We monitor cash flows at the consolidated, holding company and subsidiary levels. Cash flow forecasts at the consolidated and subsidiary levels are provided on a monthly basis, and we use trend and variance analyses to project future cash needs, making adjustments to the forecasts when needed.

The table below shows our recent net cash flows:

                                                     For the Six Months                                                     Ended June 30,             Net cash provided by (used in):      2013            2012             Operating activities (1)          $  261,096$  181,398             Investing activities                (343,602 )        51,417             Financing activities                 443,497        (292,536 )              Net change in cash                $  360,991$  (59,721 )

(1) Includes effect of exchange rate changes on cash and cash equivalents.

   We typically generate operating cash inflows from premiums collected from our insurance products and income received from our investments while outflows consist of policy acquisition costs, benefits paid, and operating expenses. These net cash flows are then invested to support the obligations of our insurance products and required capital supporting these products. Our cash flows from operating activities are affected by the timing of premiums, fees, and investment income received and expenses paid.  Net cash provided by operating activities was $261,096 and $181,398 for Six Months 2013 and Six Months 2012, respectively. The increase in cash provided by operating activities was primarily due to higher tax payments made in Six Months 2012 compared with Six Months 2013 and increased net written premiums in our Assurant Solutions segment during Six Months 2013. These increases were partially offset by increased catastrophe loss payments and a $14,000 settlement with the New York Department of Financial Services in our Assurant Specialty Property segment during Six Months 2013.  Net cash (used in) provided by investing activities was $(343,602) and $51,417 for Six Months 2013 and Six Months 2012, respectively. The increase in investing activities was mainly due to changes in short term investments and increased purchases of fixed maturity and equity securities and other invested assets.  Net cash provided by (used in) financing activities was $443,497 and $(292,536) for Six Months 2013 and Six Months 2012, respectively. The increase in financing activities was primarily due to the issuance of two series of senior notes during First Quarter 2013. The Company received proceeds of $698,093 from this transaction, which represents the principal amount less the discount before offering expenses. In addition, the Company repurchased $23,720 of the 2004 Senior Notes through open market transactions during Second Quarter 2013 and repurchased $65,571 less of its common stock during Six Months 2013 compared with Six Months 2012.                                           65 

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  The table below shows our cash outflows for interest and dividends for the periods indicated:                                                  For the Six Months                                                 Ended June 30,                                                2013          2012                    Interest paid on debt    $   30,094$ 30,094                    Common stock dividends       36,944       35,349                     Total                    $   67,038$ 65,443    Letters of Credit  

In the normal course of business, we issue letters of credit primarily to support reinsurance arrangements. These letters of credit are supported by commitments with financial institutions. We had $5,561 and $19,760 of letters of credit outstanding as of June 30, 2013 and December 31, 2012, respectively.

Recent Accounting Pronouncements

For a discussion of recent accounting pronouncements, see Note 3 to the Notes to Consolidated Financial Statements.

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