2. During 2012, we incurred losses of $250,206, net of reinsurance, mainly associated with Superstorm Sandy. During 2011, we incurred losses of $157,645 associated with Hurricane Irene, Tropical Storm Lee, wildfires in Texas and severe storms, including tornados in the southeast. Reportable catastrophe losses include only individual catastrophic events that generated losses to the Company in excess of $5,000, pre-tax and net of reinsurance.
Consolidated net income increased $5,202, or 1%, to $488,907 for Twelve Months 2013 from $483,705 for Twelve Months 2012. The increase was primarily related to a $143,457 (after-tax) decrease in reportable catastrophe losses in our Assurant Specialty Property segment, partially offset by lower net income in our Assurant Health and Assurant Employee Benefits segments. In addition, our Corporate and Other net loss increased as net realized gains on investments decreased $19,388 (after-tax) and interest expense increased $11,329 (after-tax) due to the March 2013 issuance of senior notes with an aggregate principal amount of $700,000.
2013 included $15,554 (after-tax) of workforce restructuring charges, primarily in our European operations (in connection with our October 2013 acquisition of LSG, a mobile phone insurance provider based in the U.K.), and in our domestic credit insurance and extended protection businesses. Excluding these items, segment net income decreased due to unfavorable domestic mobile underwriting experience. Preneed income also declined due to lower investment yields and higher mortality experience.
Net earned premiums increased 7.9% driven primarily by domestic service contract growth from an existing client, additional vehicle service contracts, and service contract growth in Latin America. Fees and other income increased 27.5%, primarily from mobile programs launched during the year, as well as contributions from LSG.
Overall, we expect Assurant Solutions revenues to improve modestly over the course of 2014, primarily driven by growth in our mobile warranty businesses and continued growth in Latin America. Despite recent economic volatility, we believe Latin America offers attractive market characteristics. Our previously disclosed investment in Iké, a services assistance business with operations in Mexico and other countries in Latin America, is intended to allow us to further expand and diversify our footprint in this region.
Assurant Specialty Property net income increased $118,635, or 39%, to $423,586 for Twelve Months 2013 from $304,951 for Twelve Months 2012. The increase is primarily due to a $143,457 (after-tax) decrease in reportable catastrophe losses and growth in lender-placed homeowners net earned premiums attributable to newly added loan portfolios and the previously disclosed discontinuation of a client quota share reinsurance agreement. Partially offsetting these items were higher non-catastrophe losses, an increase in operating expenses to support new loan portfolios, additional customer service initiatives and increased legal and regulatory expenses, including a $14,000 (non tax-deductible) regulatory settlement with the NYDFS and expenses related to pending class action lawsuits in our lender-placed insurance business.
We also expect our expense ratio to increase in 2014 primarily due to a higher mix of fee income business related to the acquisition of FAS, a provider of property preservation, restoration and inspection services, as well as additional operating costs to support loan volume and servicing requirements in our lender-placed insurance business. We also expect our non-catastrophe loss ratio to increase due to lower premium rates and anticipated higher frequency of such losses compared to 2013.
Assurant Employee Benefits net income decreased 40% to $34,553 for Twelve Months 2013 from $58,059 for Twelve Months 2012. The decrease was primarily attributable to less favorable disability loss experience, including a previously disclosed decrease in the reserve discount rate primarily for new long-term disability claims. Additionally, Twelve Months 2013 results were also impacted by lower investment income compared to Twelve Months 2012.
For Twelve Months 2013, net cash provided by operating activities, including the effect of exchange rate changes on cash and cash equivalents, totaled $1,003,819; net cash used in investing activities totaled $392,738 and net cash provided by financing activities totaled $196,699. We had $1,717,184 in cash and cash equivalents as of December 31, 2013. Please see “ - Liquidity and Capital Resources,” below for further details.
Under the universal life insurance guidance, income earned on preneed life insurance policies sold after January 1, 2009 are presented within policy fee income net of policyholder benefits. Under the limited pay insurance guidance, the consideration received on preneed policies sold prior to January 1, 2009 is presented separately as net earned premiums, with policyholder benefits expense being shown separately.
Underwriting, general and administrative expenses consist primarily of commissions, premium taxes, licenses, fees, amortization of deferred costs, general operating expenses and income taxes.
The Affordable Care Act was signed into law in March 2010. One provision of the Affordable Care Act, effective January 1, 2011, established a minimum medical loss ratio (“MLR”) designed to ensure that a minimum percentage of premiums is paid for clinical services or health care quality improvement activities. The Affordable Care Act established an MLR of 80% for individual and small group business and 85% for large group business.
Assurant Health has estimated the 2013 impact of this regulation based on definitions and calculation methodologies outlined in the HHS regulations and guidance. The estimate was based on separate projection models for individual medical and small group business using projections of expected premiums, claims, and enrollment by state, legal entity and market for medical businesses subject to MLR requirements for the MLR reporting year. In addition, the projection models include quality improvement expenses, state assessments and taxes.
Claims and benefits payable reserves for short duration contracts include (1) case reserves for known claims which are unpaid as of the balance sheet date; (2) IBNR reserves for claims where the insured event has occurred but has not been reported to us as of the balance sheet date; and (3) loss adjustment expense reserves for the expected handling costs of settling the claims. Periodically, we review emerging experience and make adjustments to our reserves and assumptions where necessary. Below are further discussions on the reserving process for our major short duration products.
benchmarks when historical experience is too limited. Reserve factors may also be adjusted to reflect considerations not reflected in historical experience, such as changes in claims inventory levels, changes in provider negotiated rates or cost savings initiatives, increasing or decreasing medical cost trends, product changes and demographic changes in the underlying insured population.
Changes in medical loss development may increase or decrease the MLR rebate liability.
Only direct incremental costs associated with the successful acquisition of new or renewal insurance contracts are deferred, to the extent that such costs are deemed recoverable from future premiums or gross profits. Acquisition costs primarily consist of commissions and premium taxes. Certain direct response
Acquisition costs relating to group worksite products, which typically have high front-end costs and are expected to remain in force for an extended period of time, consist primarily of first year commissions to brokers, costs of issuing new certificates and compensation to sales representatives. These acquisition costs are front-end loaded, thus they are deferred and amortized over the estimated terms of the underlying contracts.
Acquisition costs relating to group term life, group disability, group dental and group vision consist primarily of compensation to sales representatives. These acquisition costs are front-end loaded; thus, they are deferred and amortized over the estimated terms of the underlying contracts.
We regularly monitor our investment portfolio to ensure investments that may be other-than-temporarily impaired are identified in a timely fashion, properly valued, and charged against earnings in the proper period. The determination that a security has incurred an other-than-temporary decline in value requires the judgment of
Inherently, there are risks and uncertainties involved in making these judgments. Changes in circumstances and critical assumptions such as a continued weak economy, or unforeseen events which affect one or more companies, industry sectors or countries could result in additional impairments in future periods for other-than-temporary declines in value. See also Note 4 to the Consolidated Financial Statements included elsewhere in this report and “Item 1A - Risk Factors - The value of our investments could decline, affecting our profitability and financial strength” and “Investments” contained later in this item.
We have used reinsurance to exit certain businesses, including blocks of individual life, annuity, and long-term care business. The reinsurance recoverables relating to these dispositions amounted to $3,680,176 and $3,619,747 at December 31, 2013 and 2012, respectively.
We utilize reinsurance for loss protection and capital management, business dispositions and, in Assurant Solutions and Assurant Specialty Property, client risk and profit sharing. See also “Item 1A - Risk Factors - Reinsurance may not be available or adequate to protect us against losses and we are subject to the credit risk of reinsurers,” and “