Assurant Inc (AIZ) 2008 Q4 法說會逐字稿

Welcome to the Assurant fourth quarter 2008 financial results conference call.(Operator Instructions) I would now like to turn the call over to Ms.

Melissa Kivett , Senior Vice President and Investor Relations.

Please go

Thanks, operator.

Welcome to Assurant's 2008 fourth quarter and year end conference call.

Joining me with prepared remarks are Rob Pollock, President and Chief Executive Officer of Assurant, Mike Peninger, Interim Chief Financial Officer and Craig Lemasters, President and Chief Executive Officer of Assurant Solutions.

I'm also pleased to be joined by Gene Mergelmeyer, President and CEO of Assurant Speciality Property, John Roberts, Interim President and CEO of Assurant Employee Benefits and Chris Pagano, Chief Executive Officer and Treasurer, all of whom will be available for questions.

After the call we'll open the call to questions.

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

Yesterday we issued a press release announcing our fourth quarter 2008 financial results.

The press release, as well as corresponding supplementary financial information can be found on our Web site at Assurant.com.

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

Our actual results may differ materially from those projected in the forward-looking statements.

We caution you about relying on these forward-looking statements and direct you to consider the discussion of risks and uncertainties associated with our businesses and results of operations contained in our 2007 form 10-K, subsequently filed form 10-Q and 8-K.

, including last night's earnings release which can be accessed from our website.

The Company undertakes no obligation to publicly update or revisit 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, the most comparable GAAP measures and the reconciliation of the two, please refer our earnings press release and supplementary information posted on our web site.

Now I'd like to turn the call over to

Thank you, Melissa.

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

Before I discuss the results for the quarter and year, I would like to take the opportunity to acknowledge that today marks five years as a public company for Assurant.

Let's not forget the progress we have made in that time.

Since year end 2004, we have increased net operating income by more than 80% and our operating return on equity by over 400 basis points.

We've doubled our dividends.

We've joined the S&P 500 and broadened our shareholder base.

All of these measure establish a great foundation as we move forward, and I submit this foundation is serving us well in today's environment.

2008 is a year we will not soon forget.

As I evaluate our fourth quarter and full-year results, I remind myself we are operating in an economic landscape that is yet to be fully understood.

Assurant prides itself on its ability to learn and adapt to changing markets.

As you will hear, we are taking steps to adapt and improve the position of the Company for both the short and long-term.

Earnings declined in three of our businesses; but when we evaluate overall results in the context of the current economy, our diverse specialty business model enables us to be nimble and flexible as we adapt.

Operating returns continue to be solid, and we are achieving growth in many of our targeted areas, including creditor placed homeowners, service contracts, and need.

Our investment portfolio and capital position remains stable despite the unprecedented challenges in the worldwide economy.

Let's review results of each business in more detail.

Assurant specialty property leveraged its leading position and creditor placed homeowners to continue to deliver growth in net premiums and net or noting income.

We weathered an active storm system and delivered great service and value to our policy holders in their time of need.

As the mortgage market evolves, we continue to work with mortgage lenders and servicers to provide them with levels of service they have come to expect from us.

We also continue to support activities to create stability in the mortgage market.

Craig Lemasters is here to provide an update on solutions following my remarks.

Clear our solutions business is being impacted by the slow-down in consumer spending, the primary engine of the global economy.

Consistently with our prudent policy, we took actions in this quarter to address problems that have surfaced, and we took some charges as a result.

However, despite a challenging macro environment, we are find finding opportunities to play offense as well as defense in solutions markets.

At Assurant Health we have seen the individual medical market expand when the economy slows.

However, in another example of a challenging economy, we do not believe the overall market has grown during 2008.

Certainly growing our individual business has been a challenge.

Nevertheless, Assurant Health continues to develop new product products and leverage its diverse and broad distribution to serve the individual market place.

We believe we continue to be well positioned for future growth and support affordable health care for those currently not insured.

While Assurant Employee Benefits did not grow overall in 2008, it continues to pursue opportunities to expand the small employer market while maintaining good results.

We expect to use our capabilities in the voluntary market place to help our small employer customers control their overall benefit costs.

Our conservative investment strategy is helping us navigate through a challenging credit market.

Our net after-tax unrealized loss position was virtually unchanged in the fourth quarter quarters, and our realized losses and impairments were less than 20% of what we experienced in the third quarter.

Our investment income was her than previous quarters.

Here we played defense by holding more cash in the portfolio while we wait for better risk-adjusted yields.

Our balance sheet and capital positions remain stable.

We ended the year with about $230 million in excess capital, high higher than the $200 million we forecast in last quarter's earnings call.

We did not repurchase any shares during the quarter.

Our buy-back program requires further improvement in credit markets to go into effect, but we certainly believe the stock is attractive at these levels.

Our book value per share, excluding accumulated other comprehensive income, grew during the quarter, again, setting us apart from the crowd.

In this environment, we believe playing defense in both the investment portfolio and capital management is prudent.

It provides us with the capability of being more flexible and nimble in the future when better opportunities present themselves during the year, each business unit contributed dividends, showing the strength of our diverse platform.

We used the dividends to make the acquisition of Signal and GE Warranty Management Group.

We repurchased one million shares from Fortis, and we infused capital at our statutory entities to offset the impact of realized losses and impairments.

Finally, we expanded our financial supplement to improve transparency.

New disclosures include after-tax portfolio yields, top form government issuance exposures, ratings of all our statutory entities and several disclosures to provide additional insight into our specialty property business.

I am also pleased to announce we will hold our 2009 investor day on March 18th.

here in New York New York City.

For those of you who are unable to attend, we will also be Webcasting the event.

Stay tuned, details will be distributed soon.

In summary Assurant has the proper diversity and financial resources to address the challenges of the economy.

We continue to exercise prudence while looking for opportunities to strengthen the Company.

Now I'd like to turn the call over to Craig Lemasters.

Craig?

Thanks, Rob and good morning, everyone.

Solutions net operating income declined for both quarter and the year.

After reviewing the drivers of our results, I will share with you some details of continued progress in positioning Solutions for long-term growth and improved profitability.

Overall Solutions earnings declined due to several factors.

First we incurred charges of $8.1 million after tax related to client bankruptcies.

A decline in investment income and continued unfavorable UK loss experience also negatively impacted our quarter.

Our decision to exit business operations in Denmark resulted in a $9.7 million after-tax charge.

However, this decision will benefit the Company in the future.

And I'll give you additional details on Denmark later in the call.

During the fourth quarter, Circuit City, our largest service contract line, remitting roughly 20% of our domestic service contract wrote premium and net earned premium in 2008 filed for bankruptcy and later went into liquidation.

As a result we took an after-tax charge $6.3 million to write off a receivable from Circuit City.

We'll continue to earn premiums at a similar level in 2009 on Circuit City business written in the past, but there will be very little new business written this year.

The impact of the Circuit City liquidation will be less noticeable in 2009 on our bottom line than may appear on the surface.

If you look under the hood, we've been working with Circuit City to improve profitability in a variety of actions including higher prices and different terms and conditions.

We will benefit on these actions on contracts we earn in 2009.

As a result, we anticipate our domestic combined ratio will improve.

Our prudent approach to international development includes setting growth and profitability metrics for each country to ensure appropriate results are achieved.

Despite significant efforts to improve results and meet targeted objectives in Denmark, we conclude that the gap between actual and expected results was too great to overcome in a reasonable time frame.

We made the difficult decision to shut down the business and focus the resources in the other five developing countries.

This action will improve our international combined ratio slightly and should not cause a material change to our top line.

Our international combined ratio increased to 113.9% from 106.1% in the fourth quarter of 2007 primarily as a result of our Denmark office closing and less favorable loss experience in UK credit insurance.

Going forward our developing country expenses will be reduced to the closing of the Denmark operation.

Also in the fourth quarter, we recorded a benefit of $5.9 million in the final accounting of the third quarter acquisition of the GE Warranty Management Group.

The integration of the GE warranty business into our operation is going very well and will be another source of improvement in our combined ratios in 2009 and beyond.

During the third quarter of 2008, we completed our acquisition of Signal Holdings, allowing us the opportunity to grow our position in the wireless market.

We have now had the appropriate amount of time to finalize the purchase accounting and wanted to provide an update.

Assurant purchases business for $257 million in cash, including capitalized cost.

We recorded $59.4 million of other intangible assets and $169.7 million of goodwill on our balance sheet as of the purchase date.

We are pleased with the purchase purchases thus far and believe we are well positioned with excellent products, capabilities and an experienced team to expand our wireless market share both domestically and internationally.

Assurant Solutions fourth quarter and full year net earned premiums increased 6% and 11% respectively from 2007.

The increases were primarily driven by continued growth in domestic international service contracts and annual growth in pre-need We achieved this growth despite the negative impact of foreign exchange effects caused by the US dollar strengthening against most of the currencies.

Even in this market, we're find finding opportunities to play offense to temper the decline of consumer spending.

Our strategies include helping our existing customers improve revenues, getting more customers and expanding distribution.

This is all about establishing and sustaining strong relationships.

Most recently, Solutions announced the distribution of a new channel with the signing of an exclusive contract with Whirlpool in the US and Canada including the Maytag brand.

This compliments our exclusive contract with GE and leverages our service infrastructure, where we now have the leading position in the North American service market.

This is great example of how nimble we were in expanding distribution.

In this case into the original equipment manufacturing market.

Another new client we've added is in the international credit insurance space, where we're pleased to announce a partnership with the Royal Bank of Canada.

RBC is the largest bank in Canada, and this relationship, pending government approval, should provide a great opportunity to continue to advance our target areas.

While these new clients will not replace revenue lost from Circuit City, we are pleased with the opportunities they provide, and confirm our ability to grow both our client base and new distribution.

In summary, despite the difficult economy, I am encouraged by our progress in gaining new clients, entering new distribution, and taking quick and corrective action when needed all of which will lead to long-term growth and profitability.

Now I'd like to turn the call over to Mike.

Thanks, Craig, for updating us on how Assurant continues to take the necessary steps to improve its market position in a difficult environment.

Turning now to the result for the rest of the Company.

Assurant earnings for the quarter and year reflect the strong performance of specialty property, offset by reduced earnings in the other segments.

Net earned premiums increased 2% for the quarter and 7% for the year, mainly due to the continued growth in creditor placed homeowner business and Solution's service contract and pre-need business.

Our net income for the quarter is up primarily due to the realization of a $62.4 million tax asset relating to the sale of an inactive insurance entity in the second quarter.

On an annual basis net income is down 32% reflecting after-tax realized losses on investments of $278.6 million compared to losses of $40.5 million in 2007.

Craig covered Assurant Solutions, so now I'll discuss the results for our other businesses.

Assurant Specialty Property delivered excellent top and bottom-line results again in 2008, even though we had an active catastrophe season.

Fourth quarter net operating income was up 19% to $118.5 million.

For the year, net operating income grew 7% to $405.2 million.

The increase in net operating income reflects the continued growth in creditor placed homeowner's insurance and excellent combined ratios.

Catastrophe losses from California wildfires net of re-insurance during the fourth quarter totaled $5.1 million after tax versus $22.2 million after tax in the fourth quarter of 2007.

Results for 2008 included a total bottom line impact of $111.4 million after tax from reportable catastrophes including reinsurance reinstatement premiums of $8.6 million.

million compared to capacity losses of $22.2 million in 2007.

Net earn premiums for specialty property increased 9% to $519.7 million in the fourth quarter, and 22% to $2.0 billion in the full year driven by continued growth in the creditor placed business.

In an effort to provide more transparency in our growth around the business, we've added gross earned premiums to our supplement this quarter.

We believe the gross earn premiums are a better measure of our growth than the gross written premiums because they exclude variability caused by client contract changes, the timing of policy issue and cancellation activity and seasonal fluctuations of our other business.

business.

We've added reconciliation of gross earn premiums to net earn premiums to highlight the affect of reinsurance cost and seeded business.

Reinsurance is often used to contract with clients in the creditor placed product lines and normally doesn't affect the overall profitability of the contracts.

While there can be quarterly a variability in our production, we continue to see increases in two of our key growth drivers, albeit at slower rates.

Our average insured value per property rose to $176,000 in the fourth quarter, up 11% from the fourth quarter of 2007.

Real-estate owned premiums, which have been an important part if our growth represented 23% of creditor placed gross- earned premiums in the quarter, the same percentage as in the third quarter.

REO premiums have leveled as a percentage of creditor placed gross premiums, due in part to moratoriums and various state initiatives to reduce state foreclosures.

We continue to see modest increases in the placement rates of our sub-prime loan portfolios, but they remain within our disclosed ranges.

Loan counts have decreased as the housing market continues to contract and industry consolidation continues.

Rate increases, our final growth driver did not have a significant impact on revenue in the fourth quarter, but we continue to take rate actions when appropriate and justified.

We continue to benefit from our alignment with market leaders, which has resulted in a portfolio of roughly 30 million trackable loans.

Our relationships enabled us to retain over five million trackable loans that were impacted by market consolidation in 2008.

In the fourth quarter, we added 100,000 sub-prime loans, but we also lost 217,000 prime loans as a result of continued industry consolidation.

We believe that our ability to deliver customized technology based surveillance to our clients positions us well to benefit in the future and win new business.

As we look forward to 2009, we are focused on maintaining a comprehensive catastrophic risk management program.

The major objective of our program is to protect the capital base of the Company.

A second objective is to mitigate earnings volatility when the reinsurance market pricing environment allows us to do so.

As our business has grown, so has our exposure to storm risk.

At the same time, pricing in the reinsurance market has hardened.

We purchased a good portion of our coverage in January and will secure the remainder of our program in June.

It's clear that the cost of our 2009 program will be higher than that of the 2008 program for several reasons.

First, we will most likely not purchase a place in the Florida Temporary Insurance Capacity Limit or TICL funds this year.

In 2008, the roughly $170 million in coverage that we purchased from TICL was priced at rates that were substantially below private market rates.

In 2009, we expect to purchase this coverage through the private market.

Second, we will be valuing more coverage due to the growth in our book of business.

And finally we are seeing higher prices in the catastrophe marketplace.

2009 prices appear to be running 20% above 2008 levels.

As part of our ongoing risk management efforts, we have terminated certain non-core products currently included in our other product category.

This will cause a reduction of approximately $65 million of gross earned premiums in 2009 versus 2008, but will not have a material impact on 2009 earnings.

Assurant Health continues to produce strong ROE and a good combined ratio, however earnings declined for the quarter and the year reflecting the continued reduction of small-group premiums and less favorable individual medical loss experience.

We believe that previous economic recessions did not adversely impact the individual medical market.

However this currently economic environment appears to be different as fewer people are now purchasing individual medical insurance.

We believe this is likely due to concerns about affordability, which highlights the need for health-care reform in our country.

Assurant is actively involved in efforts to improve the availability and affordability of individual health insurance.

Don Hamm, Assurant Health CEO is a member of the board of AHIP, the primer health plan trade organization and chairs AHIP's CEO task force on individual insurance.

Net earned premiums during the fourth quarter and full year of 2008 were both down 5% compared to the same periods last year.

Individual medical and net around premiums were down slightly for the quarter accompanied by continued quarterly and year over year declines in small group premiums.

Now more than ever, Assurant Health has a deep knowledge of the individual health market.

We are working to further differentiate our products and service offerings to appeal to a broader audience.

With health care representing a bigger portion of everyone's budget, more time and thought are being put into the decision to buy health insurance.

We are also growing our distribution channels, as seen by our renewed contract with State Farm and the increasing contributions of our direct distribution channel.

Assurant employs benefits, net operating income decreased 13% during the fourth quarter and 19% for the year.

The decrease in the fourth quarter was primarily driven by a $2 million after-tax decrease in investment income and less favorable overall loss experience.

This was offset by a lower expense ratio and a $3.5 million after-tax benefit from our annual reserve adequacy study.

The decrease for the year was driven by a decline of $9.2 million after tax and investment income from real-estate joint venture partnerships and less favorable loss experience compared to the prior year particularly in our dental line of business.

Fourth quarter earned premiums excluding single premiums declined by 1%.

For the year there were up less than 1%.

They were pleased that sales in our core small employer market is grew for the year.

We have taken steps in the last few years to focus on the small case market and our position for future growth amid challenging economic times.

We will continue to maintain our pricing discipline and look to leveraged growth opportunities in voluntary and our alternate distribution through disability RMS.

Our corporate and other results improved due to lower expenses relating to the on going SEC investigation, including reimbursements of certain investigation related expenses through our D&O insurance coverage.

Fourth quarter 2007 results also included $6.4 million of net tax expense associated with changes in various tax liabilities.

Let me now expand a bit on Rob's earlier comments about our investment portfolio.

Despite challenging financial markets in a deteriorating economic environment, the portfolio pre-tax net unrealized loss position increased by less than $8 million during the quarter to $737.9 million as of 12/31/08.

During the quarter we realized $51.8 million of pre-tax losses, including $40 million of other than temporary impairments.

These amounts are significantly lower than the third quarter, when we realized $299.2 million of pre-tax losses, including $229.1 million of other than temporary impairments.

Our impairment process has remained consistent all year and did not change during the fourth quarter.

We believe that our conservative investment promote and decision to lower the portfolio's overall risk profile over the course of 2008 contributed to a relatively good quarter.

Some of our risk mitigation actions, including our decision to increase the portfolio's cash position caused a reduction of about $10 million in net investment income in the fourth quarter versus the third quarter.

However, the market is still very volatile; and given the uncertain economic environment, we feel that it is prudent in the short term to sacrifice investment income and maintain a lower risk profile.

Once the market stabilizes, we are confident that we will be able to identify more attractive risk adjustment yields.

Our balance sheet remains solid.

We are pleased that book value per share, including AOCI was virtually flat with that of 9/30/08.

As of December 31st, 2008, total asset were $24.5 billion, total shareholder's equity excluding accumulated other comprehensive income was $4.4 billion.

Book value per share excluding AOCI was up 10% to $37.21 from $33.73 at December 31st, 2007.

Our debt to capital ratio excluding AOCI improved to 18.3% versus 19.7% at year end 2007, another indication of our financial strength.

Our ratio of invested assets excluding cash and equivalence to shareholders excluding AOCI an important measure in the currently climate was 3.3 to 1 at December 31st, 2008.

Let me close by mentioning an accounting change we are making in 2009 for pre-need.

Effective January 31st of 2009, all new pre-need sales will be accounted for under FASB 97, which governors accounting for universal life-type policies.

In the past we have accounted for this under FASB 60 for tradition traditional life insurance policies.

The change means instead of recording net earned premiums and associated incurred claims, we have required policy fees.

The change will not have a significant impact on our bottom-line profitability, but will reduce pre-need premiums and distort revenue comparisons with prior periods.

We will update the revenue impact of the change in the 2009 earnings call so you'll be able to determine the impact on our top line.

In summary in the midst of unprecedented economic landscape, Assurant continued focus and the disciplined execution of it's proven strategy positions the Company for future success.

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

Thanks, Mike.

Operator, we're ready for questions.

(Operator Instructions)Your first question comes from John Nadel.

Hey, good morning, everybody.

Good morning, John.

So a couple questions for you.

You know, I think, thinking about specialty property, I mean, we've been -- we're all, I think, watching as prime mortgage delinquencies continue to rise.

You know, maybe a bit surprised to see it's not really showing up more in your numbers in the past, you know, quarter or two, and maybe I'm wrong on that and some of your new disclosures might bear that out a bit differently.

But can you can you talk about what you're seeing there, maybe give us a sense for how much that placement rate, you know, has moved up within the 1 to 2% band and comment on any effects you're seeing from foreclosure, activity activities to stem foreclosures?

Yeah.

Sure.

I just want to make one comment and then turn it over to Gene, and that is, I want everyone to remember, the way our business model works in this business, it is a lagging indicator.

In other words, we send out to customers the fact -- notifications of, they need to show us proof of insurance, and and then, if they don't respond, we'll place policies.

That can often be 60 and 90-day lags that occurred in that.

So again, just need to remember that's how the model works.

Gene, you can comment, I'm sure, more on the specifics.

Sure.

Let me try.

And certainly there -- we try and segment the business between REO and the creditor-placed business, and one thing to remember is typically we're riding REO on the sub-prime business, and so, from that standpoint, when we look at what is beginning on in the creditor-placed business, we actually see pretty consistent growth in that prime category.

It's just been at a lower rate than we have in sub-prime.

Recently, the trends, actually, in sub-prime, while we're still seeing growth, that growth has actually been decreasing, and I and I think that's, you know, really occurring as part of the fact we're seeing delinquencies still rise in sub-prime, but they're rising at a little bit lower rate.

So that's one of the phenomena that we've seen that have been contributing to growth.

Your second question was really around the effect of any moratoriums.

Certainly I think we have seen that effect, and we mentioned in the call that, you know, creditor place was 23% of gross around premium similar to last quarter.

You noted, even though we do believe that gross written premium is less of an indicator because gross written premium is less of an indicator because there's just so many fluctuations in the business, one of the reasons that was down was due to the real-estate owned business.

So we did see a slowing as a result of the moratoriums.

But when you really look at what's going out there now in the industry, you know, one of the bigger factors was actually California and some legislation that was put into place there that delayed some foreclosures.

So we saw foreclosure activity, foreclosure starts actually go down a bit in the third and fourth quarter; but when you look at some of the newer statistics, I think they're reporting that December, notices of default, they're literally up 17% over the number, and they literally doubled in California.

So there is some macroeconomic things going on out there.

There's a lot of activity around, trying to mitigate things.

And it is having some impact on our business.

So --

I mean,, you know, obviously there's a lot of different things beginning on.

We are trying to be nimble and flexibility to adjust to it.

Gene is on top.

It differs by geography and also varies by client, but we're working hard to stay on top of all these things.

Okay.

Maybe just as a quick follow-up on that before moving over to Solutions, you know -- I don't know.

Is it maybe just simple enough to ask it this way?

Do you expect top-line growth in Specialty Property in '09 over '08.

You know, we don't really provide gallons, but certainly, John, if you look at it, we try out to lay out what the growth drivers are, and certainly one is placement rates.

You know, as placement rates go up, our top line is likely going to go up.

Okay.

We are encouraged by some of the activity.

One of the things that has obviously occurred in the last couple of quarters has been the whole loan modification process, and quite frankly, as they go through that process, one of the things they're going to look at is the insurance cost, and they will do their best, you know, to try to get that cost down.

What we are finding, though, is that, you know, we are maintain maintaining some of our business through that process and, you know, we've been able to again albeit at a lower rate increase our placement rates despite all that low modification activity.

So thats been encouraging.

Okay.

Thank you.

Switching to Solutions, I guess I understand you're keeping your liquidity levels somewhat higher and having a drag effect on your net investment income on the margin.

Can you give us a sense?

I know you guys don't like to give guidance, but this division has been so difficult despite the workshop and additional disclosures you guys have given over the past year, it's very difficult to got a hand on divisions earnings, and maybe you can just give us a sense for where you think the run rate of earnings after adjusting for a bunch of these one time items -- you know, we don't know exactly -- maybe you can tell us what the drag is on the combined rather yes from Denmark and the UK credit insurance business --, what your combined ratio is excluding those items.

That might be helpful, but just give us a sense for where the run rate is.

Are we talking, you know, under $20 million quarterly, or is it mid 20s?

I'm just unclear on that.

Well again, John, I think where you want to start is we kind of put some high-level is out that we achieved long-term I think that what you heard in all that that -- and I'll let Craig expand on it is a number of actions he's taken defensively to better improve our results for next year, which we think will move those combined ratios toward our goals.

Craig?

That's right, Rob.

, you mentioned the work insurance policy.

I think the things I've highlighted there in terms of ROE and ultimate profit improvement have not changed.

Obviously the timeline and challenging what's going on in the economy really not just here, but everywhere -- as you mentioned earlier there are several specific things, you know, there will be coming through over the next year that very directly can improve our results.

One of them in general is beginning back to the whole GE transaction and being able to take control of the business and do all the things, I think, we're good at in terms of risk management to improve those results.

We expect that to help.

We're being very prudent about expenses in general.

I mentioned Denmark earlier, I think, is a great example again of one of these defensive moves.

I said it over the last several years.

Whenever we're in a developing country, spending money investing in the future, if we ever get to the point where the metrics don't look like we're going to achieve our long-term goals, we're going to exit.

While that's a hard decision, I think it's a great defensive mood and helps us to improve our results as we go through 2009 and beyond.

So again, the items s haven't changed.

I can tell you there, you know, our tell is more focused than ever on the things that we can have influence over the things that we can control, and that's the highlights gave earlier, for the new clients and the new distribution.

It will impact that as

So, Craig, just to follow up, I mean, what was -- what's your view of the combined ratio in the quarter excluding the Denmark cost and some drag from UK credit?

We don't give specific guidance on that.

I think the biggest mover for the quarter was on international, clearly the Denmark $9.7 million.

The UK we talked about that for a couple of quarters.

It's not -- we put in a the supplement, but it is a drag on our combined international now.

Again, on that specifically, talked about Denmark and the UK, we've taken very swift steps there in terms isolating internet distribution, and we've tin very swift steps to improve that, and we expect there to improve and have a positive impact this year through the combined international.

Those are really the big drivers that we've seen improvement on.

Okay.

So if you take the $9.7 million on Denmark and relate it to our combined ratio, I don't know what the denominator is there, but you can calculate that.

-- I mean, there were definitely some-- If you look at the disclosed items, I think you can back into that.

.

Okay.

Is it fair for me to just use your corporate tax rate.

Is there anything we need to do different on Denmark, or, --

Yes The tax rate is distorted this quarter.

If you see the effective tax rate for solutions is way up there, that's partially part of there that three -- the Denmark impact was about 3 million of tax asset write-off, and there were some other foreign adjustments in tax valuation in hundredths, too, that distorts there rate.

So I think a better run rate -- effective tax rate for Solutions is going to run probably in the 33% or so.

I think in the past, we have begin some guidance on tax rates, where it was might be closer to 32%.

New you've got Signal coming on board and some other -- the run rate is probably going to be in the 33% range.

Okay.

Well, maybe you can just come back to this.

I don't want to spend more time on it new; if pieces of Denmark were tax items versus actual G& A write-offs or other, maybe you could just clarify for us the actual impact on the combined ratio.

I think that would be helpful just for us to get to a run rate or, you know, to some level there excludes that noise.

The only other thing on Solutions was just, thinking more positively.

Obviously a great addition in the Whirlpool relationship and it's my understanding that Whirlpool had a bunch of different insurance providers, but but primarily it was AIG.

Obviously AIG has its own issues, but can you comment on whether you're seeing RFP activity from other large retail relationships from other insurance providers, like a Best Buy or a Wal-Mart or others.

Sure, John.

I don't want to comment too specifically on client by client, but I would tell you, in general what you're saying is correct.

There is activity right now there we see coming from two places.

If you look at our competitors, they tend to be clients themselves who could do alot of these programs themselves or companies that tend to be in service contracts sort of as a sideline, or not necessarily a core with everything going on out there, we see most clients and certain competitors, retrenching to core and looking for alternatives.

So it is, as you said earlier, it is the encouraging part of our business right new is that we see very strong activity out there, again, like never before, when we're working hard on our core capabilities with these folks.

I think the World Bank of Canada is a testament to that, and how we can be a real resource for recovery for our clients.

We're encouraged by the activity.

Last item.

I promise.

Statutory capital at the end of 2008, on a consolidated basis any estimate on that?

No, but it will be in the K -- we're working through the blue and yellow books right now.

Okay.

Any meaningful difference in impairments that you guys have taken on a GAAP versus a statutory basis to think about there?

Chris, want to talk about that?

Well, the GAAP and stat numbers are similar.

Just maybe a couple comments on the impairments during the fourth quarter.

I think certainly considerably less than the third quarter.

I think a lot of that had to do with assets we don't own there we're continuing to have difficulties in the investment market.

We also did make some conscious decisions to reduce the risk in the portfolio, taking write-downs in the third quarter, realizing sales, et cetera, and I think thats paying off for us right now.

Yeah.

Duly noted, saw some of that activity, unlike a few others in the insurance base.

Okay.

Thanks, guys.

Sure.

Thanks, John.

Your next question comes from Steven Schwartz are Raymond James.

.

Good morning, everybody.

I will try to make this much quicker.

GE warranty, the benefit that's cited, is that a continuing on ongoing benefit, or is that a one timer?

It wasn't clear for me.

That was a one timer, Steven.

That was just the finalization of accounting for the transaction in the third quarter.

Okay, Mike.

I don't think that was in the disclosure in the back of -- in the back of the supplement.

What's the -- what's the location of that?

It's been there, John.

I think it's -- or Steven.

It's the client related settlements or something.

It's 5.9.

Oh, it's that one?

Yes.

I got it.

A question on extended service contract.

There was an article, I think, yesterday, two days ago about cobblers, actually, of all things.

People getting their shoes fixed.

In a recession as bad as what we're going through, would one expect a contract holder to access his contract more than he would during good times?

We have not seen that, Steven.

You know, we're watching our risk management part of the business is pretty diligent and done on a monthly basis.

We look for any of those sort of trends.

We have not seen that in terms of our overall experience right now.

You know, it's interesting on part of this, what we've seen norms of top-line on this business, while obviously the retailers are struggling, and you can see a decline from those, this direct model and the original equipment model mention mentioned earlier is pretty exciting, pause we're actually seeing very strong renewals in the business.

So looks like in these tougher times, people are serious and want to renew their service contract, which would make sense norms of not necessarily replace replacing things, but holding on to the equipment listener.

So there's really given us an opportunity, you know, and that's why we really like that distribution.

I'd just point out, too, Steven, that we avoided the shoe market, so --

Good for you.

Mike, that pension expense, should we expect that to increase this year?

In 2009?

Yes.

It will go up a little bit.

It will go up a little, I think, but I just don't have the number off the top of my head, but I would expect it to go up a bit.

Okay.

And last question.

A question on special -- on specialty property.

You have the loan.

It's sub-prime.

You're insuring it.

It moves to REO.

You're insuring that.

My understanding is the revenues may change, but the profitability is the same does it matter -- structurally, does it matter if there's a moratorium on foreclosures?

Because it just remains as a loan being insured as opposed to REO?

Well, no.

It may not matter.

Okay.

But in certain cases, we may have the creditor-placed business, and it may be creditor placed.

In other cases, we may not still get it until it reaches REO.

Okay.

All right.

And one other thing there, Steven, to remember.

You know, not all of our clients who we have on the creditor-placed program necessarily have an REO program with us.

Right.

To me, that's what I was thinking.

To me, moratoriums might actually be a positive for you, because then the loan stays with you as opposed to moving to somebody else or being self-insured.

Right.

That's true.

I mean, also remember, you can have situations where the insurance may not happen until it goes to REO status.

Right.

There are different things going on.

That's what I had.

Thank you, guys.

Your next question comes from Jukka Lipponen from KBW .

Good morning.

Going back to the growth and how we should be thinking about it, in specialty property, the fact that on the growth rain basis, the REO business was down in terms of the mix and obvious obviously REO as you're showing have the higher insured values, so how should we be thinking about the impact on the top line from that aspect?

Well, again, I think our -- you know, we tried to add some transparency here by giving those additional disclosures on the growth written premium side, it was 19% of the creditor placed replaced business versus the 23%.

So that was the impact on the specific quarter.

When we look to the future, again, I think barring some of these moratoriums and some of these state impacts that have actually delayed some of these foreclosures, you know, we're cautiously optimistic that some of that REO business will increase.

Certainly as, you know, you look to the industry, there's a lot of foreclosures that are continuing to be forecast, and that's what we're kind of looking to as guidance for that.

I think part of the reason for the additional transparency transparency,Jukka is to think about this business in different pieces, okay?

The REO is a separate business, okay?

Remember, Fanny and Freddy self-insure all REOs.

We're not going to be in a market where there's a Fanny Freddy loan for REO, and only a subset of our client list has an REO program with us.

So as you model through what might become an REO property, remember those factors.

I think they help you think about the market a little better.

And why did the amount seen in declines move up sequentially in this quarter?

We actually had a client that we moved to a reinsurance program, and it was back-dated a bit, which really drove the largest part of that increase in receiving amount.

And in Solutions, the growth there, how should we be thinking about the timing of the Whirlpool relationship and the RBC relationship, how that's going to help on the top line, and then also can you update us on what's going on in China.

Sure.

In terms of both Whirlpool and RBC, those are sort of midyear implementations.

We should start to see a benefit from both of those later in the year.

If I look -- think about the top-line of solutions, other than that, internationally, really we're seeing now and you've seen over the last few quarters, sort of the same thing going on on the credit insurance line that we've seen in the US Our biggest markets are still in the UK and Canada and Puerto Rico, and even those are behaving much like here in the US So we'll have pressure on that.

The offset, the reason why we're playing defensively aggressively is it will help to soften that as it gets going later in the year.

Service contracts seeing, you know, that sort of flat quarter over quarter, seeing somewhat of a trend in those markets, and really Latin America as well.

We've made good headway in Latin America with service contracts; but again, we've seen those markets slowing down quite a bit as well.

You know, -- and domestically, of course, the credit insurance is in the same mode effectively and a runoff mode, and the service contract line, the pressure will come there from the Circuit City runoff business.

And so the real focus domestically for us is then, this new distribution, ability to get GE operating at a higher level, getting Whirlpool implemented, we think these relationships are going to be very important.

And then the final piece of it is wireless.

We invested a lot when we get into the wireless space, we think, in a big way.

And we've got, I think, great capability to go get share in wireless, and that really is our focus.

We have new clients and the new distributions, so we're pushing very hard for the wireless mix.

And I think you also asked about China.

Yes, China.

I think -- Craig can amplify it, but I think we're right on track there, up and running and selling the service contract business; on the insurance side, we're still in a waiting period.

That's right.

We opened a service contract in companies in the middle of last year and really spent the latter part of the year staffing.

We've got a great general manager, built an excellent team there, and we're in the process now of actively prospecting service contracts.

As Mike said, the insurance takes longer, because we're in the rep off status, which will go, you know, for a two-year to date period.

But we're pleased with the progress so far in the service contracts.

And again, here's a great example of the risk management we're tracking in that business.

Craig is actually using the people in China to process some US business to just get a feel for how it works.

And again, to me, that means, you know, when the business does come, we'll have an experience d group there.

And last question Rob.

You said that you wanted to see improvement in the credit market markets before you would actually activate buy-back.

Can you give us a little more color on what kind of things you're looking for or looking to there?

Clear it's prudent to keep capital at this point; but at the same time, like you said, the stock is attractive and, presumably, this lower growth is going to generate more excess capital going forward.

Yes Two things I think about, Jukka.

One, I think we said we'd like to see the credit markets looking more like they looked middle of last year.

I'm going to let Chris comment on that.

The second one we want to see obviously is every year, the rating agencies recalibrate their capital formulas, and we want to be in a position to see how that plays out as well.

So those are the couple.

I'm going to let Chris comment a bit more on on the credit market.

Hi Jukka.

When we talk about the portfolio performance and having gauged the changes in unrealized, to look into our portfolio, we think -- when we look at credit markets and position, that's what we're looking at.

We saw a rather horrible fourth quarter, and then a that is market that got worse early in the fourth, but staying alive toward the end of the year.

That is the metric that we're looking at with regard to how we manage the assets and also how we're managing capital.

I think the key for us, with regard to the exit capital at the holding company is to make financial flexibility.

When we get a better line in sight with regard to the market and the economy and to profitability in 2009, we'll have a better sense of how that is.

Thank you.

Your next question comes from Vinay Misquith with Credit Suisse.

Good morning.

Good morning.

Could you help me understand your exposure to credit insurance outside the US?

I believe you have about $800 million worth of premiums.

How should we look at higher unemployment rate out of the US affecting your margins?

Sure.

You know, in general, the majority of our arrangements operate where there is retro commission based on the profitability of the business.

That's not in every situation, but certainly through the majority of them in place.

So we certainly had protections built in for an increase in unemployment.

The other thing I mentioned is that we're often selling a bundled product, which involves not only unemployment, it involves credit life, and it involves disability.

The credit life rarely shows much variability, even in economic down turns, and that can be a buffer.

Craig, you want to comment a little more?

Yes I think that's a good description in general of where we are outside of the US in this product.

Again, the pressure on the loss ratio has really been specific in the most part to the UK.

Really there we were testing distribution.

We always think the internet is a very viable distribution that we have to be a part of.

In that scenario, we're obviously not going through a third party, so we don't have that same contractual relationship.

Well, this all came when the employment rate escalated very quickly as we got into the third quarter last year.

But the good news, again, we use the same risk management techniques everywhere in the world now.

So when something like this happens we move very quickly; and again, same techniques, rate changes, terms of conditions.

We will cancel the business if we need tutu correct these as quickly as possible, and that's what we're doing in the UK.

Right.

With respect to the Denmark office, how much in dollar terms would you say for the foreclosure results in expenses.

Yes Vinay, we're still -- we're looking at that.

The charge that we took was, you know, around severance.

You mentioned the tax earlier in the call and, you know, so the office things as well as reserves that we put up with we think are appropriate for the runoff.

We're now in the process of actually finalizing how we will run off those exist exist existing contracts and what the cost associated would be.

Obviously as we move through next yore, we would expect those expenses to begin to reduce throughout next year.

Okay.

Do you have a number for what your expenses are right now?

Right.

I mean, our hope would be that, you know, again, we've been running $2 million or that would be sort of a target, around the $2 million frame, which would be consistently, you know, similar development in coming quarters.

Yeah.

That's per quarter.

There's a quarterly.

For expenses and then that might come down later.

Yes Just remember there's the run-out Craig mentioned.

We have to actually shut down the thing so they won't just quote a zero starting on January 1st.

Fair enough.

And the last question was on the health insurance.

I believe you mentioned that there was a change in the buying patterns and that individuals were buying less health insurance.

If you could just expand on that, or maybe I misheard you.

No.

That's what we certainly tried to convey.

I mean, I think that it's difficult to get all of the roll-up of the were of people who are covered by individual health insurance, and so we try and make estimates with, that and our estimates are, the number of people covered have not grown; and typically in an economic downturn, we have seen the number grow.

As Mike mentioned, a lot of this is around affordability issues; and again, we are committed to affordable health care for everyone, and want to come up with more solutions to bring people into the market.

You know, Mike mentioned Don's industry involvement.

In fact, he's in meetings today.

That's why he's not here to answer this.

But we're working hard on it.

We have introduced some new products that have been well received.

We mentioned those, the patient care, the -- product et cetera, and we see continuing need to introduce new products and see how consumers respond to them in the marketplace.

We've been successful and have a long history of doing that.

Mike mentioned we're testing new distribution systems.

I'm sure you've seen some of our commercials.

We're getting traction around that.

So again, we're optimistic over the long term that there are plenty of growth opportunities there.

Great.

Thank you.

Our last question comes from from Adam Klauber of Fox-Pitt-Kelton.

Good morning, Adam.

Good morning, Rob.

Thanks.

I'll try to make it quick, two to three quick questions.

On the buildup of cash and short short-term investments, any sense on, are you going to continue to do that in the near term?

I'll let Chris comment on this.

Yes I think -- I mean, we're playing defense right now.

And I think this is a tactical decision on our part.

Our investments philosophy has never been about reaching for the last dollar of income, and that's what's kept us out of some of the problems that I think some of the others are facing right now.

But the goal is, when we get a better line of sight, when we get a better bead on the direction of the economy, when we get a better sense of what government actions are going to be within the banking industry, we'll feel more comfortable deploying those assets, and ultimately there will be a bill paid for all the stimulus and all the intervention, and that will, we think, lead to higher overall interest rates and better reinvestment deals for the portfolio.

Again, it's tactical.

Do I see a line of sight in in the next months or weeks or whatever?

We may get a better sense, but now we're going to play defense.

Okay.

Thanks.

Also on the health legislation, on the surface it looks like that could be -- that could help cover a decent portion of your market.

Any sense on how much market that could impact?

Are you talking about the cobra extension, Adam?

Yes

The cobra extension, we certainly get people who leave employment relationships, and choose not to exercise cobra.

The subsidy might have more of them being covered.

I think the thing to remember, however, is that cobra is an average group rate, and the cost of care varies dramatically depending on your particular demographics, and so younger people are that way.

We have a product -- our short short-term medical product that is very geared toward an even lower-cost alternative.

So a lot of it becomes an affordability issue, Adam.

You know, there's also been things recently.

I noticed Senator Baccus, who Chairs the Senate Finance Committee has made recent pronouncements that say, we're going to have a private a private -public marketplace going on here as we move forward.

So I think most of what's been introduced between the children's program and some things to help people because of the economy are the things that are most likely here in the near-term on the reform side.

Okay.

And one last quick one.

The Hartford -- the sale of the variable book Hartford, is that still well above water?

I'm sorry.

One more time, Adam.

The sale you guys did a number of years ago of the variable booked Hartford.

Yes.

Is that still well above water?

Well, there's a trust that the assets are held in and that the Hartford is meeting all of the requirements with respect to the amount of assets they keep in the trust to back the liabilities, so there's there's been no change in that status.

Okay.

Thank you very much.

Okay.

I appreciate everyone being on the call on our anniversary today, and we certainly recognize that we have some difficult times going on.

But we see lots of opportunities for us to leverage our capabilities with partners and customers, and I think we're in a position to play offense on a number of those fronts.

I look forward to updating you on our progress on our next call.

Thank you, folks.

.

This does conclude today's Assurant fourth quarter conference call.

Thank you for your participation.

You may now disconnect.