Assurant Inc (AIZ) 2007 Q3 法說會逐字稿

Good morning, My name is Robin.

Welcome to the Assurant third quarter 2007 financial 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 session.

(OPERATOR INSTRUCTIONS) I would now like to turn the call over to Ms.

Melissa Kivett, Senior Vice President, Investor Relations.

Please go ahead, Ms.

Kivett.

Thanks, Robin.

Welcome to Assurant's 2007 third quarter earnings conference call.

Joining me with prepared remarks are Kerry Clayton, our interim President and Chief Executive Officer; Mike Peninger, our interim Chief Financial Officer; and Gene Mergelmeyer, President and Chief Executive Officer of Assurant Specialty Properties.

I'm also pleased to be joined by the other members of our senior leadership team, who will be available for questions you have.

Don Hamm, President and CEO of Assurant Health; Craig Lemasters, President and CEO of Assurant Solutions; John Roberts, interim President and CEO of Assurant Employee Benefits; and Chris Pagano, and you are chief investment officer and treasurer.

Prepared remarks will last approximately 20 minutes, after which time we'll open the call to questions.

This morning, we issued a press release announcing our third quarter 2007 financial results.

The press release as well as corresponding supplementary financial information can be found on our website at assurant.com.

Some of the statements we make during this call may contain forward-looking statements.

Our actual results may differ materially from such statements.

We advise you to read the discussions of risks and uncertainties associated with our business and results of operations contained in our SEC filings which can be accessed from our website.

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 posted on our website.

Before I turn the call over to Kerry, let me mention that we continue to cooperate with the SEC in order to resolve the ongoing investigation.

While timing is extremely difficult for us to predict, we hope to have further clarification of this matter by the end of the year.

The SEC inquiry is confidential and, therefore, we are unable to provide any further details.

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

Thank you, Melissa.

Good morning, everyone, and thank you for joining us.

Assurant delivered solid results during the third quarter and first nine months of 2007, marked by growth in earnings per share, net earned premiums and book value per share, as well as a top quartile ROE.

Our performance to the first nine months 2007 illustrates the strength of our diversified specialty insurance strategy, and the clear momentum in our specialty property business.

It is reflective of our disciplined focus and approach to long-term profitable growth.

Assurant's net operating income during the third quarter increased 28% to $196 million or $1.63 per diluted share, led by the continued strong performance of Assurant Specialty Property.

For the first nine months of 2007, net operating income increased 16% to $540 million, or $4.42 per diluted share.

Net earned premiums increased 10% to $1.9 billion for the quarter, and 7% to $5.5 billion for the nine months, driven by the strong premium growth in Assurant Specialty Property, particularly the creditor placed homeowners' business.

Assurant Solutions' targeted growth strategy continues to provide solid gross written premiums increases in domestic service contracts, and our international products.

And we continue to make investments internationally in selected countries to generate future long-term profitable growth.

We've made strategic acquisitions in Assurant Solutions consistent with our disciplined capital management strategy.

Expanding upon our July acquisition in the UK of Swansure Group, we announced last month our acquisition of Centrepoint Insurance Services which will further accelerate our growth in the mortgage protection business in the UK The one, two combination of Swansure and Centrepoint gives us the opportunity to grow an important channel for our mortgage protection products, expand our geographic footprint in the UK, and expand our servicing capabilities in the UK and Europe.

In our preneed product line, the acquisition of Mayflower National Life Insurance Company in July enhances our long-term distribution partnership with SCI, through an extension of our exclusive contract into 2013.

These acquisitions in Assurant Solutions, together with the few smaller transactions, accounted for nearly $200 million of capital well-deployed in 2007.

Demonstrating that it's truly firing on all cylinders and leveraging its leading position in the unique specialty market of creditor placed homeowners insurance, Assurant Specialty Property delivered record net earned premium growth and record profits, with very favorable noncatastrophe claims experience, and no catastrophes through to third quarter, Assurant Specialty Property had unusually strong results.

I'm pleased Gene Mergelmeyer can be with us today to discuss his outstanding results.

Assurant Health's net operating income and net earned premiums are both down compared to a year ago, resulting primarily from small group insurance.

In the individual market, our targeted growth area, we have grown net earned premiums, maintained excellent combined ratios, and delivered strong ROEs.

However, the individual medical market has become increasingly competitive, perhaps more so than any time in our past.

While this trend adversely impacted our sales during the quarter, individual medical is a growing market and we are well-positioned with the tools to compete long term, including Advantage Agent, which makes it easier for agents to do business with us, and our diverse distribution channels and our deep understanding of the business.

Assurant Employee Benefits continues to build sales momentum by focusing on the small employer market, those with less than 500 employees.

Although net earned premiums decreased during the quarter as a result of our deemphasis of larger group business, this business delivered solid profitability and enjoyed continued favorable loss experience.

Our sales force continues to solidify relationships with brokers who share in our focused approach and we're encouraged by the progress in new case sales as the investments we've made in our sales force take hold.

Turning to overall corporate matters, Assurant continues to maintain its disciplined approach to capital management.

We have a strong balance sheet and capital position.

Our book value is growing, and we have low debt-to-capital ratio.

Our annualized operating return on equity for the first nine months of 2007 was 18.8%, and on a rolling four-quarter basis our operating ROE was 18.0%.

With respect to our year-end capital position, we started the year with $450 million of excess capital.

During the year, we funded our normal corporate expenses and shareholder dividends, plus $313 million of share repurchases, and nearly $200 million of acquisitions.

Assuming no additional acquisitions and the continued suspension of our share buyback program, we anticipate we will end 2007 with approximately $200 million of excess capital.

Assurant continues to execute on its proven specialty insurance strategy, servicing millions of customers through 13,000 employees.

Our focus on disciplined long-term profitable growth has enabled Assurant to establish a very strong financial track record, and positions us well for the future.

Lastly, I hope many of you will join us in March in Miami as Assurant Solutions' management provides an in-depth analysis of their business.

For those of you unable to attend, we will also be webcasting this workshop.

Stay tuned for more details.

Now, I'd like to turn the call over to Gene Mergelmeyer.

Gene?

Thanks, Kerry.

It's great to be here today to share with you Specialty Property's terrific results and to give you an update on the business.

Third quarter net operating income was up 115% to $114.7 million, and grew 58% for the first nine months of 2007 to $279.3 million.

Growth in net operating income can be attributed mainly to the continued growth in the creditor placed homeowners insurance, including our acquisition of Safeco's creditor placed business in the second quarter of 2006, as well as exceptionally mild weather and our ability to leverage the benefits of scale.

Combined ratios continue to be favorable, reflecting excellent loss experience that benefited from an abnormal lack of any hurricane activity, or other significant weather events during the quarter, and the nine months.

This has been unusual, and contrary to what most experts predicted.

Our lower expense ratios are in part due to scale advantages we've gained as a result of the growth in our business, and a $2.3 million after-tax benefit from commission reconciliations in the third quarter.

I'm sure many of you are curious about the impact of the recent California wildfires.

While we're on the ground working closely with our insureds, it's still a bit premature to estimate total losses, particularly due to the fact that the fires are still not fully contained.

However, to date we have received close to 500 claims for the perils of fire, smoke and wind with payments and case reserves aggregating to approximately $20 million.

I will point out that losses under the fires would be covered under our catastrophic reinsurance program and we would receive benefit to the extent they exceeded our retention of $90 million, although we believe it's highly unlikely we would reach those levels.

Our primary focus right now is on taking care of our customers in a timely and effective manner.

We've mobilized our catastrophe response team, we're utilizing our own field staff adjustors, and have our mobile claims trailer and rapid response vehicles in place in California to service our customers.

This weekend, I did personally view some of the stricken areas and met with several of our policyholders.

It's during times like this that we are reminded of the true benefit our policy provides.

As a resident of Southern California, I am grateful for the extraordinary effort of the firefighters.

They have limited the total number of homes destroyed to under 2,000, and in some cases, have maintained whole neighborhoods.

I'm also appreciative of the efforts of our employees who have responded quickly to this event, going the extra mile and giving up time with their families to help with our customers in their time of need.

Getting back to the results, Specialty Property net earned premiums increased 42% to $445.2 million for the third quarter and 41% to $1.21 billion for the first nine months of 2007, primarily fueled by the growth in creditor-placed homeowners' insurance including the business acquired from Safeco.

Reinsurance costs dropped during the quarter to $27 million from $40 million pre-tax in the second quarter.

The growth in creditor-placed homeowners for the quarter and year can be attributed to growth coming from all of our four primary growth drivers -- most significantly, the continued growth in average insured values and increased policy placement rates.

The first growth driver, average insured values on properties, continues to rise, reaching an average value of approximately $150,000 during the quarter, continuing to average mid-teen average annual growth.

Increases continue to be driven by building and labor costs, as well as agent efforts to provide replacement cost.

Our average policy premium on creditor-placed homeowners has now increased to approximately $1,600.

The second growth driver is penetration rates, and we continue to see an increase in our penetration rates, particularly in subprime loans.

Historically, we have placed insurance policies on 3 to 8% of subprime portfolios, with the increased delinquencies and foreclosures in subprime loan service, we have seen the general range of placement increase to a level of 5 to 11%.

Compared to a year ago, our average placement rate has increased by approximately 2 percentage points on subprime loans.

This trend has accelerated in the last few months.

We have also seen slight increases in our prime portfolio penetrations.

But still within the range of 1 to 2% we've previously discussed.

Policies on real estate-owned properties have contributed to the increase in penetration, particularly in the subprime loans.

Real estate-owned placements represented approximately 18% of our third quarter creditor-placed written premiums and 16% of year-to-date premiums.

The third growth driver is loan service, where we have historically benefited from market consolidation as an industry leader, particularly in our creditor-placed homeowners market.

In September, as previously announced, we gained an additional 1.5 million prime loans when the ABN AMRO portfolio was purchased by one of our clients.

However, we are operating in a very dynamic environment, supporting the mortgage servicing industry.

It is particularly dynamic in the subprime market.

During this year alone, we have maintained our position with many clients, retaining nearly 1 million loans as they have gone through various ownership changes or consolidation.

I should caution you that this -- that we can also lose clients due to consolidation.

In the last few weeks, we were informed that we will be losing at year-end 630,000 subprime loans tracked from two clients solely as a result of industry consolidation.

Despite this, we still feel very confident that our leadership position, with over 30 million loans tracked in alignment with industry leaders, will allow us to continue to benefit from future consolidations.

Our fourth growth driver is rate action.

While this has not been a significant contributor of growth this year, it is providing some benefit to our results, particularly with the implementation of the previously discussed rate increase in Florida, which is appearing in the third quarter results.

While historically rate increases have not been a frequent occurrence, we continuously evaluate our pricing and policy structures and apply for rate increases and policy form changes if needed, and justified by our experience.

Specialty Property results were also favorably impacted by a 32% increase in investment income during the third quarter and a 31% increase for the first nine months due to the increase in invested assets that, again, was fueled by our growth of the business.

Driven by good growth and our core competency of risk management, along with a little help from Mother Nature, Specialty Property had terrific third quarter and year-to-date results.

I would like to turn the call over to Mike Peninger, who will discuss the results from our other specialty businesses.

Thanks, Gene.

And our thanks to you and your team for your commitment to our customers in California through this difficult time, as well as congratulations on the results you've been able to produce.

You've provided some great insight into Specialty Property's momentum.

Let me now turn to our other businesses, beginning with Assurant Health.

Kerry mentioned that we will continue to maintain a prudent approach to growth in our targeted area of individual medical.

Assurant Health's net operating income was $39.4 million in the third quarter, down 12% compared to the same period of 2006.

Third quarter of 2006 benefited from $2.6 million in favorable legal settlements.

Net operating income for the first nine months was $113.7 million, down 13% compared with the same period last year.

The decreases in income for the quarter and nine months reflect the expected decline in small group net earned premiums and higher small group loss experience, partially offset by continued net earned premium growth in the individual medical business.

Our combined ratio through the first nine months of 2007 was 92.1%.

This is an increase of 100 basis points compared to 2006, but the combined ratio is still excellent by historical standards.

The increase is due primarily to less favorable small group experience.

Total net earned premiums in the third quarter of 2007 were down 1% compared to the third quarter of 2006.

Individual medical net earned premiums grew by 6%, primarily due to higher premiums per member.

This was offset by a 13% decline in small group premiums.

Net earned premiums for the first nine months of 2007 decreased 2% to $1.54 billion.

Continued growth in individual medical premiums during the quarter and nine months was offset by a decline in small group premiums.

Due to increased competition, individual medical sales were down 6% during the third quarter of 2007 compared to the third quarter of 2006, although they were up 17% for the nine months.

Individual medical and small group membership in the third quarter of 2007 was down 5% compared to the same period last year.

Kerry mentioned the increasingly competitive nature of the individual medical market.

We are seeing an increased number of established players who are more aggressively targeting this growing segment of the marketplace.

We remain focused on applying our strengths, leveraging our deep understanding of the health business, and using our core skills in risk management and administration in order to achieve prudent long-term revenue growth while maintaining a strong ROE.

Turning next to Assurant Solutions, net operating income of $37.4 million was down 10% in the quarter versus the third quarter of 2006.

The third quarter of 2006 benefited from $5.4 million after-tax of fee income from a closed block of extended service contracts.

During the quarter, our pre-need insurance product benefited from the acquisition of Mayflower National Life Insurance Company.

Net operating income for the first nine months of 2007 was $111.7 million, down 6% from $118.6 million in 2006.

Results for the first nine months of 2007 were positively impacted by increased investment income, including an additional $7.6 million of after-tax real estate investment income and $5.1 million after-tax benefit from a client commission reconciliation.

Results for the third quarter were negatively impacted by $2.2 million of unfavorable experience from the Brazilian credit life product we mentioned on our second quarter call.

The declines for the third quarter and nine months were impacted by higher combined ratios that reflect continued investment made to support the business' international strategic expansion.

Domestically, combined ratios were negatively impacted by less favorable loss experience in our service contract business, and the previously disclosed loss of a large debt deferment client in late 2006.

As we've discussed, in the service contract business, there are various levers we can pull if loss experience is below our expectations to improve profitability over time.

The two clients we previously disclosed are still on schedule to improve in the next one to three quarters.

Turning back to international, we currently have six countries in the development stages.

Spain, Germany, Denmark, Italy, Mexico and China.

International expenses for our developing countries were $7.4 million in the third quarter, up from $3.9 million in the third quarter of 2006.

Year-to-date expenses for the developing countries were $22.2 million pre-tax, compared to $10.7 million in the same period last year.

Our combined ratios in international returned to historical levels despite the additional investment.

Solutions net earned premiums were up 10% to $649.9 million in the third quarter, and 6% to $1.85 billion for the first nine months of 2007.

This increase is being driven by the continued growth in our domestic and international service contract business.

Also, the Mayflower acquisition added $9.9 million of premium to the quarter.

The increases were partially offset by the continuing decline in preneed premiums due to the sale in 2005 of our U.S.

independent preneed franchise and the runoff of domestic credit insurance.

We're very excited about our October 1st acquisition of Centrepoint Insurance, which nicely complements our July closing of the Swansure Group.

As a result of the accounting for the intangible assets we purchased and the related amortization, the combination of the two transactions will be modestly dilutive over the next few years.

Also, to fully realize the strength of the combination of these two intermediaries, we plan to combine or migrate various systems, telecommunications, and operations functions and anticipate incurring integration costs which will be expended over the next two years.

We'll itemize the impact of these items for you next quarter.

Domestic gross written premiums were up 3% in the quarter and 9% for the year, primarily due to good growth in service contracts with existing clients.

International gross written premiums were up 26% in the quarter and 23% for the year, primarily due to the continued strong growth in service contracts, particularly from our Canadian operations.

Fee income decreased 23% during the quarter to $36.6 million, and 4% to $115.6 million for the first nine months of 2007.

The third quarter of 2006 included $5.4 million after tax of fee income from a closed block of extended service contracts.

Absent this, fee income for the quarter would be down 7%, primarily due to the loss of the debt protection client we mentioned earlier.

Assurant Solutions' net investment income increased 9% for the quarter and the first nine months of the year, due an increase in invested assets resulting from the growth of our service contract business and the Mayflower acquisition, as well as increased real estate investment income.

I'll turn now to Assurant Employee Benefits, where net operating income decreased 16% during the third quarter to $20.4 million.

Although group life loss experience was good for the quarter, it was not as good as the excellent experience in the same period last year.

Group disability and group dental loss experience continued to be favorable.

For the first nine months of 2007, net operating income rose 10% to $70.8 million, driven by continued favorable overall loss experience, particularly in group disability.

The business also benefited from an additional $9.3 million of after-tax real estate investment income, compared to the first nine months of 2006.

The decline in net earned premiums continued to slow.

Net earned premiums decreased 2% to $284 million in the third quarter of 2007, due primarily to the continuing implementation of the business's small case strategy and adherence to our pricing discipline.

The changes we've made over the last 24 months to focus on the small employer market continue to take hold, and we are pleased that our strong sales momentum has continued.

Through the first nine months of 2007, we've seen a 42% increase in the number of cases sold in our targeted growth market of under 500 lives.

Next, in our corporate and other results, we reported a net operating loss for the third quarter of $11.7 million, compared to a loss of $7.5 million in the third quarter of 2006.

The increase in operating loss was primarily due to $3.2 million after tax of expenses related to the SEC investigation.

The corporate and other operating loss for the first nine months of 2007 totaled $22.1 million, compared to a net operating loss of $13 million in 2006.

The increase in the operating loss was mainly due to the $3.2 million after tax of expenses related to the SEC investigation, and $3.5 million of expenses from the change in certain tax liabilities.

Our balance sheet remains strong.

As of September 30th, 2007, total assets were $26.6 billion, and total shareholders' equity, excluding accumulated other comprehensive income, was $3.9 billion.

Book value per diluted share, excluding AOCI, grew 10% year-to-date to $32.99.

Our debt-to-capital ratio, excluding AOCI, improved 20.2%, another indication of our financial strength.

In summary, Assurant's results this quarter demonstrate the continued disciplined execution of our specialty insurance strategy.

By leveraging our core capabilities and applying our expertise, we continue to make steady progress in our key targeted growth areas, even with some competitive challenges.

Now I'd like to turn things back to Kerry to open the floor for questions.

Thanks, Mike.

Operator, we're ready for questions.

(OPERATOR INSTRUCTIONS) The first question comes from the line of Keith Walsh.

Good morning everyone.

A couple questions here.

I guess first for Gene.

Just thinking about the spread of risk, Florida, I guess is just announced today, one of the top three states for foreclosure filings.

What are you doing to manage that specifically?

And then for Mike, how does the 40% plus premium growth you're seeing at Specialty Property impact capital and how does that play into the $200 million of excess capital that you're estimating?

And then I've got a follow-up for Don Hamm.

Okay, Keith, hi.

This is Gene.

Obviously, one of the big factors associated with our growth is to make sure that we continue to maintain our good spread of risk.

And I think we do have a very strong core capability around risk management.

We have maintained that spread of risk.

And there's a number of things that we've been doing to maintain that.

We have typically shared with you in the past -- historically our exposure in the southeast region has been somewhere around the 18.5% level.

I can tell you that that has completely remained consistent through the third quarter.

And we do have a number of initiatives that we have in play to make sure that we minimize our exposure to any significant areas.

Balancing our voluntary products off of our force place products.

And underwriting, quite frankly, at the account level to ensure that we're maintaining an absolute spread of risk.

Another great thing about the state of Florida, as we mentioned, was our recent rate increase where we were also able to not just get a rate increase across the state, but to also target that rate increase into specific areas with higher risk, such that we feel like we've got a better rate-to-risk match and won't be adversely selected in the marketplace.

Okay.

I'll add on that, we also have the Florida cat signed, I'm not sure if that's the proper name for it.

Right, Gene?

Yes.

The Florida cat fund is also a very cost-effective reinsurance structure for us as well.

I guess, Keith, to respond to your question about the growth, I mean, we are certainly committed to maintaining the appropriate ratings in our subsidiaries.

We look at our cash position and the impact of growth on the capital requirements, and we continue to work with the rating agencies on that.

Okay.

And then I guess just for Don, on the health side, I guess I was pretty disappointed on the sales, after four straight very strong quarters.

Maybe you can give us some color on what exactly the competitors are doing to really take some share back from you guys.

Is it around -- has the underwriting advantage that you've had in the market, has that gap been closed?

Sure, let me talk that over to you.

As Mike mentioned earlier, our recent decline in IM sales was due to increased competition particularly from those larger national players, and it was competition in the form of rate.

And this is a extremely difficult competitive environment, but I look at it in terms that it provides us a challenge that we are determined to overcome.

Now, we're going to remain focused on the long-term profitable growth of the individual medical business.

I've seen this many times during my career since 1982 in our company, and our company has gone for this many times since our creation 115 years ago.

During these times, we have the risk management capabilities and mind-set to really maintain our financial discipline.

And what we're going to do is similar to what we've done in past times where we've seen more price competition.

We're going to pivot.

We'll pivot to places, products, and areas where we have the capabilities for profitable growth.

And we're going to leverage our strengths.

For instance, we just expanded our Advantage Agent program.

We added an instant issue capability which provides us with new tools to accelerate issuing high-quality new business, makes us even easier to do business with.

And now we're introducing a new capability of providing qualified leads to our agents in the RSD distribution channel.

Now, this will take us sometime to reposition our offerings, but it really allows us to remain on track providing long-term profitable growth.

And I do look at things over a period of time, not just one quarter.

We are up 17% over the same period of 2006.

And this is going to really allow us to remain focused on creating shareholder value.

I'm very confident about our future.

I think Assurant Health is well-positioned.

We have all the right capabilities to risk, distribution, and administrative to create shareholder value.

Thank you.

I would add that, once again, this quarter clearly illustrates the strength of our diversified specialty strategy, where you've clearly got our property business benefiting from a number of economic factors driving that business at a time when perhaps there's some softness in other business, like the health business.

So, again, our businesses are driven by many different factors that are sort of uncorrelated with one another, which gives us really a stability over time and the ability to take a long-term view.

Thanks.

The next question comes from the line of Steven Schwartz from Raymond James and Associates.

Good morning everybody.

Good morning.

I've got a few questions -- they're kind of nitpicky, but they should be quick.

First is, if Craig is on the line, I was wondering if he could talk maybe about Brazil, and I know the loss came down, it was $4.4 million last year -- or last quarter it was $2.2 million.

Maybe we can touch on when we're going to be through that.

I'm kind of interested in the six emerging countries that you mentioned -- how much you spent in the third quarter.

If you might know, what that -- if Craig maybe knows what that number is in the second quarter, was in the second quarter.

And then maybe talk about the timing, you may have said this, I may not have caught it, of the clients that you lost, the subprime clients, when is that going to flow through?

So maybe figure out, ABN AMRO was on September, you got one month there, you're losing 630,000 here, how's that all going to interplay?

This is Craig.

Let me handle Brazil and the country development, and I'll let Gene talk about the subprime clients.

In Brazil, I mentioned last quarter that our early warning worked well -- we caught the problem with the current life programs there.

We expected some more claims to come through, or set up some more reserve.

It was incrementally higher than we thought it would be.

But again, I think our team has done a great job controlling this.

At this point we don't expect anymore material changes in the reserves in Brazil.

And again, we're pleased with the progress there and how the -- our team has responded.

In terms of the six developing countries, I don't have the second quarter number with me.

It's been, obviously, building since we gave you the year-over-year number, and that was really the intent of giving you that information, so you could get a little bit better feel for the magnitude of the spend in international.

And you'll see that that's why we gave you, again, the growth year-over-year.

As I said in the past, I think what's real critical on the international spend is we still believe that as countries are emerging into profitability, we are seeing the targeted combined better margin, the better ROEs, then get into the U.S., and that's validating the strategy.

I'm still comfortable this is the right balance of the investment, and as I mentioned last quarter, right now, our focus really is on moving these six countries to profitability faster, and don't plan to initiate any new countries at this point in 2008.

Okay.

Thanks, Craig.

And again, I would add on that the strength of our group overall has allowed us to fully capitalize on the opportunities that have come up internationally.

Obviously, there is an expense associated with entering and developing a country.

We've been able to capitalize on each opportunity at the time that it's come up because of the strength of overall profits in the group.

Gene?

Hey Steven, this is Gene.

Hey, Gene.

Regarding your question around our loan volumes, ABN AMRO has been added to our policy and they have started producing premium for us.

As regard to the subprime loans, in general, we will be writing premium -- written premium through the end of this year, and the earned premiums will be then tailing off.

The unearned premium reserve will tail off through 2008.

Okay.

ABN AMRO came on September 1?

Yes.

Okay.

Great.

Thanks, Gene.

And the next question comes from the line of John Hall.

Good morning.

I have some questions for Gene.

Gene, I was hoping you could give us just a little bit more color on the scenario that gave rise to the loss of the 630,000 policies, and also, I was hoping you could offer a little bit more color on the amounts involved here.

Is it fair to look at that 630,000, assume a penetration of about 10%, and think of the premiums that will be grading off over 2008 as roughly $100 million?

Hi, John.

Let me try and address that question for you: First of all, I mean, we were aligned with the industry leaders, but unfortunately we don't have all of the business.

And there can be swings.

It is a very dynamic environment out there.

And this is clearly a situation where our group of our portfolios have been kind of merged into a larger group.

We typically have not gotten into discussing individual clients other than some of our larger clients.

We really don't think it's appropriate to start naming them now.

In terms of effect, I don't think it's appropriate to give you a specific target, because they even do vary by account.

But we did identify that they are subprime loans.

They do fit in with the range that we've identified for you in our press release, and in this discussion today.

I think that's the best help we can give you in terms of estimating what the effect is going to be.

Again, we -- our growth in this business has been quite substantial over time, and we believe, because we are aligned with the industry leaders, that we are successful over time.

Our market share, which is close to two-thirds, was close to 50% not that long ago.

So our skills in this business, the scale advantage, our risk management, the considerable systems investments that we've made over time, I think, are paying off.

Again, there will be lumpiness in the growth over time, but we are confident that we will be net winners because of our alignment with the industry winners.

Great.

Just a little bit of clarity.

The statistics that you offered, the $1,600 average premium and penetration numbers, do those include ABN in them or are those calculated without ABN in them?

Those would -- well, they include a small portion of the ABN AMRO loans -- the overall portfolio measured as of the end of the quarter.

Okay.

Great, thank you very much.

And the next question comes from the line of Adam Klauber from Fox-Pitt.

Thank you, good morning.

Hey, Adam.

A couple questions.

On the Specialty Property, now we've seen lower expenses for two quarters.

Assuming the volumes stay pretty strong, is it safe to assume that the expense ratio's going to stay lower than historical?

Yes, I do believe we are taking advantage, you know, of the additional premium volume and scale.

I do think you'll continue to see the trends that we've been on.

Okay.

Great.

Also, in the Specialty Property, you mentioned insured value is going up substantially, and I know insurers have been pushing for that.

Is there some element that the portfolio's different this year compared to last year that's impacting that insured value calculation?

Well, for the most part, we tend to be somewhat of a trailer when it comes to average insured value.

We place our policies based on the prior known coverage amount.

And so what has happened as these have conditioned to increase over time, particularly in the concerted efforts that were made by the agents in the last couple years, it's starting to reflect, in our portfolio.

So we do kind of trail the industry as it relates to that.

But it certainly has been a contributing factor.

I would say the underinsured situations that got quite a bit of attention in Katrina and the storms, the other storms of 2004 and 2005 in particular, raised a lot of visibility to the issue of too many homes having insured values which were way under current replacement costs.

And so that effort, which is in everybody's best interest, to get those insured values up to current replacement costs, which has been made by all the big homeowners' companies, has been a strong effort and we've been a net beneficiary of that.

And I think also the building costs and labor costs, as I think Gene mentioned, have continued to rise.

So that's another driver of the increased value.

Okay.

And one final question.

You're piling up a fair amount of excess capital, I think you mentioned $200 million at the end of this year and you'll pile up a fair amount next year if things go well.

Any idea when you think you'll start your share buyback or are there potential acquisitions that could use up that excess capital?

Yes, I think as we have said in -- before, we would expect to revisit our share buyback program next year, and we're still on schedule for that.

And that would mean, again, after earnings release, which would be in February.

And on the acquisition front, how's the pipeline there?

We're very active in the M&A world.

We're always looking at some number of potential deals at a point in time, as we mentioned.

We've done quite a number of deals this year, the type of add-on acquisitions that we have done a lot of over the years, and that we really like to bolt on and bolster and build our businesses.

Again, it's a random sort of thing when they actually come about, but we are active in the market.

We're known by all the bankers that represent potential sellers, and are of course always hopeful that new opportunities will come up.

Thank you very much.

And the next question comes from the line of Jukka Lipponen.

I have a couple of questions for Gene.

With the creditor-placed homeowners' business, how do you think about your loss ratio and loss experience in this quarter, or how would you characterize that?

Is that just unusually good or how would you characterize it?

Well, we actually do think that it is a little unusual.

Again, absolutely no hurricane activity and incredibly good weather in the quarter and in the year.

So we do think it's a bit unusual, and we'll probably raise to somewhat more normal level somewhere in the mid-30s.

Non-cat.

Okay.

And can you give us some update on how things are trending in your creditor-placed auto business?

Well, creditor-placed auto does continue to be a long-term profitable growth area for us.

And again, something we feel is really within Assurant's sweet spot.

It's a specialty insurance business.

And we do feel there's an untapped market, and we can fulfill some unmet needs.

That said, we also know it's going to take some time.

But we have -- we do feel we have created kind of a differentiated position, both in our technology, our process, and our product, and it's a terrific adjacency for us.

We continue to call and talk with a number of the big players in the industry.

We are getting favorable response, it is going to take some time, and it may be likely that we actually take on some accounts in a tracking mode at first, get them comfortable with the process, and then probably move to a CPI format.

So it is longer term but, again, I still feel we're well-positioned and there's a compelling business model for these financial institutions to reinvent this product.

Another one, if I may.

The UK acquisitions, if I heard it correctly, you said you expect it to be dilutive for several years?

And if I did hear it correctly, I guess I'm a little surprised, so can you give us a little color, the logic for the deals and why would they be dilutive to earnings for several years?

Well, we buy these companies, you have intangible assets, and the accounting rules require you to amortize those assets that the specific amortization period depends on assumptions and the type of valuation that you assign on certain components of what you buy.

So basically, you've got a situation where you've got to then amortize that up front cost over a relatively shorter period of time, and that drives down your earnings and in the nearer term until those assets are amortized.

Thank you.

Mike, let me add to that.

This is Craig.

In terms of the strategy here, first of all, I think this fits very nicely into our overall M&A sort of niche specialty strategy that we focused on international in particular.

And what we like is this mortgage payment protection industry there -- it's very different in the U.S.

in that it's a large intermediary distribution that we really haven't seen in a lot of other markets.

By buying both Swansure and Centrepoint, combined with what we're already doing in the UK, this gives us a unique opportunity to grow share.

We will have about 11% share in this niche, which by the way controls about 60% of the mortgage credit insurance sold.

Again, that's very different than the U.S.

market.

So we'll have about 11% share which gives us tremendous upside to grow.

What we're really buying here -- obviously there is business involved, but equally on or more important, is our technology platform, we're picking up a great group of people.

And again, combine that with the products that we reengineered in the UK for this space, we just think it's a great combination that will allow us to go from that 11% and really grow shares.

That's the basis of the deal.

The final piece is this is a platform we can also use throughout Europe.

It won't just be a UK strategy.

Thanks, Craig.

I'll just add in some deals there are going to be significant intangibles or other sort of unusual or one-time expenses that, in the old days, it would have been goodwill.

And when we have the circumstances where those are going to be rapidly written off, we will try to itemize those for you so that you're able to identify them and separate them from sort of the true underlying run rate of the business.

Okay, great.

And the next question comes from the line of Beth Malone from KeyBanc.

Okay, thank you.

Hi, Beth.

Just two quick questions.

One is on the Specialty Property and the developments in the subprime mortgage market.

Could you just, are we to assume then as there are more subprime loans that go into default and foreclosure among your customers, that you automatically are going to be the beneficiary of that phenomenon because you will be able to insure them?

Is that what we saw in the fourth quarter -- I'm sorry, the third quarter so far, as that translated from having insurance on these subprimes to then when they're real estate-owned, you get the insurance business?

Well, I wouldn't say it's in every case that we're going to be getting those loans, but we do provide real estate owned for the majority of our subprime clients.

The penetrations have continued to arise, the delinquencies are continuing to increase, and we do believe that that is going to continue to drive foreclosures, and the REO foreclosure inventories which we will then insure for our clients.

Okay.

And then on the business, the mortgage business in -- mortgage insurance business in Europe, is there any -- is that a kind of business that we could anticipate seeing higher losses if the environment in Europe deteriorates like it has in the U.S.

or is that a completely different kind of risk that you're insuring?

That's correct.

It's a different risk.

And again, this is the traditional payment protection, we call credit insurance years, so it's typically some form of a life, disability, unemployment cover and the losses have been pretty stable there.

We like the marketplace because of that.

And when you look at the macro mortgage market, what's going on there, obviously not in the same situation that we are not U.S.

right now, but I think more importantly than what's going on globally there in the marketplace, is again -- we go in, this is a very fragmented market.

We go in as the Number 2 after these acquisitions, but still with just 11% share.

So that's what we find really attractive is this upside in the marketplace.

But again, the market, the losses have been very stable on the three product lines.

Okay.

Thank you.

I would add that the UK mortgage market is substantially different than in the U.S.

Typically lower loan-to-value-type loans, and also tend to be a much shorter term loans with sort of an agreed pay-down schedule, and then typically refinancing or so forth.

And we're actually able to write a lot of the products that we typically would write on installment loans in the U.S.

The other great value of this UK operation, and again, our international expansion, is while our diversified model has really had its strength from a diversity of types of business, we're now getting into geographic diversity, which is really a relatively new thing for us.

So that, for example, when you have certain weaknesses in markets like the mortgage market in the U.S., that's not really being felt in the sector of the mortgage market that we operate in the UK.

And I think, again, different economies around the world, as we grow, will give us further diversity as a group.

Just one final thought on this Beth, the intermediaries, it's kind of a unique distribution.

They literally control the loan transaction in addition to all of these insurance covers that are sold.

Our PPI product would be sold in conjunction with the loan which they control.

In addition to that, they sell all kind of property covers, particularly on the home and in some cases, others.

And Centrepoint, Swansure actually broker these products for other companies.

So while we won't be underwriting those, we get the benefit of the commissioned income on these which again is nice for two reasons.

One, it helps with the stable losses that I talked about earlier on our core three products, but long term this should also help our ROE in this marketplace as well, since this is all fee income.

Do you envision that at some point you will be underwriting that business as well, or is that not likely, given that you're not a UK-based company?

It's certainly possible.

I mean, one of our long-term visions for our international platform, as we get further entrenched in these countries with our two core products, the credit insurance and the extended service contracts, there's no reason over time why we wouldn't look at all the AIZ products in any given marketplace.

Again, that's fairly long term.

Right now we're happy while we integrate these companies and grow that 11% share just to be brokering the property products while we learn the market.

Okay, thank you.

And the next question comes from the line of Ed Spehar from Merrill Lynch.

Thank you, good morning everyone.

Hey, Ed, how you doing?

Good, how are you?

Great.

A few questions.

I'm wondering, Gene, you know you identified the 630,000 subprime loans, I'm wondering if there's any way you could give us a sense, based on what you're seeing in terms of sort of the ins and outs here of consolidation wins and losses, how you expect to fare if we look out one year in terms of that.

Is it in the plus column or the minus column?

Well, I do think that's pretty hard to predict, particularly, again, with the fact that it's a dynamic environment around these -- particularly subprime mortgage clients.

I do believe that there is going to be some additional consolidation going on.

Again, being aligned with the industry leaders, I do think that's going to provide us with opportunity as we go forward.

It may take some time, but sooner or later, I believe we're going to get our fair share.

Okay.

And then in another question, I don't know if you can give us some assistance in terms of thinking about how we should sort of conceptually think about the timing of the peak in results for your creditor-placed business versus the peak in sort of the, however we're going to define the residential mortgage market stress.

Are they coincident or how do we think about that?

I certainly don't think that they're coincident.

But there's a number of factors that are going on.

I talked a little bit about the subprime market, and the delinquencies that are occurring, and the fact that that is driving foreclosures.

Also, you still have a number of ARM loans that are due to reset in 2008, and so we do see that that will continue to be an impact in that subprime market.

We are also watching the prime market, and we're watching home prices.

And to the extent that we do continue to get some severe decrease in home prices, I think you are going to see some increased problems and increased penetration in those prime portfolios as well.

So-- and I think some of this is going to depend on just how far some of that economic activity goes.

I do believe there's a little bit of wind behind our sails.

Ed, as Gene had said, we saw quite a bit of acceleration in the latter part of the quarter.

So there's clearly momentum in that business and of course how long will that momentum last for the peak is anybody's guess.

But clearly the factors that enumerated that drive the business are still going strong at this moment.

Given what we see today, where the news continues to be sort of seemingly more negative, is it fair to say that given what we see today, that '08 is probably not the peak?

That, I'm not an economist, but you can interpret it any number of ways.

But I think clearly, as an industry, and business in general, and certainly financial institutions, we all have an interest in keeping people in their homes and trying to do whatever we can to influence and assist people in that.

And although, again, these trends have been accelerating, there clearly is a movement afoot to try to do something about it to ease that pain.

And including, efforts by our own trade groups that we belong to, which we fully support.

So quite hopefully, those efforts will have some positive effect and we will see a peak sooner than later.

And frankly, while we may benefit in a way from this, we all benefit from a stronger economy, from people who have jobs, and can take our group insurance and can afford to buy our medical insurance, and can afford to buy electronic goods that we sell extended warranties on and so forth.

So I think it's in all of our interests to try to stabilize the housing situation and get people on their feet and well-employed.

Okay.

Just one last question for Don.

In terms of the individual medical, it seems like this is the first quarter, I think, where you're being as explicit about sort of the competitive pressure and pricing.

And I'm just wondering, historically, how long does it take, I mean, is it 18-month or two-year type of period from when you first see the types of signs you're seeing -- you see today to when we have a turn?

And is it possible that that could be extended because there's so much excitement about the individual medical market and some of the players who might be pushing in there could maybe live with unsatisfactory results for a while before it really had a meaningful impact on their bottom lines?

I commented in past calls that during this year we've seen a gradual increase in the competitive pressures at individual business, and it really seemed to accelerate in the third quarter from those large national players.

And in the past, it hasn't taken us that long, the period you mentioned, to kind of get back on track and reposition.

But it will take a little bit of time to find those places where we have a competitive product offering.

It's a big country.

We go towards locations and products where we see we have a compelling value proposition.

And we're prudent and disciplined.

We don't get excited over any one quarter.

We remain focused.

We make sure that we have prudent long-term growth.

And I also may add that although it's hard to get this information directly, just anecdotally, I got the impression from other individual medical carriers that overall it was kind of a down quarter.

Although it's hard though measure because some companies don't separate individual medical, and there's no convenient spot, I guess, since there were some ups and some downs, and sometimes the summer months are a little slower.

So we're taking this all in perspective, and every other month we realign our pricing, we go through our experience every month, and for us it's about prudent long-term growth, maintaining our discipline, and we are determined to keep the individual medical on a good track.

And I believe we're well-positioned for the future.

Thank you.

And the next question comes from the line of Vinay Misquith.

Hi, good morning.

Hi, Vinay.

How long do your foreclosed properties stay on your books, the real estate owned properties stay on your books?

Well, that, too, varies by client, it varies by state.

Just to give you a little bit of color around this, typically a loan goes into default at around 30 days.

We could be on the property already in a force place environment.

But then there's northerly about 90 days before that property is going to enter foreclosure.

Even once it then enters foreclosure, depending on the state, that still could take 60 to -- 60 days to maybe even 18 months before that foreclosure goes through.

And it even becomes real estate-owned property.

The real estate-owned properties, again, I think we're dealing with certain market conditions right now.

Maybe they used to stay on the books for a few months.

As inventories have continued to rise, we have seen a lengthening of the amount of time that those real estate properties are staying on the books.

I think we do anticipate that that is going to continue to grow, and I would anticipate that the actual length of time that they're staying on the books will also grow.

Fair enough.

So would it be fair to say that because there has been some foreclosure filings, that's not really reflected in your top-line numbers because you haven't really been foreclosing.

So therefore, they're not really real estate-owned properties?

That could be true, yes.

Fair enough.

And I know in your normal book of business, what's the tail -- how long does that normally stay in your book?

Does it stay for a whole year or does it stay for less than a year?

Well, that -- I wish that was an easy answer as well, but unfortunately it's not.

We do have a group of policyholders that, quite frankly, we write the premium, they stay on our books, and they continue to renew and can stay on our books for years.

There is a whole other set of policyholders who they go through the letter cycle, ultimately get a policy, and then may at that point react to it and say I need to get my coverage.

And so there's a period there of two to three months that we may actually get premium income for that.

There's another set of policyholders, they may stay on the books for about a year, and then once they get their renewal information they decide to react to it.

So I'd say those are the three general groups, and they generally accumulate together and do vary among each individual group.

Fair enough.

Thank you.

And the next question comes from the line of Andrew Brill from Goldman Sachs.

Just a few questions.

First question, on the Specialty Property side, can you give us an update on what percentage of the book will be impacted by the rate increase in Florida in the back half of this year and into next year?

We really haven't disclosed the amount of property that we do have in Florida.

We did disclose that it was just over a 20% rate increase.

Can you give us a expense just in terms of the timing when the rate increases are implemented?

Yes.

The rate increases were implemented in May 1st.

It does take some time for them to get through the letter cycle so we have just now started -- in the third quarter, we started reflecting those rate increases.

And it will then increase ratably, as we issue new policies and renewal policies over the next year.

Okay.

And I guess just a second question, can you give us a better sense of the magnitude of the dilution from the recent acquisitions in the UK?

And then just I guess conversely, what you expect the ultimate accretions to be?

Are these numbers material?

We said we'd itemize those next quarter.

And we'll break out the pieces so you can get a sense of the intangible amortization, and the other pieces.

Just one more question, then.

Just on the ABN AMRO book, I know in the past you've mentioned that you expect to incur higher expenses associated with the book in 2007, related to integration.

Do you have a number now in terms of what that amount might be?

We haven't specifically detailed out any costs associated with any particular lender.

We did take on this portfolio a little bit differently than we do others, in such that we're, in effect, assuming the current policies that are in force today.

So we will be getting earned premium on that block immediately as opposed to having to write the premium on an ongoing basis, and then earning it over the period.

So the impact of that would be probably a little bit less on this ABN AMRO portfolio relating to earned premium.

Thank you.

And the next question comes from the line of Bill Wilt from Morgan Stanley.

Good morning, thanks for taking the question.

The question for Don Hamm, and you all can feel free to be brief with this, given the time -- but on individual medical sales, a very high level question, could you just talk about the prospects for individual medical sales looking ahead with the types of healthcare plans that are being discussed among the leading presidential candidates, trends in large states like California.

Obviously, with competition heating up, people are seeing value there, but just from a high level perspective, how the sale of individual medical policies might fit into the trends in healthcare that we're seeing.

Thanks very much.

Sure.

Assurant Health, we support the proposal that really all Americans should have access to high-quality healthcare, and we are working with both sides of the government, Democrats and Republicans, to further that along.

We believe -- I believe, as I have heard most people say, it's unlikely that there will be any federal legislation until the next president is in office, so -- but I do think we'll see more activity at the state level.

And although there are a lot of proposals this year, there are no significant legislation passed.

California is still outstanding, and they haven't agreed on an approach.

However, we have very little business in California.

And I think the whole individual market is growing.

And that's one of the things that's been very attractive to us.

More and more small employers are not offering coverage, and more people are getting to the early retirement age.

So I do believe that an important part of improving the healthcare in our country is allowing access to more individuals who purchase their policies and we support that and work with both sides of the aisle.

And although we will hear a lot of discussion over the next couple of years, I think it's important to keep in perspective, that will take several years for any federal legislation to move ahead and it's premature at this time to know in which direction that will go.

That's helpful, thank you, and I agree with you on there timing, but were one to snap your fingers and see some of the plans that have been proposed actually implemented, is there a role for individual medical or none?

Well, I believe there definitely is, I think the role could very well be greater than today.

I think the issue is covering people that don't have coverage, 47 million people that are uninsured.

Many of those come from small groups who don't [supply] coverage, or are low-income individuals and different programs help subsidize the private purchase would certainly accelerate our opportunities.

However, once again, that is hard to predict and we'll stay close to developments and keep you informed as things progress.

Also, I'd add, there have been several proposals and there are several people really supporting right now the -- allowing the individual medical premium to be tax deductible.

Which it generally is not now.

But if the individual medical premium were deductible, like an IRA, for example, directly out of your income, then we believe a lot of those small employers would really choose to just say, I'll give you the money and you buy your own medical insurance, which of course today would put the employee at a tax disadvantage.

But if we had that parity, we believe that could significantly increase the individual market and a lot of those small employers who would probably take that action are the ones that we are, in fact, doing business with today that typically, like in our group, have five employees or so.

So we, again, we think there are a lot of things that can enhance the individual market.

As Don said, subsidies or credits or other arrangements that would help more people be able to afford the coverage.

We're always looking at designs that may make coverage more affordable for individuals, and allow more people to again partake in the market and join the insured ranks, because in this country you are the most at disadvantage if you have no medical insurance.

So it's in all of our best interests to increase that and decrease the number of these people who have such poor access to care.

I agree, I guess I'm mindful, that sensibility and politics don't always go together.

But it definitely bears watching.

Thanks very much.

No argument on that.

And the next question comes from the line of Joseph France, Banc of America Securities.

Joe?

His line is disconnected.

And the next question comes from the line of Dan Johnson.

Needless to say, most of mine have already been answered, but I appreciate the additional disclosure on the international solutions development spending, we can call it.

And very simply, if I look at your combined ratio excluding that, it looks like it was stable to maybe even modestly improved over the third quarter last year.

I did not sort of do that for the full year given that there's a bunch of puts and takes in the full-year numbers.

Maybe you can tell us where you see directionally, the international combined ratio, how it performed this year, excluding the development spending, and then importantly, what do you think the direction is, say, over the next 12 to 18 months?

Thank you.

Yes, thanks Ben.

It's Craig.

Directionally, we talked about, I think at investor day last year, that long term we really think it's a mid-90s combined for international.

And again, it goes back to our original hypothesis, which is we can get better returns and higher margin and thus better ROEs and combines outside of the U.S.

Again, our opportunity next few years is really balancing these investment dollars with the return we're getting at these companies, mature in the respective countries.

I can tell you, in the countries that are breaking out into profitability, we're very comfortable that meeting that mid-90s combined is a very valid goal and metric.

And again, that was the intent this quarter, to start giving it a little bit more detail and color around the actual dollars that we're spending on the international.

But again, we're still committed, I just think that, particularly for Solutions this is the right long-term approach and we do see these returns and are still very committed.

I think in, if you had an opportunity in March, obviously at our workshop in Miami, we will get into somewhat more detail on the strategy part of our international, and obviously our service contract piece of our business, our real targeted growth area, it ought to give you some more detail around that.

I think I'd add, we recognize that Solutions is a very complex business unit with a lot of different product lines, a lot of different things going on.

And I think at the workshop, that really will be an opportunity to give you a lot more detail at least on a one-time basis on a lot of areas, and enhance everyone's understanding of some of the underlying things that are going on there.

I would say on the international spending and expense -- really we call it investment, because that's really, we're investing in future growth, that we have been able to capitalize on a lot of good opportunities there.

It does take a while, three to five years to develop those countries.

So you will be seeing those countries in that developmental and expansion mode for several years.

But clearly, as they break out and go into the -- our middle category of countries that they will become strong contributors to our bottom line, we believe.

Great.

Thanks very much.

And our last question will come from the line of John [Metal] from (inaudible).

I'm glad you kept it going.

I figured somebody, mild weather or not, needed to say congratulations on a very solid quarter.

So let me say that.

But a quick question for you, this is maybe following up a little bit on Dan's question.

Craig, you guys said, I think, no new countries, at least on the table for '08.

But if I threw out this scenario for you and said you don't enter another new country, you know, let's say for the next five years, how -- and you're targeting a mid-90s combined ratio and we've got various countries that are mature and some are a couple years in and some are just starting -- if we had no new countries, how many years is it out in the future to achieve that mid-90s combined ratio?

It would really depend on if you look at how many countries we have in really early, China being an example, the three new European countries, Italy, Germany and Spain, are really in pure start-up phase.

And if we talk in that three to five-year timeline, if you take that and say we have four that are real early on, and you're looking at that three to five-year timeline, quite frankly, I think I've shared that some of these are more complex like China.

So certainly it would be closer to the five year in terms of, as Kerry mentioned, pure investment dollars going into these before we see those countries start to see the targeted combined.

Now, with that said, obviously the goal is again to shrink the timeline, as well as these countries that move into profitability get to that mid-90s faster.

And again, I think in March we're going to try to share with you how that timeline emerges in some level of detail that can give you more, again, more color around sort of how we do this and how we're thinking about the progression along that timeline.

Okay.

I'd add, I mean, we've also had quite attractive growth in our more mature countries, like Canada, for example.

Absolutely.

And the things that we're doing in the UK will add on that front.

So I think on an overall basis we're very optimistic about the role that international is playing and will play in the future, and as I've often said, it's our highest growth area.

And okay.

So is it fair for me to summarize that it's -- that it's certainly something less than five years?

It's -- again, I know I'm simplifying this, and assuming that you hit targets for breakeven, et cetera, in all your various countries, and something may derail and something may go better -- but assuming you hit your targets, is it safe to assume that it's less than five years?

And then I guess the second part of that question would be as I think about the combined ratio in internationals, second quarter was clearly elevated, but you still had some Brazil drag in 3Q, not as much as the second quarter, but still reasonably meaningful.

Yet the combined ratio was down pretty meaningful from 2Q to 3Q.

Which one do we feel like is a better indication of a steady state?

Let me just, on the first part, I do think it's reasonable to assume less than five years as reaching some more run rate-type combined ratio.

Under your scenario that we never enter a new country, of course, for the next five years we would certainly expect to find new markets and further expand.

Well, if they all look like Canada, right?

Terrific.

Terrific, yes.

Will have Craig, you want to take the second heart?

As far as the third quarter, John, again, I've sort of cautioned in the past until we get much more scale internationally, quarterly variances, particularly because one of the products line is the warranty business, which by definition does have variability.

So we're going to caution this quarter-over-quarter, look at it again.

Our discipline and my discipline around this is if we can't meet the metrics in a country in this five-year timeline, we won't be in that country.

We have too many things we can invest in that we would go do.

Okay.

So that's our commitment, that's why I think that's a reasonable time line.

And then just one last question, I guess for Gene.

Just to go through this one last time, I know some people have hit it, but ABN AMRO piece was about, was it 1.3 million loans?

1.3 million trackable loans, yes.

Trackable loans.

And is that book either entirely prime or entirely subprime or some combination?

It's primarily a prime book of business.

Primarily a prime book.

Okay.

And if you could just characterize what the maybe one or two primary drivers of the two client loss for January 1st, would you characterize them much more price-driven or something else?

No, they were absolutely nothing else other than a consolidation.

These were smaller entities that got gobbled up by larger entities that already had --

That were already established, with either Balboa or Sterling.

That is correct.

Thank you very much.

All right.

Great, we're pleased with the results we've been able to generate so far this year.

Results that reflect management's continued focus on the disciplined execution of our specialty insurance strategy.

We'll continue to build upon our strong financial foundation to deliver value to our clients, customers and shareholders, while creating opportunities for our employees.

Thanks again for joining us today, and we look forward to updating you on our progress on future calls.

And this does conclude the Assurant third quarter call.

You may now disconnect.