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Rating Action:

Moody's affirms Assurant (Baa2 senior); lowers Assurant Health (Ba1 IFS)

21 Oct 2015

Assurant reports Q3 loss at Assurant Health

New York, October 21, 2015 -- Moody's Investors Service has affirmed the debt ratings of Assurant, Inc. (NYSE: AIZ; senior debt at Baa2) and the A2 insurance financial strength (IFS) rating of its property-casualty operations, all with a stable outlook. In addition, Moody's has downgraded to Ba1 from Baa3 the insurance financial strength (IFS) ratings of Time Insurance Company (TIC) and John Alden Life Insurance Company (JALIC), which constitute AIZ's health segment (collectively, Assurant Health, or AH). The outlook on these companies remains negative. The rating actions follow AIZ's recent 8K SEC filing that it expects AH to incur Q3 2015 pre-tax losses in the range of $215 to $230 million, driven by higher than expected claims experience on individual major medical policies sold under the Affordable Health Care (ACA). The ratings of AIZ's Employee Benefit subsidiary was not affected by this rating action. Please see complete list of rating actions below.

RATINGS RATIONALE

ASSURANT P&C

Moody's said that the affirmation of the A2 IFS ratings of the lead operating subsidiaries of the Assurant P&C Group, and the A3 IFS rating of American Bankers Life Assurance Company of Florida (ABLAC), all with a stable outlook, are based on the group's strong market position in a number of niche, specialty property & casualty insurance markets, such as lender-placed homeowners insurance, credit insurance/protection, multifamily housing products, and extended service contracts/warranties. These lines of business are complex, generally have limited market competition, and the company maintains strong relationships with various distributors. These characteristics provide competitive advantages for Assurant including pricing flexibility and fairly stable revenues as well as strong profitability.

The rating agency added that somewhat offsetting these strengths is the group's overall modest scale, substantial level of catastrophe exposure (particularly gross of reinsurance) from its lender-placed homeowners line, and exposure to adverse changes in the legal and regulatory environment given its niche products. The Assurant Solutions segment grew rapidly in 2014, partially as a result of growth in recently-introduced mobile client marketing programs as well as the acquisition of Lifestyle Services Group, a mobile phone insurance provider in the UK. Rapid growth through new products and acquisitions carries more risk than established lines.

Factors that could lead to an upgrade of Assurant P&C's IFS ratings include: significantly reduced catastrophe exposure, continued strong earnings (return on surplus above 10%), and consolidated financial leverage consistently below 15%. Conversely, factors that could lead to a downgrade include: deterioration in profitability (i.e. return on surplus in the low single digits), an increase in catastrophe exposure (on either a gross or net basis) as a percentage of surplus, or catastrophe losses in excess of expectations (e.g. causing a 10% or more decline in surplus), sustained increase in underwriting leverage at levels above 5x, material reduction in parent company liquid resources (i.e. below $500 million), consolidated adjusted financial leverage exceeding 25%, or earnings coverage of interest less than 5x for an extended period.

HEALTH OPERATIONS

Moody's said that the AH downgrade reflects the ongoing deterioration in the health group's claims experience relative to rating expectations, offset to some extent by expected financial/capital support from AIZ, as needed, to manage the runoff of the struggling health business.

According to Vice President and Senior Credit Officer Laura Bazer, "AH's expected Q3 2015 loss, which follows a $284 million pre-tax net loss for the first half of 2015, indicates the difficulty of forecasting ACA policy claims experience accurately." Approximately $190 to $195 million of the third quarter pre-tax charge is an additional contribution to a recently- established premium deficiency reserve meant to cover the excess of expected claims and future expenses over revenues (mostly premiums) through 2017. Moody's added that without on-going capital and other financial support from AIZ, AH's ratings would be lower.

The rating agency said that the negative outlook on AH reflects the possibility of further unexpected losses in excess of what was assumed in the PDR, given the uncertainty of future claims results; potentially lower levels of capital, given the runoff status of the business; and the possibility of a lower level of commitment from AIZ, as the business winds down. Moody's expects the NAIC Risk Based Capital (RBC) ratios of TIC and JALIC to each be above 200% (Company Action Level) as of year-end 2015. AIZ expects to contribute $200 million in capital contributions to AH in the fourth quarter.

Moody's noted that given the negative outlook, an upgrade of AH's ratings would be unlikely. However, the following factors could return the outlook back to stable from negative: the completion of the AH business wind-down by end of 2016 without significant additional losses (e.g., pre-tax losses greater than $200 million through YE 2017); strong explicit support of TIC and JALIC from AIZ; and/or NAIC Risk Based Capital consistently above 200% (company action level) for TIC and JALIC.

Conversely, Moody's said factors that could lead to a downgrade of JALIC and TIC are: further significant losses through the end of 2016 as the AH business winds down (e.g., in excess of $200 million through YE 2017); actual or perceived weakening of AIZ financial support to the entities; and/or NAIC RBC ratio below 200% (company action level) by year-end 2015 and thereafter.

ASSURANT INC.

The rating agency said that the affirmation of Assurant, Inc's debt ratings (senior debt at Baa2) with a stable outlook reflects the view that while the pre-tax charge related to Assurant Health is significant in relation to the company's five-year average annual net income of about $450 million, it is still manageable within the company's current ratings. Assurant's ratings are based on the diversified revenues and earnings from the combined P&C operations, strong profitability, and significant holding company liquidity ($459 million as of June 30, 2015). These strengths are offset by significant product concentration in the lender-placed business with its associated catastrophe exposure as well as regulatory and legal risks. The company's financial leverage as of June 30, 2015 was moderate at about 23%. Moody's expects the company to manage its share buyback program prudently. The Baa2 senior debt rating is three notches below the A2 IFS ratings of Assurant's lead property and casualty companies as the primary supporter of Assurant's debt obligations.

Factors that could lead to an upgrade of Assurant, Inc.'s debt ratings include: an upgrade of the insurance financial strength ratings of the company's lead US property and casualty insurance subsidiaries, significantly reduced catastrophe exposure in the group's P&C operations, and consolidated financial leverage consistently below 15%. Conversely, factors that could lead to a downgrade include: -a downgrade of the insurance financial strength ratings of the company's lead US property and casualty insurance subsidiaries, additional losses at Assurant Health exceeding $200 million as the operation winds down through 2016, consolidated adjusted financial leverage exceeding 25%, earnings coverage of interest less than 5x for an extended period, or material reduction in parent company liquid resources (i.e. below $500 million).

The following ratings were affirmed with a stable outlook:

Assurant, Inc. -- long term issuer ratings of Baa2; senior unsecured debt rating of Baa2; provisional senior shelf rating of (P)Baa2; provisional subordinated debt rating of (P)Baa3; provisional preferred stock rating of (P)Ba1; provisional preferred non-cumulative stock rating of (P)Ba1; and short-term rating for commercial paper ratings of P-2;

American Security Insurance Company - insurance financial strength at A2;

American Bankers Ins. Co. of Florida -- insurance financial strength at A2;

American Bankers Life Assurance Co of Florida - insurance financial strength at A3.

The following ratings were downgraded with a negative outlook:

John Alden Life Insurance Company -- insurance financial strength to Ba1 from Baa3; and

Time Insurance Company -- insurance financial strength to Ba1 from Baa3.

The principal methodologies used in rating Assurant, Inc. were Global Property and Casualty Insurers published in August 2014, Global Life Insurers published in August 2014, and U.S. Health Insurance Companies published in October 2014. The principal methodology used in rating the Assurant P&C Group was Global Property and Casualty Insurers published in August 2014. The principal methodology used in rating American Bankers Life Assurance Company of Florida was Global Life Insurers published in August 2014. The principal methodology used in rating Assurant Health Group (John Alden Life Insurance Company and Time Insurance Company) was U.S. Health Insurance Companies published in October 2014. Please see the Credit Policy page on www.moodys.com for a copy of these methodologies.

Assurant is a publicly-traded, diversified insurance operation headquartered in New York, NY. For the first six months of 2015, Assurant reported total revenue of $5.2 billion and net income of $83 million. Shareholders' equity was $4.8 billion at June 30, 2015.

Moody's insurance financial strength ratings are opinions of the ability of insurance companies to pay punctually senior policyholder claims and obligations.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this rating action, and whose ratings may change as a result of this rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

The below contact information is provided for information purposes only. Please see the ratings tab of the issuer page at www.moodys.com, for each of the ratings covered, Moody's disclosures on the lead analyst and the Moody's legal entity that has issued each of the ratings.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Jasper Cooper, CFA
Asst Vice President - Analyst
Financial Institutions Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Robert Riegel
MD - Insurance
Financial Institutions Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's affirms Assurant (Baa2 senior); lowers Assurant Health (Ba1 IFS)
No Related Data.
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