A.M. Best Affirms Negative Outlook on Ratings of Assurant, Inc. and Its Operating Subsidiaries

June 24, 2008 4:20 PM EDT

OLDWICK, N.J.--(BUSINESS WIRE)--

A.M. Best Co. has affirmed the negative outlook on the financial strength ratings (FSR) and issuer credit ratings (ICR) of Assurant, Inc. (Assurant) (New York, NY) (NYSE: AIZ) and its operating insurance subsidiaries. Additionally, A.M. Best has affirmed the ratings on most life/health and property/casualty subsidiaries of Assurant. Concurrently, A.M. Best has downgraded the FSR to A- (Excellent) from A (Excellent) and ICRs to "a-" from "a" of American Bankers Life Assurance Company of Florida (ABLAC), Caribbean American Life Assurance Company (CALAC) and Reliable Lloyds Insurance Company (Reliable Lloyds). (See link below for a detailed list of the companies and ratings.)

The ratings of Assurant continue to acknowledge its established presence in various specialty markets, continued favorable overall operating results and more than adequate capitalization. Dividends from the numerous subsidiaries can sufficiently support the debt servicing obligations of the parent holding company. Assurant's debt-to-capital ratio remains at approximately 19%, with favorable debt service coverage of approximately 17 times.

The negative outlook for the group, which was assigned in July 2007 in response to the Securities and Exchange Commission (SEC) investigation of certain Assurant executives that received "Wells Notices," will remain on all of the rated companies within Assurant. A.M. Best will again review the ratings and outlooks on all Assurant companies at the time the investigation concludes.

The downgrading of the ratings of ABLAC and CALAC reflect their diminished size versus past years due to the decline in domestic credit insurance operations. A sizable portion of ABLAC's U.S. credit insurance franchise has historically been tied to credit card-related products. With the movement of this segment of the market to debt deferment and debt cancellation products this decade, ABLAC has experienced a noticeable decline in net premium writings. However, ABLAC has maintained most of its existing relationships with Assurant clients, through an affiliated third party administrator (TPA), which offers debt deferment and cancellation services to its clients. Outside of the U.S., international credit insurance operations are experiencing more opportunities. Consequently, Assurant has increased focus within these markets.

Assurant's preneed operations, while continuing to report favorable statutory operating earnings over the past few years, have been experiencing some challenges more recently. American Memorial Life Insurance Company (AMLIC), the lead preneed company within Assurant, has over the last several years reported some top line challenges, driven predominantly by the restructuring of Service Corporation International (SCI), AMLIC's exclusive distribution source. However, SCI's 2006 acquisition of Alderwoods does provide AMLIC opportunities to grow revenue, which also will be enhanced in the short term by Assurant's acquisition of Mayflower National Life Insurance, which was merged into AMLIC in 2007. Additionally, AMLIC has a significant amount of mortgage loans relative to its capital and surplus base. Without the SEC investigation, AMLIC would still have a negative rating outlook.

Assurant Employee Benefits specialize in offering employee benefit and worksite products targeted to small to mid-sized employers. This business is written primarily through the Union Security Insurance Company (USIC). Competition within the employee benefits market has increased over the last few years. In response to this, Assurant has intensified its focus to the smaller case-sized market, where it has better margins historically. Without the SEC investigation, USIC and Union Security Life Insurance Company of New York would have a negative outlook based on potential expense challenges and a declining trend in net written premium as Assurant moves away from the larger employee benefits market and an increase in the amount of mortgage loans and below investment grade bonds as a percentage of statutory surplus.

Assurant Health, with business written through Time Insurance Company and John Alden Life Insurance Company, is a well known and leading writer of individual and small group major medical business. Despite the increased competition within its core market and the current regulatory environment, both companies have continued to report favorable operating earnings.

The rating affirmations of Assurant's property/casualty operating entities (the group) reflect its 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, and a vast customer base through its large number of distribution sources in North America and growing international presence. 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 record natural catastrophes that impacted the industry in 2004 and 2005). The ratings also take into consideration the financial and operational flexibility afforded by Assurant.

Somewhat offsetting these positive factors are the group's continued dependence on third-party reinsurance and significant growth in specialty property (both organically and through an acquisition), which in conjunction with an increase in net retention 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. This concern is somewhat offset by the book's geographic spread of risk, management's use of risk management tools including tracking aggregation of risks, rate increases, decreased CAT reinsurance costs year over year and the increase in coverage in its property CAT treaty due to increased growth in the creditor placed property business.

Reliable Lloyds' ratings are based upon its being a member of the Assurant Insurance Group as the company had historically reinsured 100% of its business with a group member company. However, Reliable Lloyds has begun to reinsure a majority of its existing book of business to a non Assurant Insurance Group member affiliate; thus, the group's ratings no longer apply. The current ratings reflect Reliable Lloyds' adequate risk-adjusted capital and the benefits afforded as an indirect wholly owned subsidiary of Assurant.

For a complete list of Assurant Inc.'s FSRs, ICRs and debt ratings, please visit www.ambest.com/press/062403assurant.pdf.

Founded in 1899, A.M. Best Company is a global full-service credit rating organization dedicated to serving the financial and health care service industries, including insurance companies, banks, hospitals and health care system providers. For more information, visit www.ambest.com.

Source: A.M. Best Co.

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