A.M. Best Affirms Ratings of Assurant, Inc. and Its Subsidiaries

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.

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