We own eight properties, including five buildings whose locations serve as headquarters for our operating segments, two buildings that serve as operation centers for Assurant Specialty Property and one building that serves as a claims training center for Assurant Specialty Property. Assurant Solutions and Assurant Specialty Property share headquarters buildings located in Miami, Florida and Atlanta, Georgia. Assurant Specialty Property has operations centers located in Florence, South Carolina and Springfield, Ohio. Assurant Solutions’ preneed business also has a headquarters building in Rapid City, South Dakota. Assurant Employee Benefits has a headquarters building in Kansas City, Missouri. Assurant Health has a headquarters building in Milwaukee, Wisconsin. We lease office space for various offices and service centers located throughout the U.S. and internationally, including our New York, New York corporate office and our data center in Woodbury, Minnesota. Our leases have terms ranging from month-to-month to twenty-five years. We believe that our owned and leased properties are adequate for our current business operations.
1. Included in net realized gains (losses) are other-than-temporary impairments of $4,387, $1,843, $7,836, $11,167, and $38,660 for 2013, 2012, 2011, 2010, and 2009, respectively.
3. Following the completion of our annual goodwill impairment analysis, we recorded an impairment charge of $306,381 related to Assurant Employee Benefits and Assurant Health and a charge of $83,000 related to Assurant Employee Benefits during the fourth quarters of 2010 and 2009, respectively. The impairment charges resulted in a decrease to net income but did not have any related tax benefit.
4. During 2011, we had an $80,000 release of a capital loss valuation allowance related to deferred tax assets.
6. Total stockholders’ equity divided by the basic shares of common stock outstanding. At December 31, 2013, 2012, 2011, 2010, and 2009 there were 72,982,023, 79,866,858, 89,743,761, 103,227,238, and 117,591,250 shares, respectively, outstanding.
The following discussion covers the twelve months ended December 31, 2013 (“Twelve Months 2013”), twelve months ended December 31, 2012 (“Twelve Months 2012”) and twelve months ended December 31, 2011 (“Twelve Months 2011”). Please see the discussion that follows, for each of these segments, for a more detailed analysis of the fluctuations.
Assurant Solutions net income increased $1,399, or 1%, to $125,152 for Twelve Months 2013 from $123,753 for Twelve Months 2012. Twelve Months 2012 included a $20,373 (after-tax) intangible asset impairment charge in our U.K. business and $7,724 (after-tax) workforce restructuring charge. Twelve Months
Our placement rate at the end of 2013 was 2.77 percent, a 10 basis point reduction from year-end 2012, reflecting the improving state of the overall housing market. This was partially offset by contributions from recently added loan portfolios.
In 2012, we began a multi-phased roll-out of our new next generation lender-placed insurance product to respond to the changed environment following the housing downturn. This product is now available in 44 states and we are working with the insurance departments in the remaining states to complete the rollout this year.
For 2014, we expect Assurant Specialty Property net earned premiums and fees to decline slightly from 2013 levels, primarily due to lower contributions from lender-placed homeowners insurance. This outlook assumes lower premium rates and reductions in placement rates. Net earned premiums and fees will also be affected by the overall number of loans tracked. In 2013, we benefitted from several significant loan portfolio transfers. As the mortgage servicing market continues to evolve, we expect additional loan transfer activity in 2014. One of our clients recently informed us of a possible transfer of loans to another carrier, which could reduce profitability. Negotiations with this client are continuing.
Assurant Health net income decreased $46,143, or 89%, to $5,857 for Twelve Months 2013 from $52,000 for Twelve Months 2012. The decrease was primarily attributable to an increased provision for taxes in connection with the Affordable Care Act due to a change in estimated non-deductible compensation expenses, including a $10,205 tax liability increase, and a decrease in net earned premiums. Also, Twelve Months 2012 results included an additional $14,337 (after-tax) of investment income from real estate joint venture partnerships.
The first open enrollment period under the Affordable Care Act began late in 2013. During the enrollment period, Assurant Health benefited from a significant increase in sales of its individual major medical products, which include the essential health benefits mandated by the Affordable Care Act.
In 2014, we expect Assurant Health net earned premiums and fees to increase due to sales of new major medical policies. In addition, we expect profitability to continue to be negatively affected by a high effective tax rate, due to continued non-deductibility of certain expenses under the Affordable Care Act, and higher sales commissions to be paid on a larger anticipated volume of newly issued policies.
Net earned premiums and fees decreased slightly to $1,038,021 for Twelve Months 2013 from $1,042,732 for Twelve Months 2012 as growth in voluntary products was offset by declines in employer-paid products. Sales increased in 2013 compared with 2012, primarily reflecting improved sales of our voluntary products, including dental.
During 2014, we expect continued sales momentum in voluntary products, which we anticipate will lead to net earned premium growth. Continued expense management actions should offset lower net investment income and higher expenditures to support the growth in voluntary sales. In addition, we expect overall results to be affected by the continued low interest rate environment, employment trends and capital market conditions.
If the actual loss ratios, calculated in a manner prescribed by the Department of Health and Human Services (“HHS”), are less than the required MLR, premium rebates are payable to the policyholders by August 1 of the subsequent year.
The Assurant Health loss ratio reported in “Results of Operations” below (the “GAAP loss ratio”) differs from the loss ratio calculated under the MLR rules. The most significant differences include: the fact that the MLR is calculated separately by state, legal entity and type of coverage (individual or group); the MLR calculation includes credibility adjustments for each state/entity/coverage cell, which are not applicable to the GAAP loss ratio; the MLR calculation applies only to some of our health insurance products, while the GAAP loss ratio applies to the entire portfolio, including products not governed by the Affordable Care Act; the MLR includes quality improvement expenses, taxes and fees; changes in reserves are treated differently in the MLR calculation; the MLR premium rebate amounts are considered adjustments to premiums for GAAP reporting whereas they are reported as additions to incurred claims in the MLR rebate estimate calculations; and the MLR is calculated using a rolling three years of experience while the GAAP loss ratio represents the current year only.
Reserves are established in accordance with GAAP using generally accepted actuarial methods and reflect judgments about expected future claim payments. Calculations incorporate assumptions about inflation rates, the incidence of incurred claims, the extent to which all claims have been reported, future claims processing, lags and expenses and future investment earnings, and numerous other factors. While the methods of making such estimates and establishing the related liabilities are periodically reviewed and updated, the calculation of reserves is not an exact process.
Key sensitivities at December 31, 2013 for group long term disability claim reserves include the discount rate and claim termination rates:
Reserves for our various product lines are calculated using experience data where credible. If sufficient experience data is not available, data from other similar blocks may be used. Industry data provides additional
Key sensitivities as of December 31, 2013 for short duration medical reserves include claims processing levels, claims under case management, medical inflation, seasonal effects, medical provider discounts and product mix. The effects of these sensitivities can be summarized by adjusting loss development factors, as follows:
* This refers to loss development factors for the most recent four months. Our historical claims experience indicates that approximately 89% of medical claims are paid within four months of the incurred date.
the past variability of loss estimates - the loss estimates on some product lines will vary from actual loss experience more than others.
If the actual level of loss frequency and severity are higher or lower than expected, the ultimate reserves required will be different than management’s estimate. The effect of higher and lower levels of loss frequency and severity levels on our ultimate costs for claims occurring in 2013 would be as follows:
advertising expenses are deferred when the primary purpose of the advertising is to elicit sales to customers who can be shown to have specifically responded to the advertising and the direct response advertising results in probable future benefits.
management. Assessment factors include, but are not limited to, the length of time and the extent to which the market value has been less than cost, the financial condition and rating of the issuer, whether any collateral is held, the intent and ability of the Company to retain the investment for a period of time sufficient to allow for recovery for equity securities, and the intent to sell or whether it is more likely than not that the Company will be required to sell for fixed maturity securities.