Ratings Action on Assurant - Analyst Blog

Rating agency A.M. Best Co. has affirmed the financial strength ratings (FSR) and issuer credit ratings (ICR) of theproperty and casualty (P&C) and life and health insurance subsidiariesof Assurant, Inc. (AIZ). Also, A.M. Best has affirmed the issuer credit ratings of “bbb” and debt ratings of Assurant.

A.M.Best acknowledges the company's diverse product base and distribution platform, established presence in various niche markets, adequate risk-adjusted capitalization, solid operating earnings, low debt to capital ratio, adequate interest coverage ratio.

The company also has sufficient financial flexibility with $710 million in capital at the parent company and $500 million in commercial paper (which is 70% backed up by letters of credit).  

A.M. Best affirmed the FSR of “A” and the ICR of “a” on all seven property and casualty companies of Assurant with a “stable” outlook.  It acknowledged the business which is deeply rooted in the North American markets.

It said that the company holds leadership in rolling out credit related insurance products, creditor placed hazard insurance, manufactured housing insurance, vehicle service contracts and retail extended service contracts.

Due to these diverse products offering, the rating agency noted that the property and casualty business of Assurant has delivered solid operating earnings over the past five years.

However, the growth in specialty property in recent years has increased the segment's exposure to natural catastrophes. Also the increase in catastrophe retention limit also invites further earnings risk. Also softness in property and casualty markets will pressurize premium growth in the near term.

The rating agency however said that it will monitor the company's performance in the backdrop of depressed macroeconomic conditions and developments in the mortgage servicing industry.

A.M. Best also affirmed the FSR of “A-“ and ICRs of “a-” for two companies which operate within Assurant's Preneed segment – American Memorial Life Insurance Company (AMLIC) (Rapid City, SD) and Assurant Life of Canada (ALOC) (Ontario, Canada) with a “stable” outlook.

The rating agency acknowledges AMLIC's position as the largest writer of Preneed solutions in the United States and ALOC's strong presence in the Canadian preneed market. However, an offsetting factor to the ratings is the ongoing low interest rate environment, given the long duration of the business. Also since AMLIC gets all its business from Service Corporation International there runs a concentration risk.

The affirmation of the FSR of “A-“ and ICRs of “a-” of Assurant's Union Security Insurance Company (USIC), operating within the Employee Benefits segments with a stable outlook comes on the back of improved operating results in 2010.

Though high unemployment and a weak job market has hindered the demand for employee benefits products, the company has benefited from favorable experience in group disability and group life business and improvement in group dental business. Also the company's investment portfolio has shown signs of strengthening with unrealized gains compared with unrealized losses last year.

The Time Insurance Company (TIC) and John Alden Life Insurance Company (JALIC) (both domiciled in Milwaukee, WI) which offer individual and small group major medical coverages through Assurant Health also saw a rating affirmation –

 FSR of A- (Excellent) and ICRs of “a-”. A.M. Best noted that the companies have a strong cushion from the parent but uncertainty lies ahead with respect to the impact from the HealthCare reform. Though both the companies have taken proactive measures like reducing expenses, introducing new products and changing pricing, how the companies will fare going forward remain unclear.

A.M. Best takes an annual review of Assurant and provides rating accordingly. Last year on the same date it also affirmed the FSR and ICR of the property and casualty and life and health subsidiaries of the company, with a favorable outlook