Assurant Inc (AIZ) 2005 Q4 法說會逐字稿

Good morning ladies and gentlemen. My name is India and I will be your conference facilitator today. At this time, I would like to welcome everyone to the Assurant Inc. fourth quarter results conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer period. (OPERATOR INSTRUCTIONS). It is now my pleasure to turn the floor over to your host, Mr. Larry Cains, Senior Vice President of Investor Relations. Sir, the floor is yours.

Thank you India. Welcome to Assurant's fourth quarter and year-end 2005 earnings conference call. Joining me are Kerry Clayton, our Chief Executive Officer; Rob Pollock, our President and Chief Operating Officer; Bruce Camacho, our Chief Financial Officer; and Chris Pagano, our Chief Investment Officer. This morning, we issued a press release announcing our fourth quarter and full-year 2005 financial results. The press release, as well as corresponding supplementary financial information, may be found on our website at Assurant.com.

Some of the statements we may make during this call may contain forward-looking information. Our actual results may differ materially from such statements. We advise you to read the discussion of risks and uncertainties contained in our SEC filings. Additionally, this presentation will contain non-GAAP financial measures which we believe are meaningful in evaluating the Company's performance. For more detailed disclosures on these non-GAAP measures, the most comparable GAAP measures, and a reconciliation of the two, please refer to the supplementary financial information.

Now, I'd like to turn the call over to our CEO, Kerry Clayton.

Thank you Larry. Good morning everyone and thank you for joining our call today. I am pleased to report that we finished our second year as a public Company with consistently strong growth in net operating income, attractive increases in shareholder value and an operating ROE that is among the leaders of the insurance industry. In a nutshell, we had a solid quarter, a successful 2005, and in my view, a promising future. And that is part of the reason I am so confident with the transition as I retire.

While some of you have kindly joked that I don't look like I'm ready to retire, in the last few months I passed my 35th anniversary with Assurant, my 60th birthday, and of course the second anniversary of the IPO. Given these milestones, the great success of the Company and the strength and depth of the management team, I am able to end my corporate career and retire with confidence. My successor, Rob Pollock, and I have worked together for 20 years and in particularly close partnership during the last six years since Rob came to New York. Rob is an accomplished executive and a highly respected leader. He is fully committed to upholding Assurant's values and has earned the respect and trust of our employees and shareholders.

A few reports of our announced transition used the phrase deep bench, referring to the depth of management at Assurant. I have could not have been prouder. Assurant understands the importance of leadership development and succession planning essential to our success. It's extremely gratifying to see that effort recognized. As I am personally a major individual shareholder in Assurant with a vested interest in its future, I am confident that Rob and the management team will continue to lead Assurant in a promising and exciting future. Now, Rob will discuss highlights for the quarter and year. Rob?

Kerry, let me start by personally congratulating you on your retirement. You have been a great coach and mentor to me over my career, and on behalf of all employees we want to thank you for your leadership and numerous accomplishments. Your impact on the organization will continue to have a positive influence on Assurant for years to come.

At Assurant, we're proud of our efforts to build depth of management and expect to achieve a seamless transition and continuity of strategic focus. As I told our employees last month, I am committed to building upon the legacy of the exceptional leadership that Kerry and Alan Friedman before him established. I am excited and optimistic about the opportunity to lead Assurant and further build upon our specialty insurance strategy. With the help of our dedicated employees across the Company, Assurant can achieve even greater success.

For 2005, our diversified specialty insurance business delivered very good results. Each of our segments increased year-over-year earnings. The leading contributors were Assurant Solutions and Specialty Property, which reported a 91% increase in net operating income over 2004. During the fourth quarter, Assurant demonstrated strength in profitability with net income of $142 million, an increase of 65% over the fourth quarter of 2004.

We are building shareholder value by leveraging our core skills of highly disciplined risk management, complex systems integration and strategic distribution relationships with market leaders. We believe our specialty insurance strategy remains sound and we are optimistic about opportunities entering 2006. Our operating ROE excluding AOCI was 15.1% for 2005 compared to 10.9% in 2004. We're pleased that our ROE places us among the leaders in the insurance industry and has significantly improved since we became a public Company in 2004. We strive to maintain ROE in the top quartile of our industry and to improve it as we grow our business.

Earnings per share grew 54% over the prior year from $2.44 to $3.75. This was accomplished through improved operating results combined with disciplined capital management, executed through our share repurchase program. Our net earned premiums of 1.6 billion for the fourth quarter and 6.5 billion for 2005 were comparable to the prior quarter and year. We are focused on specific product areas that we believe offer the best opportunities for profitable growth. Let me highlight where we are already seeing the results of this focus.

Assurant Specialty Property generated strong growth in both revenue and operating results during the fourth quarter. Our risk management skills were evident once again in our reinsurance program, where our actions to secure third and fourth event coverage limited our losses on Wilma to 15 million net of reinsurance. Our participation in the National Flood Insurance Program positively impacted the results for the fourth quarter, as we have received reimbursements for providing processing and adjudication services.

Topline growth was most notable in our creditor placed homeowners product. Here, we experienced growth from existing clients and we acquired some new clients as well. In Assurant Solutions, the extended service contract and credit insurance product lines also generated good growth in net earned premiums and fees for both the quarter and year-to-date.

Topline growth was driven by strong production in extended service contracts domestically and abroad, as we continued to leverage our core domestic business platform in credit insurance and extended service contracts to other geographic markets. We have recently entered market in Mexico and Germany and we are planning to enter Italy and Spain over the next two years.

Assurant Health achieved strong profit growth of 12% for the year as a result of excellent combined ratios, although fourth quarter profits declined 1% compared to 2004. In the quarter, our core product individual health held ground with a modest increase of premiums. Despite ongoing competitive pressures, higher premiums per member more than offset a slight decline in total individual membership.

We continue to focus on leveraging our leadership position in consumer directed health-care with strong market support for our innovative products and services like Health Savings Accounts and Right Start, our product targeted at the uninsured. We are pleased that consumer driven health-care is receiving national recognition. Another step we took to improve new business production was some selective spending to upgrade systems during the quarter. Finally, we increased our direct to consumer marketing where it has shown the most promise to improve production.

Assurant Employee Benefits continues to sharpen its focus on the unique needs of the more profitable small case market. Assurant Employee Benefits had a 10% annual increase in profits driven by favorable loss experience, particularly in Group life insurance. Although we experienced a modest profit decline in the fourth quarter, we are very pleased with our overall experienced trends.

Assurant Employee Benefits' increasing emphasis on smaller cases is reflected in our financial results where we see relatively flat revenues as larger, less profitable cases terminate but our overall profits improved. Expense ratio increases reflect the changing mix of business by case size and technology investments we've made to better serve the small case market. At the macro level, the economic trends of improved employment particularly in small businesses and higher interest rates should bode well for this business.

In Assurant Preneed we previously announced our plans to focus our resources on Preneed business sold through SCI, the largest chain of funeral homes in America, and our business in Canada. We also announced the sale of our U.S. independent Preneed sales franchise. In the fourth quarter, we incurred costs of $5.8 million related to this transaction. This was the major contributor to our quarterly decline in profits in this segment. We do anticipate some additional expenses in 2006 as we complete the transition of this business to our Solutions segment. Solutions' management has begun meeting with SCI and is focused on invigorating Preneed sales as well as continuing sales growth in Canada.

We are also focused on the profitable runoff of the closed block of independent in force business that we retained. In the corporate segment, we benefited from $39 million of tax releases from the resolution of tax audits covering six years. This is compared to a $9 million net charge in the fourth quarter of 2004. For the year, we've been positively impacted by a total of $45 million in tax benefits compared with $9 million of additional tax expenses and 2004.

Our capital management strategy is disciplined focused, and continually evaluates the most effective use of our capital. Our priorities remain the same -- to deploy the capital in our existing businesses, make prudent and opportunistic add-on acquisitions and explore new niches to further diversify. Finally, if remaining capital is still available, we will continue to return it to our shareholders through share buybacks and dividends.

In recognition of our strong balance sheet, our Board of Directors authorized a new $400 million share repurchase program. Since we began repurchasing shares in 2004 through January 2006, we have repurchased 12.3 million shares for a total $424 million. This total includes repurchases of about 2.5 million shares for 97 million during the past four months.

Our strong financial position is evident in other measures as well. Investment -- invested assets grew over $400 million despite a decline in market values and the share repurchases I mentioned. Our debt to capital ratio now stands at a modest 22.2%, and our book value per diluted share increased 11% to $26.25. At year-end 2005, we had excess capital at the parent company of $400 million. We expect to free up additional capital through continuous streamlining of our legal entities. In addition, normal operating cash flows will also generate excess capital.

In closing, to echo Kerry's comments, I'm extremely pleased with our results. We remain focused on future growth and identifying and developing the areas in which we have the greatest potential. I'm optimistic about Assurant's future and our ability to deliver profitable growth through our leading positions in specialty insurance businesses. Now, Bruce Camacho will review financial results. Bruce?

Thanks, Rob. The good results of 2005 demonstrate our continued focus on long-term profitable growth. We had strong growth in net operating income and earnings per share in the quarter and the year. Net operating income for the quarter increased 65% to 142 million and increased 49% to 513 million for the year. Net earned premiums are unchanged at 1.6 billion for the quarter and 6.5 billion for the year. However, we are seeing good growth in some of our targeted areas, especially at Solutions and Specialty Property.

Net investment income increased 5% for the quarter and 8% for the year primarily due to increased assets under management. At Assurant Solutions and Assurant Specialty Property, they reported excellent net operating income of 70 million in the fourth quarter of 2005, up significantly from 45 million in the fourth quarter of 2004. Year-to-date, net operating income of 241 million was up 91%.

Assurant Solutions and Assurant Specialty Property had a very strong increase of 16% in net earned premiums for the quarter to 713 million. Assurant Solutions' net earned premiums were up 14% for the quarter and 4% for the year to primarily due primarily to growth in our extended service contract business. For the year, gross written premiums grew 17% in domestic extended service contracts, 239% in international extended service contracts, and 9% in international credit insurance.

Assurant Specialty Property had a very strong fourth quarter with net earned premiums up 21% to $231 million. (indiscernible) from growth in credit [replaced] homeowners insurance, where we added several new clients and experienced continued growth with our existing client base. On an annual basis, net earned premiums and gross written premiums were both up 12% to 859 million and 1.4 billion respectively. Net earned premiums were reduced by 9 million in the fourth quarter and 26 million for the full year of 2005 as a result of additional reinsurance premiums related to the hurricanes.

Investment income for Assurant Specialty Property and Assurant Solutions increased 11% for the quarter, primarily from growth in our extended service contract products both domestically and abroad. Fee and other income were up 25% for the quarter to 50 million and 16% to 167 million for the year as a result of solid growth in our extended service contract products and debt deferment fees.

Our Specialty Property loss ratios, excluding catastrophes, continued to be favorable in the fourth quarter primarily from the ongoing operational changes to adjust claims with our own field staff. These favorable loss ratios, coupled with the growth in net earned premiums, were the primary drivers in producing strong net operating income in this segment.

The favorable loss ratios also benefited from reimbursements of 17 million in the quarter and 19 million for the full year of 2005 for providing processing and adjudication services for the National Flood Insurance Program. These reimbursements are accounted for as loss adjustment expenses and thus are part of the loss ratio. Catastrophe losses net of reinsurance were 18 million pre-tax compared to 16 million pre-tax in the fourth quarter of 2004.

With a core competency of risk management as a key focus, we ensured that our reinsurance coverage effective June 1, 2005 was enhanced with greater protection than the prior year. In 2005 we experienced gross catastrophe losses as a result of five hurricanes of $344 million, of which 86% will be recovered as a result of our extensive reinsurance coverage. Our routine catastrophe losses for 2005 were $49 million, 48% less than $93 million in 2004. In summary, this segment strongly contributed to Assurant's fourth quarter and full-year total revenues and net operating income due to the growth in the existing clients, the addition of new clients, and very favorable [non-cap] property loss ratios.

At Assurant Health we had net operating income of 33 million, a 1% decline for the quarter compared with the same period in '04. For the year, net operating income increased 12% to $178 million. In the fourth quarter, we incurred higher technology and marketing expenses of about $10 million pre-tax, aimed at growing our individual medical business. These expenditures increased the combined ratio [almost till] a solid 93.7% for the quarter. The combined ratio for the full-year was an excellent 90.8%.

We continued to produce strong operating performance as a result of our consistent application of risk management skills to the individual health insurance market. In the future, growth in our individual medical business will likely put some pressure on our combined ratio. But we still expect to maintain it at a very strong level.

Net earned premiums of 531 million in the fourth quarter were down 5% compared to the fourth quarter of '04 and down 3% to 2.2 billion for the year. Small group net earned premiums and membership decline are the result of our focus in writing only profitable business in that market. We are pleased that an increase in premiums per member in the individual medical business more than offset a modest decline in members, producing an overall growth for this line.

At Assurant Employee Benefits, we had a 10% increase in our net operating income to 68 million for the year despite a 3% decrease in the fourth quarter of 2005 to 19 million. The 10% increase in net operating income for the year was a result of our favorable mortality and our Group life business and the improvement in our dental business. Our disability results continue to operate within our expectations, despite a slight uptick in the loss ratio during the fourth quarter.

Investment income increased by approximately 5% to 157 million for the year as a result of increases in invested assets and 3 million of income from a real estate partnership recorded in the third quarter of 2005. Net earned premiums for the year were essentially unchanged at 1.3 billion. Total net earned premiums of 309 million in the fourth quarter decreased 10% from the prior year period. The flatter top line reflects lower sales and reduced large case [persistency] as we increasingly focused on smaller case sizes. We also continued to emphasize pricing discipline in a competitive marketplace.

Assurant Preneed had net operating income of 5 million for the quarter, down 45% resulting from the sale of our U.S. independent funeral home franchise in the fourth quarter. Severance and other [sales-related] expenses in the quarter was 6 million. We expect a similar amount of transitional expenses in 2006.

Year-to-date, net operating income of 35 million was up 2% due to strong investment income, including increases in invested assets and 9 million pre-tax of income for a real estate partnership in the second quarter of 2005. Net earned premiums declined primarily as a result of our sale of the U.S. independent Preneed franchise. Net earned premiums declined 27% to 92 million for the quarter and 11% to 466 million for the year. However, we are pleased with our sales growth in Canada, which increased 18% for the year.

Turning to the corporate and other segment, net operating income was 21 million for the fourth quarter compared to a loss of 20 million in the fourth quarter last year. Corporate net operating income for the year totaled 3 million compared to a loss of 35 million in '04. As Rob mentioned, we had some unusual tax items in both '05 and in '04. The adjustment in 2005 increased fourth quarter net operating income by 39 million while the 2004 adjustments reduced income by 9 million. For the year, 2005 tax adjustment increased net income by 45 million compared to a decrease of 9 million in 2004.

Our corporate expenses include Sarbanes-Oxley costs as well as the variable expense from our stock appreciation rights plan for corporate management. Driven by the 14% increase in our stock price during the fourth quarter, and a 42% increase for the year, our expense associated with this plan was $16 million for the quarter and was $37 million for the year, compared to $11 million and $18 million respectively in 2004.

Starting in 2006, our annual corporate expense associated with this plan is estimated to be less than 10 million and less variable due to the adoption of FAS 123R which requires fair value accounting for stock compensation plans at the time of grant. The amortization of deferred [dean] for business that was previously sold through reinsurance was reduced by 5 million pre-tax in the fourth quarter of '05 to reflect a cumulative adjustment for the smaller than expected runoff of the policies sold. Other than this adjustment, the amortization was consistent with the anticipated runoff of the policies associated with these businesses.

Now, I would like to just recap some fourth quarter items that may help you with your analysis. On the plus side, there are two items. Tax releases and adjustments of 39 million, and reimbursements of 17 million pre-tax from the National Flood Insurance Program.

On the minus side on a pre-tax basis, there are six items -- catastrophe losses net of reinsurance of 18 million; additional reinsurance premiums of 9 million; higher than normal technology and marketing expenses in our health segment of 10 million; expenses in our Preneed segment associated with the sale of our U.S. independent franchise of 6 million; expenses in our corporate segment associated with the stock compensation plans of 16 million; and a cumulative adjustment for the amortization of deferred dean related to the businesses previously sold through reinsurance of 5 million.

Of course, some amounts of these items could be viewed as normal costs. We continue to look at areas of our business where we can provide increased financial disclosure and transparency. For the second quarter of 2006, we will be providing separate segment information on Assurant Solutions and Assurant Specialty Property. At that time, Assurant Preneed will be combined in the financials of Assurant Solutions.

Now, turning back to Kerry, let me on behalf of the 12,000 employees and myself thank you Kerry for the leadership you have provided this unique Company. You can certainly retire with confidence knowing that you left the Company in great financial shape and with a bright future. I wish you the best in your retirement.

Thanks, Bruce and our thanks to our employees for another great year -- a great year of financial success as our diversified specialty insurance strategy delivered strong results despite the challenges of the hurricanes. And now, India, we're ready for questions.

(OPERATOR INSTRUCTIONS). David Lewis, SunTrust Robinson.

I guess what I'm curious about, first of all, under the unusual items is the stock plan expense going forward. Bruce made a comment and I didn't quite understand it. Can you review that again? Is that going to be an ongoing? I think it was for every dollar it was $2 million of expense. Is that correct on the stock?

We are switching the first of the year to a different method or I would say more common method of recognizing equity plan compensation from the more market value oriented method we've had in the past. And let me have Bruce give you more detail on that.

In '05 we were following a GAAP which required us to take the expenses as a marked-to-market adjusted each quarter to reflect the vesting and the changes in our stock price. So obviously with a significant stock price performance in 2005, our [SARS] expenses were 37 million for the year and the 16 million I mentioned for -- in the corporate segment. In '06 we will be adopting the new FAS 123R, which is fair value accounting. Therefore the quarterly fluctuations will be reduced. And as a result of that, we expect the corporate portion of the SARS expense to be less than 10 million for the entire year.

Fairly evenly spread on a quarterly basis?

Yes, I would say so. Yes, absolutely.

Okay. Next question, you said you had 400 million of excess capital looking at breaking down some of the legal entities. Where would you see that positioned at the end of the year and where do you stand on some uses outside of the stock repurchase plan?

Yes, I think the 400 million we do have available now and we are again primarily focused on building the businesses. Again, over the last few years we have not needed to invest a lot in the businesses because the growth has been in low capital consuming lines. We do see certainly over the last two years at the moment the highest level of M&A activity that we have seen and are very focused on making acquisitions that would add to our existing segment certainly as the highest priority. I think as far as additional capital, we do cash flow Rob about 100 and --

If you look at our normal operating business, we have three uses for cash flow. And that is to pay interest on debt, that is about 40 million; to pay dividends to shareholders, that's about 40 million; and to deal with expenses in the corporate segment that relate to things not charged to the business and to our software capitalization, which is all part of our disciplined capital management strategy around not putting those assets in insurance companies where they are assessed a capital charge. If we look at the money that comes out of the business, it's probably more in the 250 to 300 million range, so we're just generating on a routine basis somewhere in that 130 to 200 million of excess capital.

How about just two follow-ups? That excess capital of 400 million, does that assume you bring the debt to capital up at any amount?

David that was just an amount as of year-end '04, so that number -- excuse me -- '05, so that number will continue to grow from the businesses. And then this legal entity consolidation we talk about we think has the opportunity to do through [bring] more, but it's also fraught with needing to get state insurance department approval. But it's a project we're very focused and working on.

But you could bring up year debt to capital a little bit if you needed some additional funding?

Certainly that is another source. I think the key thing for shareholders to think about is we have quite a bit of ammunition, if you will, before we'd need to issue additional shares. So --

John Nadel, Fox-Pitt Kelton.

Good morning guys. A couple of questions for you. One is if I run through all of the onetime adjustments that, Bruce, you highlighted and were highlighted in your press release, and I look at your consolidated SG&A, it still looks like it was significantly higher this quarter even ex the items than it's been on a run rate over the past several quarters. Probably as much as $20 million or so, which is not insignificant. Can you just give us a sense for -- are we at a new level of spending? Or is this kind of some of this discretionary as we look back to the fourth quarter?

This is Bruce. I would say it is not at a new level. We have had significant stock appreciation rights expensed. We've had significant -- we are going through our first Sarbanes-Oxley 404 assessment, so we've had significant increases in those costs as we go through that. We have our first certification hopefully by the end of this month, early March so those costs are quite high. And then the overall systems cost you know that we kind of highlighted, I think there's a number of items like that.

Was there anything within Solutions or Health that aside from, for instance, the 10 million of extra spending on the consumer directed and IT and Health, is there anything else in there that was kind of onetime-ish in nature? Because --

Yes, because if you look at the Solutions and Health -- the Solutions segment I will talk about first, you have got the assessment that -- we actually get an assessment and that is inside the expense line. Part of going through with -- in our reassurance program on the cat cost is that the states will then, for companies who can't handle their own cost, they assess us so any kind of assessment expenses go through that line -- the expense line. That's not normal.

And John, just to -- let me add a couple of things. We did have some new client acquisitions within Solutions and Property. As we have mentioned to you, there are startup costs associated with bringing new clients on. I do not have a dollar amount for you. That was a contributor. The last one I'd just add, we had a great year. We have short-term bonus plans and we probably had [stepped-up] accruals a little bit in the fourth quarter reflecting the payouts.

That's very helpful. Just maybe one or two more things. Just in the Solutions segment, if I look at the investment yield, I guess I was a little surprised to see that come down in the fourth quarter. Can you give us a sense for what is going on there? I would have thought given your duration that we would be seeing that moving up actually.

Yes, there is actually some methodology issues in how that calculation is done, but Chris, you want to comment on that?

Yes, the investment yield calculation is one that can be very volatile from one quarter to the next, so we would not suggest extrapolating either year-over-year or sequential quarterly yield points to identify a trend. The nature of the calculation has given it limited value when the portfolio experiences large cash inflows and outflows, so when you start to think about 344 million of hurricane claims over the third and fourth quarter, reinsurance recoverables etc., you can see where there might be some short-term distortion.

I can tell you that the first quarter we've already seen considerable amounts of cash flow heading to the investment portfolio which we have redeployed in higher yielding alternatives.

Terrific. And the last thing I would ask is just on the Health side, looking at individual medical sales just in dollar amounts, up sequentially about 3.5%, though membership is down. I guess really two questions around this. One, the premium per member is up despite I guess what I understood as Right Start really starting to make up a larger proportion of the sales with a lower per member premium, so I guess if you could just describe what is happening there. And then the second thing is just your outlook on Health sales for 2006 relative to the competitive environment.

First of all we're taking lots of actions to ensure long-term profitable growth. It's what we're focused on. And when you look at our overall premium per member, remember we're getting rate increases on all of our existing business. The new sales coming from Right Start are at a lower level and our technology spends in the area are really focused on being easier to do business with agents. And we put money into those systems, speeding up the issue process and probably most important, speeding up the percentage of cases submitted that we can issue. If you look at our risk management skills, I think this is an excellent example.

We have come up now with some products that allow us to take -- and offers, for instance, a specific condition deductible. In the past, we may have just rejected the case totally. Now we can go back with an offering that will be more competitive on a price basis and allow us to issue more cases. And with agents in particular, that issue ratio is very, very important. So hopefully I explained the premium side, the spending side is to make sure we can get that continued growth in the business and we're confident we'll see that over the long-term.

Do you expect to see Health sales up year-over-year in '06?

We don't provide guidance, John, but we're working very hard at it.

[Stallion Dragon], Deutsche Bank.

I have two questions. We have obviously experienced or we have benefited from favorable loss experience in Health and Employee Benefits and I was wondering if you can help us think of what would the normalized level be for that experience and the timing for that? And then the second question is in Specialty Property and Solutions. In the international credit's gross written premiums line, just looking at the trend in '04, it looks like the fourth quarter is typically the higher quarter and that was not the case in 2005. Any insight on that? Thank you.

First on the international credit, there is some quarter to quarter volatility. We had a particularly good quarter fourth quarter of 2004, and I think when you compare against that, but the year to year that line is still up almost 10%, so we are very pleased with what's going on in the international side. I think on the loss experience, the loss experience has been excellent and we've been describing it as excellent for some time and it continues to be excellent. And I think that is, again, a result of a lot of our risk management work, some of the things that Rob just described, but I think we can add to that a little bit.

Yes, I think our strategic focus in the Benefits business on that smaller case end is focused -- we're going to get lower loss ratios and slightly higher expense ratios within that business. We talked about previously on the medical business that individual medical has very good first-year experience and higher expenses in the first-year and that we really manage on that combined ratio basis. So our risk management, we think, should put us in a situation of having better loss ratios than our peers and we're focused on doing that. That will sometimes come with higher expenses associated with it.

Yes, let me also add a little bit more on the international side, too, for you. A considerable portion of our international credit insurance business comes from Canada and the UK. And in Canada, the business is primarily written in conjunction with banks and retail credit cards, and therefore it varies based on consumer outstanding and monthly balances. So the Canadian business we continue to grow very nicely.

In the UK though, a large portion of our credit insurance business is written in conjunction with real estate lending transactions. In the second half of 2005, the UK real estate market began to slow and so did our UK credit insurance production. But as Kerry said, we continue to see growth in our credit insurance in of all the countries like Argentina, Brazil, Germany, Mexico and we're very optimistic about our planned entries into Italy and Spain.

That's very helpful, thank you.

Josh Shanker, Citigroup.

My first questions concern the Specialty Property unit. I am curious when your contracts renew for your reinsurance and what you're seeing in the market for pricing on your renewals.

We're on a fiscal year for reinsurance that starts June 1st, so it's in process now, but Bruce can give us some color on that.

Sure. We have a very good list of quality reinsurers that have been with us for a very, very long time. So as Kerry mentioned, our program does run from June 1st to May 31st, so we are in process right now of looking at our reinsurance programs. We expect to obviously see higher pricing for our programs, but we also expect -- and probably will expect to see us holding a higher retention than we held in 2005 per event. But we feel very comfortable that our reinsurers have been with us for a long time and the relationships will be there and we'll be able to put a very good program in place to protect what we need to protect.

Would you be willing to take on more risk this year if the pricing is not there for you?

Sure, by a couple of points. I think first on the risk management side, Bruce's first point is one to zero in on. Counterparty risk is crucial to understanding in this business. There's lots of new capacity in the market. A lot of that capacity we're not interested in because of the counterparty risk. Second, our block of business is growing significantly here, so just given the growth in our block of business, we're going to raise coverage levels on a per storm basis.

Third, activities of all of the storms last year, I always like to look at this. We set our deductible historically at a one in five to ten years storm. We've had about eight of these in the last ten years. Guess what, they are not one in five or one and ten year. So when we thought we used to buy coverage for one in 250 to 500 year storm, even if our block had not grown, that coverage level is going to go way up.

So the net result on all this is the per storm deductible is going to go up significantly. Our overall aggregate coverage is going to go up significantly and we're confident we can deal with the design and cost issues that are still going to make this business very attractive.

That was great color. Thank you. Additionally, on the Health unit or segment, in the fourth quarters of both this year and last year, you had the increased expenses from the direct to consumer marketing and the information technology. Is there some kind of seasonality to the way you spend or does it just happen you had some extra change in your pocket in the fourth quarter and wanted to put it to work (technical difficulty)?

Well, there's not a seasonality, but you will from time to time see us make investments to really build and ensure the long-term growth of our businesses. And that was certainly an example in the Health business during the fourth quarter. Rob, do you want to --

Sure. Particularly in the direct to consumer marketing, I would say that in '04, we were really getting -- we were starting to learn about that. We have done a lot of targeting over the course of '05 and we feel reasonably confident that we've got something that will work here and we decided to spend some more money.

Very good. I don't know whether you can say anything, but we're halfway through the first quarter here. Has your expense spending normalized for this quarter or do you expect to be spending a little bit more on IT and direct to consumer?

We don't really give any the guidance on that, but we certainly will continue to pursue and invest in our businesses to assure their long-term growth.

Thank you very much and Kerry, enjoy your retirement.

Thank you very much.

Jukka Lipponen, KBW.

Congratulations, Kerry, on your retirement and obviously a Company with a pretty good track record so far. In the solutions business, can you give us a little more color on the growth in the property business, what's driving that?

Sure.

The growth is really been driven by primarily from, as Rob mentioned I think earlier, on the [credit] (indiscernible) consumers line. Our existing clients can take a [basket] from their continued growth and therefore our continued growth, and we've been able to successfully add a few more clients. So that has been one of the primary and probably the primary driver for the topline growth, specifically in the fourth quarter and over year-over-year.

I would add just a couple of things. We're going to see conditions in certain markets. If the market tightens, we could have growth that results from that side of things, but our strategy of being aligned with market leaders and having them rollup portfolios is another trend we've benefited from a bit in '05, but certainly historically.

Okay. And in the M&A front are you seeing a lot of opportunities that potentially look attractive to you? What is the -- what's happening there?

Yes, we are seeing as I mentioned earlier, a larger amount of activity and I would say it has been building over the last six or eight months or so. Of course, you can never tell with acquisitions, but we're very disciplined in our approach. We are looking for kind of a focus around deals in the $100 to $300 million range, trying to build the existing businesses. And I would certainly say that we are as optimistic about acquisitions today as we have certainly been in our public life.

It's a question of when, not if. I would also say that we put additional resources -- we hired [Bill Ryder] back mid last year. Bill has added resources staff and these folks are very busy.

And a couple of numbers questions, whatever help you can give us in terms of how to think about these numbers going forward. But one is the amortization on -- of the deferred gains going forward, the Preneed premiums -- how should be think about that and the reinstatement premiums in the Property business?

From -- on a deferred basis, I think that it will be lower than it was this year because it's running off the deferred gain, but I think it should be pretty consistent with what we said in the past. I don't think you would see that adjustment that we had -- a cumulative adjustment we had in the fourth quarter, so it should be a lot smoother. But we do have to analyze it once a year to just check and see how things are running off.

Regarding the reinstatement premium side, that is all depending on what the hurricane season is. That is not a recurring thing. That is additional -- those premiums only happen if we use coverage, so that will typically happen only when we are in a hurricane season and only if we (indiscernible) that require us to replenish them.

Yes, if you think about our program likely to raise deductibles, you get a storm like a Katrina, we're going to have a reinstatement premium. You get a storm that falls below whatever our per storm event deductible is, there will be no reinstatement.

And the last piece was your Preneed. Obviously the premiums will be down because of the U.S. independent channel being gone now for the full-year when you compare '06 to '05, but we do expect that hopefully we'll keep the profits there.

The action we took in selling that was to improve our profitability over the long-term and allow us to better focus on the best opportunity. And so we're very focused on how can we get the SCI relationship producing more business, because we know they are capable of doing it. And they've had some of their own distractions over the last few years, but we're confident we can make that happen.

Adam Klauber, Cochran, Caronia Securities.

Thanks and good morning. Just a reality check here -- the gross premiums in Solutions are up 22%. We've seen premiums earned really ramp up this quarter, in particular last couple quarters. Based on the gross numbers, I would normally expect the growth to continue to pick up. Is there any reason why that should not work?

We did have a particularly strong quarter in the fourth quarter in earned premiums, but there is great momentum in Solutions and Specialty Property.

You've got to look at all the different pieces here, Adam. On the credit side, it's a function of those outstanding monthly balances on the credit card. We had a good Christmas season that helped. That will slow down a little bit. Bruce probably can add a bit more color here.

Yes, I think from a [trend] standpoint as Kerry mentioned, we do have -- fourth quarter is traditionally the strongest quarter because of retail sales. [That happens -- that] benefits of both are on the consumer electronics side as well as the credit side, the credit insurance side both domestically and internationally. And we saw a very good basically Christmas season, so that's a good level coupled with the fact that we've been continuing to add new clients and we're growing.

So I think that yes, our levels are definitely -- have picked up and we've reached -- have indicated we have seen double-digit growth both in topline gross written and in net earned, and hopefully that will continue.

And those new client additions in specialty property, particularly on credit replaced homeowners are contributing there as well.

Okay, and then one question on the Health segment. You mentioned in your prepared remarks that you thought that you were going to try for higher growth, but the margin may have some -- may come under some pressure because of that. Does that mean that you're maybe being a little more competitive on price and may sacrifice a little loss ratio for that?

We're very disciplined in how we manage this business. We have a lot of risk management tools. We have had excellent results, excellent combined ratio in the business, certainly combined ratio which is better than that which is quite acceptable on a long-term basis. But we continue to be very disciplined in how we do that business, look for opportunities to expand in either new markets or less competitive markets.

If you take for instance we were first with some of the high deductibles at [HSA's] end markets, our margins there may be even better than the combined ratios you see in aggregate. As we see people come into the market, we're always evaluating -- should we take a pricing action or is the competitor pricing at such a rate that we can't make an acceptable margin? And we go through that trade-off all the time. But I would also mention the kind of things we're trying to do, try and protect as much of the margin as we can. And I go back to those per condition deductibles and things we're trying to do around the issue process that we think can leave us protected.

Steven Schwartz, Raymond James and Associates.

Good morning everybody and congratulations, Kerry. A few questions. I seem to remember from the last conference call that the FEMA reimbursement was likely to spread over into the first quarter of this year. Is that still true?

Yes, Steven.

Care to give an indication of how much?

I think we still have clients being reported, but there will be some more coming through in the first quarter of about 5 to 10 million, I'd say.

5 to 10 million. Okay. And just so I understand your terminology here, in Employee Benefits, when you're talking about favorable loss experience, are you just saying, Rob, it was good? Or are you saying it was better-than-expected?

I think it's just good. To me, again, that small case focus -- and that's really where we've been pivoting on because that's where we think the best opportunities are, Steven. They have lower loss ratios.

So given the client base, you don't think you're seeing some type of positive deviation from what you would expect to be the norm?

Perhaps in Group life. Group life is the one that's had a fair amount of volatility and positives, and it's all a function of death claims. That one can move around quite a bit. But we think that the disability and dental results are good and we think we can maintain things within a couple of points.

Frankly, we've been quite disciplined in moving out of the larger cases that we had which frankly are just not very profitable. So I think some of that disciplined risk management is starting to pay off.

Okay. And then can we get an update -- you mentioned in the past -- I don't know if you're still pursuing the opportunity, but force placed auto?

Sure. Absolutely. We're still pursuing that. And we've made some good inroads. We signed up some new clients and will continue to pursue that. That is one -- that plays right into leveraging our core skills of risk management, dealing with complex integration and dealing with strategic distribution of partners with market leaders. So we're absolutely taking advantage of that. It plays right into our sweet spot and will ensure long-term profitable growth.

Again, this used to be a big business and the biggest banks exited this market. The real key is can we get them to return to the market, because there's a number of middle tier players who are in and we're in competing on some of those, but it's can we get the big banks re-interested in this.

Okay. Have you started seeing any premiums yet from it, or no?

Yes we actually --

Absolutely.

Okay. And then finally, this is I guess a more theoretical, esoteric question. But flat screen TVs -- high definition TVs, to what extent are they driving the domestic growth in extended service contracts?

Certainly there is some of it, but right now, I would say if you look at high screen -- or high def, big screen TVs in general, part of our risk management is to deal with the client and look at all the products they're selling. There's a higher repair incidence with certain ones than others. We have a big database on this. And a lot of care around that product right now until things get a bit more stabilized.

Okay. Great.

I would add Steven I think it's more on the computer side and on the other stuff than just the flat screen.

Okay. Great. Thanks a lot.

Bill Wilt, Morgan Stanley.

I had a number of questions. Most of them have been touched on. I guess I would ask you to end with maybe just an overview of the competitive dynamics in the Health-care segment in the individual medical. I think you've touched on it in different ways, but maybe just a summary of your outlook of how competitive trends are developing compared to your expectations or what you might have thought a few months ago.

Sure. As you know, the health-care market is a local market situation. And we're seeing some local markets where we're much more optimistic than we were six months ago, and then there's others where we are seeing a competitor come in where we may have written in the past where we're having a little more difficulty. I think this is a demonstration of our ability to move and react to changing competition and look at where are the best places to play. I would say in general we are a little bit more optimistic that there's more places we can compete than we were six months ago. We are still not at a level that we would have been at, say, two years ago.

That is helpful. Is the -- I guess the government's focus on HSAs and the additional publicity they are getting in commercial and I'm sure trade press as well, might it be the case that is negative insofar as it attracts more competitors to the space? Or is that not the right way to think about it?

I think it's a positive because there -- there are a number of competitors today. I would say that a lot of them don't do it particularly well. But increasing awareness by consumers, potential insureds, and also increasing awareness among the agents that sell individual medical -- and remember it's a widely distributed product with lots of distribution that you have to reach in that market. It is a positive and I think we'll continue to see nice sales of the product.

I think there was also some tax talk about leveling the taxation of individual insurance premiums. Who knows where that will go, but that certainly would be a positive in terms of making it more attractive for buyers in the individual market.

That's helpful then. So I guess squaring that with the -- with looking at the individual sales, the unit count -- is the quarter kind of just some variability around what should be a nice, upward sloping trendline? Or were there -- anything -- any unusual competitive dynamics in the quarter that kind of muted the growth there?

Well, I think we have been making a number of investments to build the long-term growth of this business. We continue to work on developing our distribution relationships, such as State Farm and others. We continue to refine our underwriting, how we handle risk in this business. I would say that the competitive landscape in my view is sort of leveled, if you will. There are always movements, but -- and I believe we are seeing some of the earlier entrants into individual medical backing off a bit. I'm somewhat optimistic that we'll begin to see some turns in 2006, but exactly when is very hard to predict.

Thanks a lot and [call went over].

Okay. Thank you. I think in closing we have completed the quarter and the year with strong results. We continue to have great confidence in the ability of Assurant to add value through long-term profitable growth opportunities. My thanks to my Assurant colleagues, our Board of Directors, our shareholders, all of whom it has been a real pleasure to work with. I'll always value your friendship and the memories you have provided.

This is my final earnings call, but I will be watching closely and look forward to updates from Rob and Bruce and the rest of the management team as we continue our progress. Thanks to everyone. Have a great day.

Thank you. This does conclude today's teleconference. You may now disconnect your lines and have a great day.