A securities analyst is upgrading Assurant stock because he seesless downward pressure on lender-placed premium rates thanoriginally feared due to state and federal regulatoryactions.

Specifically, John Nadel of Sterne Agee & Leach inNew York is upgrading Assurant to neutral fromunderperform because Florida, in a rate action dealing with QBE–amain Assurant competitor in the market–is ordering more flexiblerate reductions than California and New York for theindustry.

However, Nadel says if New York is successful inpushing other states for premium reductions similar to thosemandated for Assurant by New York, "it would be extremelysignificant," and his concerns about major declines in profits andrevenues from force-placed insurance to return.

"If all New York state accomplishes is to get other states toeliminate commissions and coinsurance arrangements between theinsurers and lenders, then that's not that significant an issue,"Nadel says.

The longer it takes for the impact of regulatory actions to takeplace, Nadel says, "the stronger the company's free cashflow will remain, and thus capital management is likely to remainelevated."

Nadel's scrutiny of the force-placed industry and Assurant inparticular was prompted by a March 21 agreement between New York and Assurant that theinsurer cut rates and institute other reforms.

Benjamin Lawsky, superintendent of the state Department ofFinancial Services, urged other states to implement the same reformsas New York while at the quarterly meeting of theNational Association of Insurance Commissioners in Houston.

Nadel says his original downgrade of Assurant to underperformwas prompted by concerns of "potential material downside risk toforced-placed premium rates and thus a material reduction inearnings and returns from Assurant's largest earnings sector."

Nadel says, in some respects, the concerns werewarranted because California and New York have imposed 30 percent,and what appears to be 30-50 percent, rate reductions,respectively.

However, these two states account for less than 15percent of forced-placed premiums, Nadel points out.

Florida, on the other hand, accounts for 35 percent or more ofAssurant's force-placed insurance business.

"Given the less onerous rate reduction Florida approved forAssurant's closest competitor QBE, we believe the likelihood isthat Assurant's rate reduction will be even less severe since[Assurant] is well known to be a lower-cost provider," Nadelsays.