Assurant, Inc. faces profitability challenges in key areas of its business—particularly its force-placed products—but the specialty insurer has traditionally demonstrated an ability to adapt to changing market conditions, according to a Fitch analysis.
For example, Fitch notes that the company's Assurant Solutions segment reported a 21 percent drop in net-operating earnings for 2013's first half compared to the same period a year ago, as consumer spending affected sales of extended-service contracts and unemployment amplified credit-insurance losses. But the ratings agency also says Assurant Solutions "continues to introduce innovative products in markets that are less susceptible to economic conditions, such as the mobile-phone market," specifically citing Assurant Solution's announced program with T-Mobile that will offer handset protection and more frequent upgrade opportunities to U.S. customers.
Fitch's comments are included in an "Unrated Issuer Report" (UIR) on Assurant. Fitch says UIRs provide perspective on key issues that can impact an issuer's creditworthiness, and are written "on select entities for which Fitch does not maintain a public rating."
Regarding Assurant, the ratings agency says the specialty insurer "faces economic and regulatory pressures in several businesses along with an expected mix shift away from its higher margin lender-placed [also known as force-placed] product."
Fitch expects Assurant Specialty, which has been the primary driver of the company's earnings, to be impacted by a longer-term decline in its force-placed product due to lower demand as the housing market improves and also to regulatory scrutiny.
"Assurant settled with the New York Department of Financial Services for practices related to its lender-placed business and remains the subject of other litigation," Fitch says. "Regulatory actions could lead to further rate reductions, increases in claims paid and/or more fines and penalties, all of which will adversely affect the profitability of the product."
Yesterday, PC360 reported that the Florida Office of Insurance Regulation ordered Assurant subsidiary American Security Insurance Co. to reduce its current forced-place rates in the state by 10 percent.
But Fitch says it anticipates Assurant Solutions to become the growth driver for the company going forward as it "ramps up its mobile-device product with acquisitions and new contracts in the U.S. and internationally.
Last month, as part of this effort, Assurant acquired U.K. mobile phone insurance insurer Lifestyle Services Group.
Assurant also faces restrictions in its Assurant Health segment stemming from the Affordable Care Act, Fitch says, including "accrued premium rebates, limitations on the deductibility of compensation and certain other payments, changes in the benefits provided under some of its products and an overall increase in the cost 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 legacy products. "Assurant has demonstrated a history of adapting to changing market conditions, recently evidenced by improved sales in its individual and group-health products," Fitch points out.
Ultimately, the ratings agency says, Assurant faces challenges in its current product mix, but the company has demonstrated the ability to adjust. "In light of regulatory challenges in many of its businesses, Assurant has retooled its product offering to remain a leading provider of specialty-insurance products," Fitch says.
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