Assurant Inc (AIZ) 2008 Q2 法說會逐字稿

Welcome to the Assurant second quarter 2008 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 period.

(OPERATOR INSTRUCTIONS).

I would now like to turn the floor over to Ms.

Melissa Kivett, Senior Vice President Investor Relations.

Please go ahead Ms.

Kivett.

Thank you Crystal.

Welcome to Assurant's 2008 second quarter earnings conference call.

Joining me with prepared remarks are Rob Pollock, President and CEO of Assurant, Mike Peninger, our Interim CFO, and Don Hamm, President and CEO of Assurant Health.

I am pleased to be joined by other members of our senior leadership team, Gene Mergelmeyer, President and CEO of Assurant Specialty Properties, Craig Lemasters, President and CEO of Assurant Solutions, and Chris Pagano, our Chief Investment Officer and Treasurer.

Prepared remarks will last approximately 25 minutes, after which time we will open the call to your questions.

This morning we issued a press release announcing our second quarter 2008 financial results.

The press release as well as corresponding supplementary financial information may be found at our website at Assurant.com.

We also issued a press release this morning announcing our intentions to acquire Signal Holdings.

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

Our actual results might materially differ from those projected in these forward-looking statements.

We caution you about relying on these forward-looking statements, and direct you to consider the discussions of risks and uncertainties associated with our business and results of operations contained in our 2000 Form 10-K, and subsequently filed 10-Qs and 8-Ks that can be accessed on our website.

The Company undertakes no obligation to publicly update or revise any forward-looking statements.

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 to the most comparable GAAP measures and a reconciliation of the two, please refer to this morning's earnings press release and the supplementary financial information posted on our website.

Now I would like to turn things over to Rob.

Thank you, Melissa.

Good morning everyone and thank you for joining us today.

We are pleased to share with you Assurant's financial results for the second quarter.

Despite a slowing economy and uncertain capital markets, Assurant had a solid quarter and strong first half of 2008.

Our strategic long-term focus on our specialty business model allowed us to deliver double-digit growth in net operating income, and an annualized operating return on equity well in excess of 15% for both the quarter and year-to-date.

In addition, since June 30th of 2007, we have grown our diluted book value per share by 15.3%, excluding Accumulated Other Comprehensive Income, and 13.9% when AOCI is included.

While we are not immune to the volatility in the capital markets, and have had some impairments in our investment portfolio, we have maintained our conservative and disciplined investment philosophy.

Our business continues to deliver healthy cash flows.

Our capital position remains strong, and we raised our dividend in May.

We continue to look for opportunities to further improve our capital position.

Last year we expected free cash flow at the holding company in the range of 170 to $230 million.

This amount is after funding capital needed to support business growth, dividends to shareholders, interest on our debt, and corporate expenses.

I am pleased to report this amount may increase in 2008 as a result of discussions with AM Best.

The capital charge related to business growth will be modified for our Specialty Property business.

This will increase the cash available from that business.

The actual amount will depend on our 2008 results in Specialty Property, which will be much clearer after the hurricane season.

We will provide an update on our next call.

We are very pleased this morning to announce our intention to purchase Signal Holdings.

Signal Holdings is a strategic acquisition that comes right out of our capital management play book.

It builds an existing business that we have targeted for future growth.

Signal Holdings will provide solutions with a deeper integration of the value chain in the wireless market for extended service contracts.

Our strong balance sheet and operating cash flows provide us the flexibility to make this acquisition without accessing the capital markets.

Moving to Solutions, net operating income and net earned premiums were up for the quarter and the first six months, as we faced the challenging economy head on.

Growth in income was primarily driven by results from domestic service contracts, offset by results as we work to build our international operations.

Our targeted areas of preneed and international were the primary drivers of net earned premium growth.

Although we grew net operating income in Solutions, we did experience additional losses in a Brazilian credit life program.

While this product is unique to Brazil, we are carefully reviewing experience with it, in an effort to help us improve the risk management tools we use to monitor all of our businesses.

To temper the impact of an economic slowdown in service contract sales, we continue to focus on our key growth drivers, which includes adding products with existing clients, expanding our distribution channels like wireless, adding new clients, and developing new products.

And as with all of our businesses, our products provide peace of mind for our customers during good times and bad.

While the economy is challenging, Specialty Property is performing well, and affirming the strength of our diversified strategy.

Specialty Property again delivered strong profitability and revenue growth during the quarter.

We support government efforts to ultimately improve the mortgage market, and initiatives such as Hope Now, which provides financial counseling to homeowners in need.

Finally, we anticipate continued consolidation in the mortgage market, and we believe we are well-positioned by our alignment with market leaders.

Don Hamm is here today to discuss our results in health and update you on what we are doing to deliver long-term profitable growth in the individual medical market.

Assurant Employee Benefits continues to focus on delivering value in the small employer benefits market.

While second quarter net operating income is down, overall loss experience continues to be favorable.

Net earned premiums for the second quarter are up slightly compared to 2007.

We believe our transition away from the larger case market is largely completed.

So in summary, despite the slowing economy, our results continue to demonstrate the enduring quality of our diversified specialty insurance strategy.

Our financial foundation is strong, and our capital position provides the flexibility to capitalize on emerging opportunities.

Before Mike reviews the business results for the quarter, I would like to turn the call over to Don Hamm to discuss health.

Don?

Thanks, Rob, and good morning everybody.

Assurant Health results this quarter reflect the continuing challenges of a competitive marketplace.

Net operating income for the second quarter was $27.7 million, down 18% from a year ago, and $65 million for the first six months, down 13% from the first six months of 2007.

Combined ratios increased 130 basis points in the quarter, and 60 basis points for the six-month period, due to higher loss ratios and lower expense ratios.

The loss ratio pattern from the first quarter to the second quarter, reflects very favorable development on year end reserves, and somewhat less favorable development on claims incurred in the first quarter.

Overall we believe that the loss ratios for the first six months of 2008, is consistent with our pricing targets.

We have maintained a consistent reserving methodology throughout this period.

We previously discussed our expectation that the combined ratio would gradually increase.

Our desire is to stimulate revenue growth in individual medical, through pricing actions which would gradually lower the ROE.

The increase in the combined ratio in 2008 is consistent with this expectation.

However, we have not yet seen the increase in sales.

We will continue to closely monitor our emerging experience.

Net earned premiums were $487.7 million in the second quarter, and $983.8 million for the first half of 2008, down 5 and 4% respectively.

During the first half of 2008, the continued decline in small group premiums was accompanied by relatively flat individual medical premiums.

Intense competition has adversely impacted our revenue growth.

However, we are taking steps to respond to this challenging marketplace.

We continue to develop innovative products and services, to better meet the needs of individual medical customers.

We introduced several new innovative product features in July.

These features included patient care, a new independent advocate, to help customers better evaluate their healthcare choices and costs.

Another new program one decreasing deductible, provides deductible credit to our customers and rewards loyalty.

And lastly Tele-Doc, it enables our customers to confer with board certified physicians over the telephone.

These features are aligned with an emerging trend in the marketplace where individuals want to more actively manage their own healthcare decisions.

Broad distribution is one of our core strengths, and is a competitive advantage.

Our direct sales center is gaining traction, and direct sales are increasing.

In addition, building upon our strength with independent agents, we recently implemented a new lead enhancement generation program.

This program provides high quality leads and a sales management process to targeted agents.

One of our key distribution channels is our exclusive long-term alliance with State Farm.

We currently are in negotiations to extend our 8-year partnership.

Overall, Assurant Health remains focused on long-term profitable revenue growth in the individual medical market.

We will continue to bring innovative flexible solutions to the growing individual medical marketplace, and we believe Assurant Health has the necessary capabilities in risk management, distribution, and administration to succeed over the long-term.

Now, I would like to turn the call over to Mike Peninger.

Thanks, Don.

In the face of a challenging market, Assurant Health is taking the necessary steps to maintain it's position as a leader in the individual health marketplace.

Now let's review our consolidated results, and the results from each of our other specialty businesses.

Assurant's net operating income during the second quarter of 2008 was up 10% from the second quarter of 2007 to $185.8 million, and 13% per share on a fully diluted basis to $1.55, lead by the strong performance of Specialty Property.

Net earned premiums increased 11% for the quarter compared to the second quarter of 2007 to $2 billion, driven largely by growth in key targeted areas of creditor placed homeowners, extended service contracts, and premiums.

Our net investment income increased 6% from the year ago quarter to $201.2 million.

For the first half of the year, investment income was down 2% to $399 million in the comparable period last year, because we had $33.1 million less investment income in real estate joint venture partnerships.

Excluding income from these real estate partnerships, investment income for the first half of 2008 is 7% higher than the first half of 2007.

Net investment income increased 14%(Sic -- see press release) in the second quarter of 2008 versus the year ago quarter to $190 million, or $1.59 per diluted share.

For the first half of 2008, net income increased 9% from the comparable period last year to $376.8 million, or $3.16 per diluted share.

Net income for the quarter and half year benefited from $26.6 million of after-tax income, related to the gain on the sale of an inactive subsidiary.

We realized $22.4 million of net after-tax losses on investments during the quarter, including $17.9 million due to other than temporary impairments in our investment portfolio.

Our impairment process is detailed in our 10-K disclosure, and making our impairment decisions, we employ a consistent methodology that combines a quantitative framework with our best judgment to evaluate the factors contributing to changes in security values over time.

Our impairment process is simplified by the fact that approximately 98% of our available for sale investments are designated Level 1 or Level 2 under FAS 157, and have readily available market values.

Assurant Solutions second quarter net operating income was $32.4 million, up 7% versus the second quarter of 2007.

Net operating income for the first half of 2008 was up 8% from the first half of 2007 to $79.9 million.

The domestic combined ratio improved 140 basis points from the second quarter of 2007, due to improved loss experience in the domestic service contract business, and reductions in commission payments to certain clients that we discussed last quarter.

Preneed results were also favorable for the quarter, after adjusting for a $3.5 million after-tax benefit in the second quarter of 2007, from the sale of our independent US franchise.

The international combined ratio increased 170 basis points compared to the second quarter of 2007 to 111.4%.

The primary reason for the increase was a $6.9 million after-tax charge, due to unfavorable loss experienced in a credit life product unique to Brazil.

We identified issues with this product last year, and recorded charges of $4.4 million after-tax in the second quarter, and $2.2 million after-tax in the third quarter.

During the second quarter of this year, we received a large number of claims from a client that we terminated last year.

We have established a reserve for these claims while we conduct a thorough analysis of their validity.

In addition we adjusted our reserves for the entire product to reflect the impact of this new information.

Without the additional losses in Brazil, the international combined ratio would have been 106% in the quarter.

This continues to be above our long term target, as we previously discussed, we continue to make investments in our six developing countries, and we used established metrics to monitor our progress in each of them.

We review results each quarter with country management, so that we can reassess and make changes to plans if needed, and to share what we have learned among different country managers.

Second quarter general expenses for developing countries were $10.9 million, compared with $8.0 million in the second quarter of 2007.

Due to growing sales, expenses in these developing countries declined to 56% of gross written premium in the second quarter, versus 66% in the second quarter of 2007.

Solutions results for the first half of 2008 were positively affected by the $11.7 million of after-tax income from client related recoverables that we mentioned in the first quarter.

As previously reported, second quarter 2007 income benefited from $3.5 million after-tax and fees related to the sale of our US independent preneed franchise, and $4.5 million after-tax of income from a client commission payable reconciliation project.

Solutions net earned premium were up 13% for the quarter, and 15% for the first half of 2008 versus the comparable period in 2007.

These increases were driven by the continued growth in our domestic and international service contract business, growth in preneed, and the benefit of foreign exchange.

As our international business continues to gain scale, we have introduced additional disclosure on the impact of foreign exchange into our financial supplement.

Our domestic gross written premiums declined 11% for both the quarter and six months.

This was primarily driven by slowing retail sales, and the closing of the CompUSA stores.

International growth written premiums however were up 11% in the quarter, and 14% for the first half compared to the same periods in 2007, primarily due to the continued strong growth in service contracts and credit insurance.

Fee income is also growing, up 16% for the quarter and the first half of 2008 versus the comparable period in 2007, driven by our recent international acquisitions, and our domestic and international extended service contract business.

Rob mentioned today's announcement of our intended acquisition of Signal Holdings.

We have been a partner of Signal since 2001, and are pleased to take our partnership to the next level.

We expect the acquisition to be accretive in 2010, and modestly dilutive in the fourth quarter of 2008 and 2009, due to integration costs and the amortization of intangible assets.

We will provide additional details about the financial impact of the transaction after close, which we anticipate will occur in the fourth quarter.

The Signal acquisition demonstrates our ability to diversify our specialty businesses by deploying our capital in an area we are targeting for growth.

Next, Assurant Specialty Property delivered record net earned premiums and record profitability during the quarter.

Net operating income was up 45% to $131 million for the quarter, and 55% to $255.8 million for the first half of 2008, compared to the same period in 2007.

Net earned premium growth, excellent combined ratios, and increased investment income all contributed to our results.

We have historically reported ISO catastrophes greater than $5 million per event, and we have had no single weather events that reached that threshold this year, however there was an unusually high frequency of ISO events in the second quarter of 2008, which resulted in an $11.5 million after-tax of catastrophe losses, in comparison to $3.4 million after-tax in the second quarter of 2007.

As we enter the most active months of hurricane season, we have taken the necessary steps to protect the capital base of our Company, as well as our clients and customers through our 2008 Cat reinsurance program.

We were able to secure higher levels of coverage to support our significant growth, while maintaining storm deductibles comparable to last year, and under more favorable pricing.

In June, with we issued a detailed press release on the program that is also available on our website.

The loss ratio for the second quarter of 2008 was 32.2%, down from 33.2% from the second quarter of 2007.

The loss ratio decreased despite our elevated catastrophe losses, due to our good spread of risk and continued excellent non-catastrophe loss experience.

The expense ratio continued to improve for the second quarter and year-to-date, compared to the same periods in 2007, primarily due to the benefits of scale.

Organic growth in the credit replace business drove a 36% increase in net earned premiums to $533.9 million in the second quarter, and 33% to $1 billion for the first half of 2008 versus the comparable periods in 2007.

Growth is primarily driven by average insured values and the insurance placement or penetration rates.

As replacement costs have continued to increase and our mix of business changes, average insured values have risen to $170,000 in the second quarter of 2008, compared to $144,000 in the second quarter of 2007, and $164,000 in the first quarter of 2008.

We continue to see growth in placement rates although there are no changes to the range of placements that we have previously provided, namely 6 to 15% for subprime accounts, and 1 to 2% for our prime accounts.

Overall loan accounts have remained relatively constant.

While the majority of our credit replaced premiums are non-real estate owned, real estate owned premiums continue to increase to 22% of credit replaced premiums for the second quarter of 2008.

Specialty Property results also reflect a 35% increase in investment income over the second quarter of 2007, to $32 million due to higher invested assets.

Moving to Assurant Employee Benefits, net operating income decreased 13% during the quarter to $18.6 million, and 31% to $35.0 million for the six months, as a result of higher loss experienced, versus the excellent results of the comparable period last year.

First half 2007 results also benefited from $9.2 million of after-tax income from real estate joint ventures.

Even with the uncertainty in the economy, our geographic and industry diversification and focus on the small employer helped disability incidents remain favorable.

Net earned premiums during the quarter increased slightly to $273.2 million, and were down 3% to $553.7 million for the first six months versus the comparable period last year.

Excluding single premiums from closed blocks of the six-month period for both years, net earned premiums were up $1.9 million versus 2007.

Compared to the same periods in 2007, sales were down 4% for the quarter, and 2% for the year, reflecting our pricing discipline.

In our corporate and other results, we reported a net operating loss of $18.8 million for the second quarter of 2008, compared to a loss of $2.9 million in the second quarter of 2007.

The corporate and other net operating loss for the first six months of 2008 was $24.7 million, compared to a loss of $10.5 million for the first half of 2007.

The increase in the operating quarter and six months is primarily the result of increased expenses relating to the ongoing SEC investigation of loss mitigation products, increased compensation expenses, and a decrease in investment income.

While we expect the corporate after-tax run rate of approximately $50 million annually, the quarterly results can fluctuate.

Our balance sheet remains strong.

As of June 30, 2008, total assets were $26.2 billion, and total shareholders equity excluding accumulated other comprehensive income was $4.4 billion, up 9% from year-end.

Book value per diluted share excluding AOCI grew 9% to $36.68.

Our debt-to-capital ratio excluding AOCI improved to 18.3%, from 19.7% at year-end 2007.

Let me finish my comments by providing some information on our investment portfolio as of 6/30/2008, focusing on those asset classes we have all been reading about in the news.

Many of these statistics can be found on Page 15 of our statistical supplement.

First, our total market value exposure to mortgage backed securities, which included $58 million of subprime asset backed securities, was 10% of total fixed maturity assets, and 7% of total invested assets.

Second, our market value exposure to preferred securities which included $95 million of tax advantage preferred securities issued by either Fannie Mae or Freddie Mac, was 5% of total invested assets.

Finally, our commercial mortgage loans, which had an aggregate loan to value ratio of approximately 40% using property values based largely on second quarter 2008 appraisals, were approximately 10% of total invested assets.

So in total, it is important to remember that each of these asset classes that are currently getting so much publicity, represents only a small portion of our diversified investment portfolio.

In summary, Assurant's focus on the disciplined execution of our proven diverse specialty business strategy, continues to deliver strong results for shareholders.

By leveraging our core capabilities and expertise in the specialized markets in which we operate, we continue to make steady progress in our key targeted growth areas.

Now, I would like to turn it back to Rob to open the floor for questions.

Thanks, Mike.

Operator?

We are ready for questions.

(OPERATOR INSTRUCTIONS).

Our first question is coming from Jukka Lipponen from KBW.

Good morning, Jukka.

A couple questions.

First of all can you give us a little more color on this Brazil contract again?

I don't know if I heard it correctly, but I guess you are setting up reserves expecting or having these claims come in, but you are not sure yet whether these actually are valid claims.

Sure.

Craig, do you want to comment on that?

Absolutely.

Let me give a little more detail, Jukka.

As Mike mentioned what specifically happened in the quarter, we received a large number of late reported claims from one of the clients that we previously cancelled, so this quarter we do believe we set up adequate reserves specific to those claims, and additionally we took that new information and set up or strengthened reserves for future claims on the whole product line.

So again, we are thoroughly reviewing each of these claims for validity, before we pay any of them.

In terms of ultimate resolution on this though, what we are doing is actively engaged now in settlement discussions with each of the three clients that we are targeting to conclude by year-end, and the goal of course of this resolution is to finalize all prior and future liability within the amount that we have now reserved, and we will keep you posted on the progress of that settlement, or the settlement conversations.

But just a reminder, Rob mentioned it earlier, this is a product that is unique to Brazil.

It is not written in any other country and again, we are absolutely committed as always to learn from this situation, and continue to improve the overall risk management process that we employ.

It is also important to note I want to make sure I am clear that with the exception of this product product, in Brazil our operation is progressing nicely, it is growing, it is on plan and it really does remain an important part of our overall targeted international expansion strategy, so again we will keep you updated on the progress of the settlement discussions.

And Craig, can you give us a little more color in terms of the developing countries, the expense ratios continue to come down.

Where are we in terms of the profit contribution from those countries, and then also what is the status in China?

Sure.

In terms of the developing countries, it is still a long term process, it is a long term committment and we are just at various stages.

I think I mentioned on the last call, or we mentioned recently that a country like Mexico for example, is progressing faster than some of the European countries, so we are just at various stages, but we wanted to introduce last quarter this ratio approach written premium, just to give you a more accurate measure versus the pure spin, on how we are going to top line which obviously is the first priority, so these companies can flow down and be contributors, so I would say as of now, we are still on plan for these countries, as Mike mentioned, we have very specific metrics in place, that if we fall behind, or don't believe we can achieve the long term goals, then we would certainly exit a country, and reinvest in another country.

Again as I have mentioned, the good news is we have a number of new markets that we haven't gone to yet, so we certainly wouldn't delay a decision if a country is not going to meet the hurdle, because there are plenty of places for us to invest.

On China, China is on plan.

We have opened our services Company there, which again doesn't require an insurance license, so that Company is officially up and running, we have hired a General Manager, and are starting to build a team there.

We are in the process of putting our three global systems into China, and obviously actively pursuing new clients there.

Again, our approach there is to be very prudent.

It is a great market opportunity wise, but certainly different than some of the other markets we have entered, so we are trying to be very thoughtful and prudent about how we launch clients in the testing processes, et cetera.

On the insurance side, again we have opened our Rep office in China, which is really a two-year process, at the end of the two years, the Rep office being open then we can make our application for our actual insurance license, so that is still a ways down the road.

But I am happy with the progress.

Again the key is we were able to find just a terrific General Manager, which is where we started in all countries, with a greenfield approach building with great talent.

Last one, on the Signal acquisition, what kind of margin are you expecting on that 150 million of additional revenue?

Jukka, I think that it will be consistent with our target in the US for our combined ratio.

Obviously, we have got to work through the integration, but we think we will pick up some scale here.

We have really got to get in and analyze all of the details of the integration, and get back to you.

I think the key takeaway, however, is perfect deployment of our capital, exactly what we want to do with it.

It is in an area Craig has been looking to to expand because we have seen growth opportunities, and to me, it's just again, a perfect execution on what we try and do in the M&A area with our excess capital, so we will get this thing integrated.

We think it better positions us with a deeper penetration in the value chain, and we are very excited about the prospects Signal will bring to us.

Craig do you want to comment?

Just one other comment, Jukka, on this acquisition and the reason we are so excited about it, is we really look at it as combining the best of both worlds.

Signal has built a terrific back office operations, repair and logistics business, and we just think combining that are our Sales and Marketing expertise, and throwing on top of that a very unique product that we think we introduced to this space, a sure connection last year, it is just a great combination, it gives us real differentiation in an industry that is growing.

The wireless industry is growing not just domestically but internationally, so this is also a great platform for introducing this product in a real robust way globally.

Finally, we picked up just terrific people in this acquisition.

Signal has Tom Cloetingh, the Founder and CEO has just built a terrific team there.

I am happy to tell you that the Senior management team has agreed to stay on with us, and is very excited about being a part of the Assurant family.

Thank you.

Your next question is coming from Ed Spehar from Merrill Lynch.

Good morning, everyone.

Good morning, Ed.

I had a few questions.

First, on specialty property, Mike, I think if I heard you correctly, I think you said that the overall loan count is relatively constant, the placement rates haven't really changed from where we were last quarter, but the insured values were up 18%.

I guess the question is, where, I guess there has to be a point where the insured value increases start to taper off, and can you give us any sense of where we are in that process?

Well, I mean, Ed, we have identified a number of growth drivers in the business and why don't we have Gene comment on those and provide some context for that.

Sure.

First of all let me just step back.

In terms of penetration rates, we do continue to see those increasing at somewhat relative rates that we have over the last few quarters, particularly starting in the subprime which we have seen increases for clearly over the last four quarters, and in prime moreso maybe over the last couple of quarters.

As it relates specifically to insured value, there continues to be a number of influences on that average insured value.

Construction costs, if you look at the building cost index year-over-year and quarter-over-quarter they are continuing to rise.

We are still seeing the efforts on behalf of the agents, to increase the replacement costs on the voluntary policies, that ultimately end up being the basis for which we rate our policies.

And thirdly, we did mention a bit of mix in business that is causing this, and while it is representing 22% of our premium, the real estate-owned policies are adding to the average insured value, particularly because we are getting a higher concentration of these policies in the West.

The real estate-owned policies are rated on loan balance, and so places like California and Nevada and Arizona, where we are getting some higher in-force counts, is helping to raise that average insured value, and we continue to see those areas driving the real estate-owned in-force.

Could I follow-up Gene?

So did we see sequentially this quarter, did we see the penetration rates up in prime and subprime from where they were in the first quarter?

Yes, yes, we did.

Go ahead.

I was going to say we stayed within the range we have given you, but obviously in the case of prime, Ed, you have got a fairly, or subprime, you have a fairly wide range, 6 to 15.

Right, okay, that is helpful, and then on the corporate and other loss, Mike, this was, you identified $3 million for the SEC piece, but the overall loss seemed to be, if I heard your comments correctly, the overall loss seems to be almost double what you would think kind of an annual number divided by four would be.

Is there something, did I hear you correctly, is there something else going on in the second quarter that increased the corporate loss?

Yes, I think, Ed, if you go back and look at the history in the corporate line, we do see some fluctuation from quarter to quarter.

We talked about the SEC expenses were a piece this year.

We also had a number of things that were broadly kind of compensation related in various ways that added another chunk, and we also are seeing lower investment income in corporate, because the yield or the rate that we have the assets invested at are quite a bit lower than last year, so there are a lot of different pieces that go into that corporate line, and as I said in my comments, we think on a reasonable run rate for an entire year is in that $50 million range.

Okay, well I guess if I took that number, then that is going to say that the loss in the second half of the year is going to be less than what you had in the second quarter?

Yes.

I think that is what we are implying.

Okay.

And then final question, can you give us some sense of what if we look at maybe the last several years, the catastrophe losses in the second quarter, defined as you have defined them in your release today, so not necessarily above $5 million, but just how you are defining them today, can you give us some sense of what percentage of earned premium those have been running at?

Are you talking about in the second quarter?

Yes, just in the second quarter.

What we are going to do is go back and build the history for you.

We have got it, Gene do you want to talk about the numbers in '07?

Yes, again, this was an elevated quarter and unusual, although I would also comment that we were still very pleased with these results.

I mean, I think representative of our risk management and our good spread of risk, we felt ultimately that maybe the 2 percentage points that it added to our loss ratio, was less than what we were seeing across the industry.

Previous quarters consistently had much less activity, and going back and looking at the ISO storm counts, 16 in the second quarter of this year, versus 6 last year, and they had much lower levels in the previous years also.

Thank you.

Your next question is coming from Beth Malone of KeyBanc.

Good morning, Beth.

Good morning.

I am going to ask just a few questions and get back in the queue, but first, on the SEC investigation, is there any like light at the end of the tunnel here?

Should we model in this 3 to 5 million every quarter indefinitely?

Can you give us an update, and as well as an update on how you are seeing share repurchase?

Sure.

Well first, we can't really talk about the SEC investigation per se, Beth, but what we can say is that the Company is working hard to bring about a resolution of the matter with the SEC, and we continue to pursue that, and expenses can vary, depending on particular use of outside consulting services in that area, so it can move around a little bit.

In terms of the share repurchase, quite frankly if you look at our capital management strategy, we have said investment in our businesses as they grow, second thing we would like to do is do acquisitions, we are real pleased we did the Signal acquisition.

That being said, we would like to have the ability to buyback shares, which we have suspended while the SEC investigation is under way.

Quite frankly, given the change in the marketplace, the capital market conditions we really like what that has done to our balance sheet, but we would like to be buying as well, and we will resume when we think it is appropriate.

Okay, and then just one last question on the disability book, other carriers who you compete with on the smaller case side, have reported pretty stable expectations, and your disability book was down.

Is that mostly because of you are still transitioning your book of business, or are there other factors?

Well, I think we are still very pleased as I said, Beth, with our incidence rates in disability which to me is the main benchmark that you look at.

We haven't seen really any change in those overall.

They are still running at very favorable levels.

We had exceptionally good experience in 2007, so I guess we had kind of a difficult comparable for ourselves, but I think that incidence rate is the key metric, I keep my eye on it, and I know John Roberts keeps his eye on it, and that we still feel real good about.

Okay, thank you.

Your next question is coming from Keith Walsh of Citi.

Good morning.

Hi, Keith.

Good morning, everybody.

A couple questions for Gene, and one for Don.

Gene, first on the housing bill impact, basically my question is if you are placing a policy and a loan gets modified, does that change the ability for you to place a policy would be number one?

Well again, I think that is going to depend a little bit on how that loan is modified.

I could talk a little bit about this bill in total.

As Rob mentioned, we do support a broad-based mortgage environment, and we think it is important that the confidence be brought back to this mortgage environment.

We also believe that there are provisions in the new laws that will help do that in the long term, but that said, it has not really caused us to modify particularly in the short-term our forecasted growth assumptions, and we are going to have to continue to monitor usage and results as we go forward.

The provisions in this plan are going to take time.

The loan modifications that have been done to date, I mean, when you look at what the servicers and the lenders have done, they have been focusing on work outs, then they have been focusing on loan modifications, which again, we have still seen our increases in penetration and everything associated with it.

What we will likely, again with the latest proposal and the FHA loan guarantee, they are still likely to do those two things, the work outs, their own modifications, before they are going to add FHA loan guarantee, and before they have to take those write-offs.

So we think in terms of timing, right now, it is slotted already with an effective date of 10/1.

If you hear what the FHA has to say, I mean, they believe it could even take much longer to implement.

So we think it is going to be a good thing.

We just think it is going to take a long time to get it implemented.

We still feel that the industry macroeconomic factors that have helped drive some of our growth, particularly policy penetration, which is the decline in home prices and the rises in foreclosures and the rises in unemployment, they are still expected to continue, as is the tight credit market, and the low consumer confidence.

So when you look to average insured values, it hasn't been influenced by the lower home prices, and our creditor place is following kind of replacement costs as they have in the industry, and then REOs are following loan balance, so we are continuing to see the same macroeconomic factors continuing for a period of time going forward.

Okay, and then just on the prime book of business.

I guess 26.5 million loans last time we were told.

You said it is still in the historical ranges.

How is that possible if what we have seen just listening to the commentary from every bank CEO this quarter, specifically Jamie Diamond talking about a tripling of his net charge-offs in the prime books over the next year, how come we have not seen that sort of a movement within your book?

What is different there?

Well, we haven't seen a tripling but again, we have seen an increase in our penetration, and as I have mentioned in previous quarters, there is a bit of difference between the prime and subprime books.

Many of the prime portfolios we were not providing real estate-owned product for, and so once it is going into foreclosure, we may not have the opportunity to write that premium, but we are writing it certainly in some portfolios, and we are picking up premium through delinquencies, foreclosures, and by the way the other reasons that we normally forced place in the book.

Okay, and then just one question for Don on health.

I mean we have been talking I guess about premium growth for the last couple years, and I just wanted to, I think you just posted actually the first year-over-year decline in core individual premiums since you guys went public.

Absent the competitive environment, is this product just too expensive for people?

No, I don't believe so, Keith.

I think this is a growing marketplace, more people are entering into the individual space through their early retirements, through small employers less frequently offering coverage, and a company like Assurant Health, we have a wide range of products from the end of the spectrum of relatively low premium, to less benefit, to higher premium and higher benefit.

We have products such as Right Start, designed for those people newly into the system, and products such as HSAs, for those that are early retirees, who are needing a bridge to Medicare and beyond.

So we have mentioned before that the competition is intense in individual.

Other companies have seen this as an attractive segment, and us that are in the business, there are some times you get a bit bruised and sometimes those bruises can turn purple, but you keep working along heading into the future, and you take each opportunity to keep improving the value of products and services we provide to our customers, and we do have some headwind from some of the aggressive pricing that we have noticed from the large national players, and we believe that our new portfolio is well-positioned, and we are cautiously optimistic that we will continue to have some success in this business over the long term.

Okay, thanks.

Your next question is coming from Mark Hughes of SunTrust.

Good morning Mark.

Good morning.

You did better on the loss ratio on the domestic service business.

Anything in particular driving that, do you expect that to continue to improve?

Again, I think this is part of our core capability of managing large clients, and I will let Craig comment on the particulars, but I really think this is embedded in that contracting, and working with the large clients.

No, that is right and Mark it goes back to comments a year ago that we had two clients that were not performing up to our expectations, and we put the things in place to correct that.

That has continued to improve, so we are very happy with that progress, but I would just say overall, again, we are just committed to get better and better at the risk management process overall, so we have seen improvement in other areas of that business as well, so we will keep investing in that.

It also helps us getting back into the international growth, all of these core capabilities of risk management, specifically on the service contracts space, we can employ globally, so it is well worth our time to keep investing in this.

Thank you.

Two other brief ones.

Was the gain on sale included in revenue anywhere, or was that just below the line?

You mean the inactive subsidiary gain?

That is right.

That is below the line.

Okay, and then profitability on REOs, is that any different from the non-REO business?

We have consistently maintained combined ratios across the whole portfolio, REO and [inaudible].

Thank you.

Your next question is coming from John Nadel from Sterne Agee.

John, welcome back to the sell-side.

Thank you very much.

It is great to be back in this volatility.

(laughter) I have a couple of quick questions for you guys.

Don, on the health side, I may have misinterpreted your commentary from your opening remarks.

Is it fair to interpret those comments saying that the new or the second quarter combined ratio is a better indication of where we are thinking about being going forward from here, or was it some combination of the last couple of quarters?

It is the year-to-date combined ratio in 2008.

Got it.

We do think to a key take away is that that combined ratio is consistent with our expectations, and this is part of that process we talked about before, of gradually reducing the ROE to stimulate the growth in the individual medical business.

As we have commented we have hit some headwind with aggressive pricing actions, but we still remain on-track for our destination.

Over the long term, we believe we have the right capabilities of risk management distribution and administration.

We see the marketplace growing, and we take a long term conservative and disciplined view on the business, and we believe the new product portfolio will help us in that regard, so we do believe that we are on-track, and the year-to-date combined ratio is indicative of where our pricing expected us to be.

Okay.

Just going back to the corporate expense levels, I know Ed was hitting on this a bit, and I just wanted to follow-up one-time on this.

Was the statement that sort of expecting the range of $50 million for the full year?

Right.

And that is clearly not including the interest expense or the deferred gain, correct?

Right.

We have got a reconciliation on one page in the supplement I think, John.

Yes.

Okay.

Quick question on Specialty Properties.

Thinking about the other category, starting to see some very good growth year-over-year both in the gross written and in the earned premium.

Can you talk about I guess two things.

Just generally what you are seeing in your efforts on the renters and auto side, and then also any impact from the severe flooding in the Midwest during the quarter, and should we think about your administrative capabilities for the government?

Well, before I turn it over to Gene, I mean, I think as we have mentioned we are trying to always come up with additional products, that can find and fill special needs in the marketplace.

Gene has a couple of those, and Gene do you want to comment on what you have got going on?

Sure.

Actually, we have been very pleased with that increase in other premium.

While it is still not a large part of our business, we have been able to incubate a number of smaller products, that we have had some success with.

When you look to premiums and earned premiums in particular, they have been driven by mainly a couple of products.

We have a creditor replace flood product that has benefited from what has happened in the rest of the industry, and then also our renters products, which we have touched on a couple of times, and we are continuing to see further acceptance of that model in the industry, and we think we have got some terrific differentiation in our distribution model.

Okay.

As it relates to our creditor place auto, or CPI product, we continue while again premiums are still small on this block, we still believe that it is going to provide us with some long term profitable growth opportunities, and we believe strongly that there is unmet needs in that market.

As we discussed though, it is going to take some time to develop, and as I previously mentioned, I think we thought it was going to likely maybe start with some tracking of portfolios for insurance, with like a second phase of being, placing the credit replaced insurance, and to that end, I can actually say that we have recently been successful in executing on that strategy.

We have now signed and implemented a couple of significant accounts for insurance tracking contracts, that is really going to increase our loan tracking by about 900,000 loans, and lease tracking by 300,000.

Now, we believe it is significant because we competed for this business and we won, and so it is somewhat of an important validation for us, that our service offering is going to give us the scale that we need in the auto space, and make us a large player there.

I do want to reiterate that it is for tracking only at the current time, so it is not going to provide any significant premium or bottom line impact say in '08, but we hope to move them to premium placements, once we have kind of established our tracking proficiency, which again is going to take time, but we still believe we have got a compelling business model for the client, and we like our long term chances here.

And just not necessarily keep entirely on this, but any impact from the floods?

Actually again, looking at this whole quarter, the hurricanes, the [inaudible], the floods, we still believe that impact is going to be small.

We are not expecting any reportable events to come out of this.

Again, I think conducive to our risk management strategy and spread of risk, VNF IP continues to be part of our strategy, and will and has helped offset some of the loss, and has acted as some of a hedge, in regard to some of the underwriting that we do in our credit replace flow business.

Okay.

And then last question on the investment portfolio, just looking at the significant decline sequentially in the accumulated other comprehensive income, driven by the growth unrealized, is it fair to assume that the majority of that decline was driven by rising interest rates, or is there some other reason?

Chris?

Hi, John.

I think keep in mind that when we talk about the investment portfolio, you are talking about a 12.5 or $13 billion net invested assets with about a six year duration.

Yes.

So moves of 1% in interest rates of any sort will produce 750 or 800 million of change in unrealized, whether that is up or down.

So if you think about what happened over the first six months of the year, and the last six months, in particular the second quarter, that is pretty consistent in terms of the change in unrealized.

What we can tell you though is the increase in interest rates because of the operating cash flow, because of the conservative approach to the portfolio, we are starting to put assets on at better levels for better long term interest rates going forward.

And I would just add to that, Chris and his team have a tremendous ALM capability that we have in place, that is part of our risk management, and again, what we benefit here is our liabilities aren't callable.

We are in a situation where it gives him a little latitude to operate, that many other players don't have, that again put us in an enviable position.

Great.

Maybe I will sneak one more in.

Rob, with the acquisition and spending 250 million, does it change your view looking forward about additional acquisition opportunities?

No.

In fact, we have had quite a bit of activity going on in the M&A area, and we are going to continue to pursue both organic growth, and things that can help us build our businesses, and plan to do so.

We think our strong capital position really gives us the flexibility to stay active there.

Yes.

Again, we have a situation here where from the M&A side, we have done numerous small fill-in acquisitions over the last couple of years.

If you think about the Safeco acquisition, the Mayflower acquisition, Swansure, Center Point, [Rolene].

I mean, we have had numerous of these acquisitions take place, all helping us build out our platforms, which we think are going to benefit us moving forward.

Thank you very much.

Okay.

Our next question is coming from Vinay Misquith from Credit Suisse.

Good morning Vinay.

On the Brazil life product, I just wanted to clarify whether that is a discontinued product?

Craig, do you want to talk about that?

Yes, sure.

There are three producing clients, Vinay, on this product in Brazil.

Two of them are cancelled.

The third client was when we found the problem with the product was converted to a monthly pay product, which has acceptable margin and returns, and is operating on plan, so for all three, the product that specifically gave us problems was discontinued, we just converted the one to the monthly pay product, and again the key for us is we are actively negotiating settlement with all three, and are targeting year-end to get that completed.

Sure, so for the two clients you have some discontinued business, but for one client it still continues?

That is right.

For the one client it continues but again we converted the product to what we call a monthly pay product, which gives us much more robust risk management capability, and so the product that they continue to write is performing on expectation.

Sure, fair enough.

Thanks.

The second question was on the health side.

Don, I just wanted to clarify that it is not a cost issue, but you are actually taking actions to reduce your price, because you are trying to sort of balance the trade off between margin versus growth?

Yes, I think, Vinay, you kind of summarized it.

While I think Don pointed out a number of years ago at Investor Day, that we would certainly be willing to take a reduced ROE for more revenue volume, and we have taken pricing actions to do that, and we have not seen yet the increase to the top line, but this is a long term play in this business.

We understand it very well, and when Don talked about some of the new products we are introducing, I think they also importantly address segments of the buying population, that maybe hadn't been addressed as frequently in the past.

So trying to get to that consumer, and insight on different segments of that buying public is something we are doing a lot of at Health, and we believe that some of the new products we are rolling out will help there.

Sure, and how is the competition in this segment?

Has it lead off?

It is a continuous process of assessing the competition.

We are active in 44 states and we have different competitors in each state, so it is hard to get an overall view on it.

We did note with a lot of interest the challenges that a lot of the larger national-like companies have recently talked about in their business, in their risk-based business.

My own history is that there are times when people do price aggressively, and it usually occurs and then it fades away a bit as people make adjustments.

I would expect some of these players to make adjustments.

There is usually a lag between when they recognize a problem and when they implement rates, so I think the trend should be positive for us.

Let me also point out that the second quarter is historically our lowest sales quarter.

There is a bit of a seasonality there, and we do believe there were some movement of business from the second to third quarter, as people were aware in June of our new product capabilities that had some features that weren't available, and to build upon Rob's comments, this product portfolio really demonstrates our focus and our innovation.

All those features I mentioned, no other individual company has those available today, and it shows that with us being focused in the segment being closer to the business, I think we are more atune to the needs of the customers, and ultimately it is about serving customer needs, and doing it in the best possible efficient way, and our ease of doing business, and these capabilities in our new portfolio, give us a good sense that we OL position, and we remain on our focus of long term profitable growth in this business, and once again, it is a great market and Assurant Health has the right stuff.

That is great.

Thank you.

Thank you.

Your next question is coming from Dan Johnson from Citadel Investment Group.

Good morning, Dan.

Good morning.

Rob, you started off the conversation talking about AM Best, and their assessment of required capital for rapidly growing businesses.

Can you remind us exactly how much of a capital penalty you are under right now with that business, and what are the sort of key determinants that will help us figure out how much capital relief will come from that change?

Sure.

Let me just start and then I will turn things over to Gene, because Gene actually, and Chris were part of the team that visited AM Best, whichever of you want to take it, but quite frankly, I think it points out the challenges we can have as a specialty business.

When AM Best looks and sees companies who have premiums growing much faster than the marketplace, their natural reaction is to believe that perhaps they have got a situation where the product is underpriced.

I think that is the genesis of the growth charge that they have put in place, over and above what they might normally charge.

So we spent a fair amount of time trying to get AM Best to understand why ours was different, and trust me, they don't just nod their head in agreement on things.

It takes a lot of dialogue.

Gene, do you want to touch, Chris, on how some of that went?

I can certainly start.

I mean, I think as Rob explained, it is a process, and I think we were able to demonstrate first of all, that the drivers of our growth were not necessarily bad for our division, in fact they were good, so we could look and we could point them to things like, continued lowering of non-cat loss ratios, continued improvement in expense ratios, based on the growth that we have been receiving.

We are also able to demonstrate the difference between what is really happening on a policy level basis, versus what is happening on a premium level basis, and the fact that a lot of the premium that we are getting is doing to just getting better rates on the policies we are writing, so I think we are very successful.

I know that as we move into this next quarter, I think we are going to look at capital and be able to give you some further guidance, particularly when we consider all of the other companies involved, and our Best review, and I think our plans are to report further to you in the third quarter.

Chris, do you want to add to that?

Yes, this is sort of part of our overall capital management philosophy where we back in the shift of dividends from the subsidiary up to the holding Company, depending on profitability.

For specialty property, obviously Cat season is a big question mark.

The good news is by the time we are in the third quarter call, we will be most of the way through there and have a much better sense on profitability, and can give you a much more accurate update then.

So let me go back to the first part of the question, which was what is the premium growth penalty that you guys paid, I know you don't know how much of it will come away, because you don't know what the equity will be at the end of the year, but how about what has historically been held in extra because of the growth?

Yes, well, AM Best changes every year, Dan, so it is difficult to sit down.

What I would say is we feel we are going to be in a position to dividend more of our earnings than we were last year, but the specifics really relate to the inner relationship of our earnings, and the formula, and we just want to wait and see how that plays out a bit.

Okay, fair enough.

Thank you very much.

Your next question is coming from Adam Klauber from FPK.

Good morning Adam.

Good morning, thanks.

Two quick questions.

Specialty property was up, gross premiums were up on a sequential basis from 40% to 30%, is there any seasonality, and also are you working on any big contracts there?

Well two questions, Gene, do you want to address the seasonality issue first?

Yes, as far as seasonality goes we do have some seasonality.

I think if you go back and look at our historical trends, particularly the fact that the first quarter tends to be a bit lower, second quarter usually ends up being somewhat of a strong quarter, followed typically by strong third and fourth quarter, so first quarter is really our, usually our sequentially lower quarter.

Okay, and also, are you working on any big contracts in that segment?

Well, we don't discuss any particulars but obviously, Gene is regularly in RFP proposals that might be out there.

You can imagine that given the just general uncertainty that has taken over the marketplace, I think there may be a lot of people who aren't bidding, because they could be acquired.

Gene, is that a fair statement?

Yes, I think it is certainly an interesting environment right now.

And as we move forward, we do believe there is going to be continued consolidation, and in the short-term, we could be a winner in that environment, or quite frankly, we could be a loser.

We still believe that our large market share and our alignment with some of the industry leaders, are going to provide a benefit for us over the long term.

And one quick final question.

On the health loss ratio, what health inflation assumption have you built in, and what type of health inflation would you need for the health loss ratio to go over 70%?

Assurant Health is really focused on risk management, and every month we go through a detailed evaluation of our emerging claims experience, we do our loss ratios every month, we break it down by product, by location, by geography, by all of the different factors, so we are constantly adjusting based upon our analysis of the trends, and we see trends recently being kind of stable to maybe a little bit down, but each company's trend factor is very unique based upon it's own book of business.

Then we have more higher deductible business.

We have business in different locations than other companies, but generally, I would say we are in the mid-teens, but although people often make changes to their products as the rates get higher, so the net earned rate is usually somewhere about half of that.

Right.

But it is a continuous process of adjusting.

Okay.

Thanks a lot.

Your next question is coming from Steven Schwartz from Raymond James.

Good afternoon, everybody.

Can I just quickly, I wasn't intending to, but I wanted to quickly follow-up on Dan Johnson's question, with regards to the business growth and the capital charge.

Obviously, you're talking about AM Best, and that is because they may not use the same terminology, but looking at RBC or an insurance Company, are we basically talking about C-4 risk?

No, I don't think so.

I mean a couple of different points here.

We also have needs to meet B-car ratios, which is another part of the rubric we go through, as we negotiate with AM Best.

Sure.

But I think the takeaway is, we believe we are going to be in a position to dividend a higher percentage of earnings out of the property business, than we were in prior years.

Okay.

Good.

And if I can just go on with my own questions.

Sure.

For Don, Don, you mentioned State Farm, maybe I am thinking about somebody else's arrangement with State Farm, but I thought State Farm was a very, very long term contract.

Yes, we have had two 4-year contracts with State Farm and this is a great example of an alliance that really benefits both parties, I was with some of the key State Farm people earlier this week, and it is very clear that we have aligned interests, and we have the same values as an organization.

We both focus on value to customers.

We both take a long term perspective, and it is very beneficial for State Farm to have access to our individual medical product, that they know the Company comes through on it's commitments, and is there for their customers at a time of need, and we really enjoy working with the State Form folks, and their presence in one out of every four households in the United States is a tremendous advantage for us, and we are in contract discussions.

We mutually agreed upon a contract extension, in order to give us more time to work out the whole process, but we are very optimistic that we will reach an agreement soon.

And how long was the extension, and from when did it start I guess, and when is it's inception?

It began at the end of June and it has been extended a couple of months, and we will just keep updating you as things progress, but we are optimistic we will reach an agreement soon.

Okay.

And then Craig, on China, you mentioned now it seems to be a long time ago that your service, you have got a service office open on the insurance side though, I mean, am I understanding this right?

You can be in a reasonably short period of time writing extended service contract business in China?

Yes, that is right, Steve, and it is not written as an insurance product there, so what we have actually opened is the service company.

Okay.

So that will be a platform for the extended service contract business.

Okay.

Are you maybe it is too early yet but is the thought process to deal with Chinese companies, or is the thought process to initially deal with maybe American companies that are doing business over there?

It is really both, and it is interesting even when we started researching this two years ago, because it did go back a while we did thorough research to make the decision to go there, and then all of our on ground work, and even in that time period, the number of domestic companies that have opened in China is very encouraging, and it fits excellent into our whole global client management strategy, where we can now partner with whether it is a large retailer, or we get our insurance to license a bank or a card company, truly on a global basis and help them in the 13 locations where we are doing business today, and so it is encouraging that a number of particularly the large retailers have entered China as well.

Okay, and then for Gene, just the question of delinquencies versus REO.

My understanding was the profitability was the same.

That premium was the same, if a property moved from a delinquency to an REO situation.

The components of the combined ratio were different, but the combined ratio ultimately came out to be the same.

You mentioned something I didn't know, that the premium when it moves into an REO situation is based on the loan value?

That is correct.

And okay, so that leads me to the question, is the profitability, the absolute bottom line profitability on a home when it moves from delinquency to REO, your profitability, does it go up?

I mean, I am not talking about the combined ratio.

I am just talking about the bottom line number.

Well the bottom line number is really going to be driven by the combined ratios, which are consistent among those products, so I would say they are going to be comparable.

Okay.

But let me try this a different way.

Is the premium higher that you receive on an REO, relative to a delinquency?

Not necessarily.

Okay.

Again, premium, the REO premiums can oftentimes have different factors.

It is a bit of a different program.

They are somewhat similar in most cases, but they can differ.

Okay, all right, fair enough.

And then just looking at Employee Benefits.

Just so I understand the loss ratio yo was less favorable than a year ago, but morbidity was still better than pricing, is that correct?

It is still favorable.

I mean, the versus pricing you have got a lot of different factors by product and different durations, and things like that, but I think overall as I said, the disability incidence rate still remains at levels we are very comfortable with.

Okay, all right great.

Thanks, guys.

Thank you.

Your next question is coming from William Wilt of Morgan Stanley.

Good morning, Bill.

Hi, there, thanks very much.

I'll just keep it to one topic given the time.

For Craig, have you seen a change in the penetration rate on domestic warranties, on consumer electronics, or other durable goods over the last several quarters?

Or as a result of the economic weakness I guess is my question?

We see both going on.

Bill, we have clients that we have talked about obviously Circuit has been very public about their challenges, so we have seen clients that are struggling in the economy, but we also have clients in our service contract side where we have seen increases in penetration, and typically the ones that are really engaged in our strategic program management, and we can really help them.

We have also seen in selected clients kind of the high end sales, the flat-panels and things have held up very strong, and so that has been encouraging, and then in our specialty lines some of the things that we talked about, the specialty auto pieces for example, we have seen encouraging signs there, and I think that really sort of helps us this whole notion of taking this challenging economy head on, this has really helped us balance that in this economy.

Okay, thanks for that, and related is there a meaningful difference between the international penetration rate, and domestic US, just directionally?

I wouldn't call it meaningful at this point.

It is a big range internationally because in some countries, we are really just early on introducing the whole concept of service contracts, there are others that are somewhat more mature, that tend to behave very much like the US so it is a bit of a mixed bag still.

Okay.

Thanks very much.

Our last question is coming from John Hall from Wachovia.

Good morning, John.

Good morning, Rob.

I am going to take another crack at the specialty property capital thing.

Okay.

What percentage of earnings did you dividend out last year

I don't think we dividend any last year because we grew so rapidly.

So zero percent, so essentially prevented, or was it through capital need?

Well, again, the B-car ratio is a combination of factors that include something related to the business, and something related to your growth, and that combination put us in a situation of retaining capital within the business.

Chris, do you want to talk about that a bit more?

Let me just take another shot at this, and then hopefully prior questions about this, people are still listening.

The capital charge related to growth is a function of individual companies growth relative to the industry, so you have got a couple of moving parts there.

There is a three year and a one year number that AM Best looks at.

The dialogue that we had with them and where we were able to come to an agreement was, how to measure the growth on the property side, the fact that premium was not, growth in premium was not necessarily an indicator of growth in risk, so that measuring our growth over that one and three year time period, ought to be done on a somewhat different basis, so that is where we were able to reach some sort of understanding and agreement with AM Best.

We are still in the process of determining the actual numbers relative to the industry, so that is why we can't give you more specifics on that, and again, the other issue being we are heading into hurricane season.

Our policies typically tend to back end load any kind of dividends in particular out of the property area, so we will be much be able to give you much better answer on the third quarter call.

And the last issue with all this remember is that Best is a statutory entity basis, and not all of our statutory entities are just aligned with one of our businesses, and so it makes all of this a bit more complicated.

Understood.

But the 170 to 230 that was available, that number that we talk about relied on potentially a 0% contribution from the specialty property?

Well, we actually thought we were going to get some from the property last year, and we got it from other places.

Okay.

And then just final close out question, as far as market share in the Specialty Property, any changes that you can talk about in the quarter?

Oh, actually, it remained relatively, well, it remained very consistent from the quarter.

Our loan counts were about 30.5 million, which was consistent with the last quarter, even our spread between prime and subprime at 83% to 17%.

Like we said before, it is somewhat of evolved market out there, so we may win some and actually we did.

We lost a couple, we gained a couple during the quarter, but we remained relatively consistent, and we still feel good that our overall market share is going to set us up well for long term growth.

Great.

Thanks very much.

At this time, I would now like to turn the floor back over to Rob for any closing remarks.

We are very pleased with the results we produced for shareholders so far this year, and facing a challenging economy head on.

We thank you for joining us today, and look forward to updating you on our progress.

This does conclude Assurant's second quarter call.

You may now disconnect.