A.M. Best Affirms Ratings of Assurant, Inc. and Its Subsidiaries
November 18 2010 - 4:12PM
Business Wire
A.M. Best Co. has affirmed the financial strength ratings
(FSR) and issuer credit ratings (ICR) of the property/casualty and
life/health insurance subsidiaries of Assurant, Inc.
(Assurant) (headquartered in New York, NY) [NYSE: AIZ].
Additionally, A.M. Best has affirmed the ICR of “bbb” and debt
ratings of Assurant. The outlook for all ratings is stable. (See
link below for a detailed listing of the companies and
ratings.)
Assurant’s ratings recognize the organization’s diverse business
mix, established presence in numerous niche markets, strong
operating results and solid overall capitalization. As of September
30, 2010, Assurant’s unadjusted debt-to-capital and
debt-to-tangible capital ratios were 15.5% and 18.1%, respectively,
while maintaining a fixed interest coverage ratio that is well
supportive of the ratings. Assurant also maintains a $500 million
commercial paper program, which is 70% secured by a backup credit
facility, as well as holding company capital of approximately $710
million at September 30, 2010, and with no debt maturing until
2014, the organization maintains solid liquidity.
The ratings for Assurant Insurance Group, which includes
seven member companies and composes Assurant’s property/casualty
operations, reflect the group’s established presence in various
specialty markets, continued favorable operating performance and
adequate risk-adjusted capitalization.
These positive rating attributes are derived from the group’s
leadership position in the delivery of credit related insurance
products, creditor placed hazard insurance, manufactured housing
insurance, vehicle service contracts and retail extended service
contracts, as well as a vast customer base through the group’s
large number of distribution sources in North America. As a result
of its diversified product and distribution platform and technology
focus, the group has delivered solid operating earnings over the
last five years, despite periods of increased catastrophe losses
and the adverse impacts that poor macroeconomic conditions are
having on revenue since 2009, particularly for the service contract
business.
Somewhat offsetting these positive ratings factors is the
property/casualty group’s natural catastrophe exposure, which has
increased significantly in recent years due to growth in specialty
property (both organically and through acquisitions) and its
continued dependence on third-party reinsurance. These factors, in
conjunction with an increase in net retentions associated with its
property catastrophe (CAT) treaty in recent years, exposes the
group’s earnings to a greater degree of variability over the near
term. These concerns are somewhat offset by the group’s geographic
spread of risk and management’s use of risk management tools,
including tracking aggregation of risks and implementing rate
increases. As many of the property/casualty products are tied to
the spending habits of consumers and the lending practices of
banks, the group will be challenged to maintain current premium
levels and may continue to experience a worsening loss performance
through higher utilization, given current economic pressures. A.M.
Best will continue to monitor how depressed macroeconomic
conditions and developments in the mortgage servicing industry
could impact the group’s underwriting and operating profitability
over time.
The affirmation of the ratings for American Bankers Life
Assurance Company of Florida (ABLAC) (Miami, FL) and
Caribbean American Life Assurance Company (CALAC) (San Juan,
PR)—Assurant’s credit life companies—reflects their good operating
results and appropriate capitalization, despite paying sizeable
dividends to Assurant. Other than in Canada, where ABLAC operates
through its Canadian branch, both companies continue to experience
a declining trend in premium income in their core geographic
markets due to economic pressures and the acceptance of competing
non-insurance credit related products in the United States and
Puerto Rico. However, A.M. Best recognizes that Assurant remains a
very recognizable name in the North American and Puerto Rican
credit insurance and related markets.
Assurant’s preneed operations are primarily comprised of
American Memorial Life Insurance Company (AMLIC) (Rapid
City, SD) and Assurant Life of Canada (ALOC) (Ontario,
Canada). The rating affirmations of these two companies acknowledge
their favorable premium growth trends, solid operating earnings and
adequate risk-adjusted capital positions. AMLIC is among the
largest writers of preneed life insurance in the United States,
while ALOC maintains a dominant position in the Canadian preneed
market. All of AMLIC’s preneed business is tied to Service
Corporation International, the largest funeral organization in the
world, which poses a concentration risk. An extended low interest
rate environment poses a challenge for both companies due to the
long duration of their business.
Assurant Employee Benefits (AEB) continues to be one of the U.S.
largest writers of group dental, disability and group life
insurance in the smaller case (under 500) market. AEB offers
products on a true group as well as a voluntary basis. Union
Security Insurance Company (USIC) (headquartered in Kansas
City, MO) is the flagship company within this business unit. The
weak U.S. economy continues to challenge all insurance companies
competing to grow their employee benefits business. A.M. Best notes
that USIC’s operating results have improved during 2010 due to
favorable experience in its group disability and group life
businesses. In addition, weakness in its true group dental business
has somewhat abated. Additionally, the company’s investment
portfolio has strengthened over the past year, with a large
unrealized gain position now being reported.
Assurant Health, which specializes in individual and small group
major medical coverages, is primarily written through Time
Insurance Company (TIC) and John Alden Life Insurance
Company (JALIC) (both domiciled in Milwaukee, WI). The strength
and parental support of Assurant helps mitigate some of the many
challenges TIC and JALIC face following the passage of health care
reform (HCR), the specific details of which are not yet fully
known. Although operating results at Assurant Health have rebounded
in 2010 from the losses incurred last year resulting primarily from
higher utilization and litigation expenses, A.M. Best believes the
2011 implementation of the 80% minimum loss ratio mandate per HCR
could greatly hinder future operating results. In response to HCR,
TIC and JALIC have undertaken numerous expense reduction
initiatives and revamped their product portfolios to better compete
in the evolving individual and small group major medical
markets.
For a complete listing of Assurant, Inc. and its
property/casualty and life/health subsidiaries’ FSRs, ICRs and debt
ratings, please visit www.ambest.com/press/111804assurant.pdf.
The principal methodology used in determining these ratings is
Best’s Credit Rating Methodology -- Global Life and Non-Life
Insurance Edition, which provides a
comprehensive explanation of A.M. Best’s rating process and
highlights the different rating criteria employed. Additional key
criteria utilized include: “Risk Management and the Rating Process
for Insurance Companies”; “Understanding BCAR for Property/Casualty
Insurers”; “Rating Members of Insurance Groups”; “A.M. Best’s
Ratings & the Treatment of Debt”; “Natural Catastrophe Stress
Test Methodology”; “Commercial Paper Methodology”; “Assessing
Country Risk”; “Rating Natural Catastrophe Bonds”; “Gauging the
Basis Risk of Catastrophe Bonds”; “Catastrophe Risk Management
Incorporated Within Rating Analysis”; “Catastrophe Analysis in A.M.
Best Ratings”; “Update to BCAR for Life & Health Insurers”;
“A.M. Best’s Liquidity Model for U.S. Life Insurers”; and “Rating
Health Insurance Companies.” Methodologies can be found at
www.ambest.com/ratings/methodology.
Founded in 1899, A.M. Best Company is the world's oldest and
most authoritative insurance rating and information source. For
more information, visit www.ambest.com.
Copyright © 2010 by A.M. Best Company,
Inc. ALL RIGHTS RESERVED.
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