Assurant, Inc. faces profitability challenges in key areas ofits business—particularly its force-placed products—but thespecialty insurer has traditionally demonstrated an ability toadapt to changing market conditions, according to a Fitchanalysis.

For example, Fitch notes that the company's Assurant Solutionssegment reported a 21 percent drop in net-operating earnings for2013's first half compared to the same period a year ago, asconsumer spending affected sales of extended-service contracts andunemployment amplified credit-insurance losses. But the ratingsagency also says Assurant Solutions “continues to introduceinnovative products in markets that are less susceptible toeconomic conditions, such as the mobile-phone market,” specificallyciting Assurant Solution's announced program with T-Mobile thatwill offer handset protection and more frequent upgradeopportunities to U.S. customers.

Fitch's comments are included in an “Unrated Issuer Report”(UIR) on Assurant. Fitch says UIRs provide perspective on keyissues that can impact an issuer's creditworthiness, and arewritten “on select entities for which Fitch does not maintain apublic rating.”

Regarding Assurant, the ratings agency says the specialtyinsurer “faces economic and regulatory pressures in severalbusinesses along with an expected mix shift away from its highermargin lender-placed [also known as force-placed] product.”

Fitch expects Assurant Specialty, which has been the primarydriver of the company's earnings, to be impacted by a longer-termdecline in its force-placed product due to lower demand as thehousing market improves and also to regulatory scrutiny.

“Assurant settled with the New York Department of FinancialServices for practices related to its lender-placed business andremains the subject of other litigation,” Fitch says. “Regulatoryactions could lead to further rate reductions, increases in claimspaid and/or more fines and penalties, all of which will adverselyaffect the profitability of the product.”

Yesterday, PC360 reported that the Florida Office of InsuranceRegulation ordered Assurant subsidiary American Security Insurance Co. toreduce its current forced-place rates in the state by 10percent.

But Fitch says it anticipates Assurant Solutions to become thegrowth driver for the company going forward as it “ramps up itsmobile-device product with acquisitions and new contracts in theU.S. and internationally.

Last month, as part of this effort, Assurant acquired U.K. mobile phone insurance insurer Lifestyle ServicesGroup.

Assurant also faces restrictions in its Assurant Health segmentstemming from the Affordable Care Act, Fitch says, including“accrued premium rebates, limitations on the deductibility ofcompensation and certain other payments, changes in the benefitsprovided under some of its products and an overall increase in thecost to modify and/or sell its products.”

But again, Assurant has made efforts to adapt, says Fitch,gaining traction in its new-product sales to offset its legacyproducts. “Assurant has demonstrated a history of adapting tochanging market conditions, recently evidenced by improved sales inits individual and group-health products,” Fitch points out.

Ultimately, the ratings agency says, Assurant faces challengesin its current product mix, but the company has demonstrated theability to adjust. “In light of regulatory challenges in many ofits businesses, Assurant has retooled its product offering toremain a leading provider of specialty-insurance products,” Fitchsays.