Assurant Inc (AIZ) 2009 Q3 法說會逐字稿

Good day, everyone, and welcome to the Assurant third quarter 2009 financial results conference call.

(Operator Instructions).

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

Melissa Kivett, Senior Vice President, Investor Relations.

Please go ahead, Ms.

Kivett.

Thanks, Brendan.

Welcome to Assurant's 2009 third quarter earnings conference call.

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

Prepared remarks will last about 25 minutes, and then we'll open the call to questions.

Chris Pagano, our Chief Investment Officer and Treasurer, is also here for questions.

Yesterday, we issued a news release announcing our third quarter 2009 financial results.

The news release, as well as corresponding supplementary financial information, are also available on our website at www.assurant.com.

Some of the statements we make during today's 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 consider the discussions of risks and uncertainties associated with our business and results of operations contained in our 2008 Form 10-K and subsequently filed forms 10-Q and 8-K, which can be accessed from our website.

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

Additionally, the 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 most comparable GAAP measures and a reconciliation of the two, please refer to yesterday's earnings release and the supplementary financial information that's on our website.

Now I'd like to turn the call over to Rob Pollock.

Thanks, Melissa, and good morning, everyone.

The third quarter of 2009 was good for Assurant on several fronts.

Actions we have taken to strengthen performance, reduce expenses and improve loss ratios are paying off.

But clearly, a benign hurricane season factored into our results.

Operating results for the quarter increased both year-over-year and sequential comparisons.

We are continuing to explore other avenues to grow our business and improve operating performance in a challenging economic environment.

Our financial position at Assurant remains strong, and our balance sheet strengthened due to improved asset valuations.

We grew our holding Company capital position by $110 million in the third quarter to $360 million, our book value per share by about 3%, excluding AOCI, and we generated an annualized operating return on equity of 10.7%.

We also returned approximately $50 million of capital to shareholders, including $18 million in dividends and $32 million in share repurchases during the third quarter.

At Assurant Specialty Property, results benefited from the lack of storm activity.

We added a new client, which increased our track loan portfolio, and we also saw portfolios of some of our clients grow because of consolidation.

However, over the next few years, we expect property revenues will decline as the market inventory of sub-prime loans declines.

We also expect the ongoing consolidation of loan servicers will create margin pressures.

We continue to execute on the operating efficiencies to deal with these trends.

Finally, we've already received about $250 million in dividends from this business.

We are on track to dividend all of this year's earnings.

Turning to Assurant Solutions, operating results continue to show improvement both sequentially and quarter-over-quarter.

We've added new clients and distribution channels to deal with the slow down in consumer spending, as well as the bankruptcies of several of our clients.

We're pleased that both our Signal and GE Warranty Management Group acquisitions are producing results consistent with our assumptions.

Our preneed business is building steady momentum and is providing results consistent with our target returns.

Internationally, results continue to be negatively impacted by high unemployment in the UK.

However, we are pleased with progress we are making in Canada and Latin America on both revenues and combined ratios.

Domestically, the results have improved from our continued risk management efforts with existing clients.

At Assurant Health, we continue to manage through an especially challenging landscape.

Although utilization trends continued at historically high levels, they stabilized in the third quarter.

The rating and plan design actions we are taking should be sufficient to reflect the utilization we began to experience in the fourth quarter of last year.

We expect profitability will be back in the range of a 4% after tax margin by the fourth quarter of 2010.

The overall outcome of Health Care Reform discussions will not be known for some time.

We cannot speculate on what might develop, but we can say we support Health Care Reform, and believe all Americans must have access to quality affordable Health Care.

We're still working to provide input toward a solution.

We're preparing for various possibilities and believe Assurant Health's expertise allow us to adapt to changes in the individual market.

At Assurant Employee Benefits, while we can't know when the economy will improve, we are focused on what we can do to generate growth today.

The small fold-in acquisition of Shenandoah Life, along with a new client from the alternative distribution channel, Disability RMS, will begin to grow our business in the near-term.

Next, I'd like to offer some comments on the investment portfolio and the balance sheet.

As part of our enterprise risk management efforts, we completed a stress test or tail event analysis of our business.

We determined it is prudent to maintain a minimum capital position at the holding Company.

The events of the last 12 months underscored the importance of having access to capital in situations when it may not be available from external sources.

Based on our analysis, we believe that our holding Company capital position should be at least $250 million before we look to deploy capital.

This is consistent with amounts we have held at year-end the last several years.

As I mentioned, we ended the third quarter with $360 million in holding Company capital.

Looking toward year-end, we expect that position will be between 550 and $650 million.

This means we have between 300 and $400 million of capital available for deployment.

We are committed to building shareholder value by growing our businesses and executing our specialty insurance strategy.

However, we believe our stock is under valued, and we view share repurchase as an attractive use of our available capital.

Before I turn it over to Mike, let me summarize some of the trends and actions that will influence future results.

In Property, we face the headwinds of margins pressures of servicer consolidation.

In addition, top line will decline from a reducing loan inventory in the near-term and reduced placement rates over the longer term.

On the positive side, our model continues to win clients in the RFP process, loans are growing slightly from consolidation by our clients and we have found ways to reduce expenses going forward.

In Solutions, we continue to experience elevated claims related to unemployment in the UK and a general slow down in consumer spending in the current economy.

But we are pleased with the improvement in our domestic combined ratios, the new clients and distribution models we are adding and our integration of acquisitions that position us for an improving economy.

In Health, higher utilization of medical services will continue to influence claims experience in the near-term, and our pricing and plan design changes may hinder sales.

But we are pleased that third quarter activity tracked consistent with our expectations, and we are finding ways to reach customers with our broad product portfolio.

In benefits, we are seeing an increase in the utilization of dental services which we believe is related to the economic slow down.

And small employers are struggling more than in prior recessions due to a lack of available credit to expand their businesses.

This has led to fewer new jobs with small employers, but we do feel that small employers will lease the recovery when the economy turns.

We've taken actions to reduce expenses, and we've completed a small acquisition and landed a new client through our alternative distribution channel, which should allow us to see growth in the near future.

Now I'd like to turn things over to Mike to talk more about the business level performance and financial results.

Mike?

Thanks, Rob.

A drill down into the businesses affirms the strength of our financial position and that the actions we are taking are making a difference.

Let's start with Assurant Specialty Property.

After tax net operating income increased for the quarter and first nine months of 2009.

The absence of reportable catastrophe losses drove the improvement.

During third quarter and nine months of last year, we had $94.8 million of reportable catastrophe losses and reinstatement premiums.

Third quarter results included a $5.9 million after-tax benefit from a subrogation recovery related to the 2007 California wildfires.

Net earned premiums decreased 7% in the quarter and 5% for the nine months.

These declines were driven to loans lost due to servicer consolidation, drops in premiums from real estate owned policies as fewer subprime loans enter foreclosure, increased sales of foreclosed homes and higher catastrophe reinsurance costs.

During the next 12 to 24 months, we expect premium levels to continue to decline, driven by a reduction in the number of REO policies, lower policy placement rates and possible reductions in average insured values.

We also expect servicer consolidation trends to continue, which will cause some variability in our quarterly results.

This quarter we added 600,000 new loans.

300,000 of these were subprime loans from a previously mentioned new client that was added for tracking in the third quarter.

Another 300,000 came from portfolios that our clients added through market consolidation.

These additions were partially offset by other portfolio declines, including the previously disclosed 230,000 Merrill Lynch subprime loans that we will lose in the first quarter of 2010.

In response to the declining revenue trends, we continue to drive expenses out of our operations through increased automation and disciplined expense management.

Overall, we were pleased with another very solid quarter at Assurant Specialty Property.

Let's move now to Assurant Solutions.

Net operating income at Solutions was up 55% for the quarter versus the same quarter last year.

Third quarter 2008 results did include a one-time charge of $7.7 million.

For the year, operating income is down 10% versus 2008.

The increase for the quarter was driven by improved underwriting experience in our domestic service contract business, and solid contributions from preneed.

The domestic combined ratio continued to track within our targeted range for the third consecutive quarter, which we expect to continue.

Loss experienced in the UK credit business is worse than 2008, but did improve slightly in the third quarter versus the second quarter 2009 due to our exit from the problematic internet channel we have previously discussed.

In addition, investment income has declined significantly versus 2008 levels.

International combined ratios in 2010 will benefit from cost reduction efforts throughout our operations, the continued moratorium on international expansion and continued improvement in the UK.

Turning to revenue in the United States, the absence of Circuit City production in 2009 has caused a $250 million decline in gross written premiums for the nine months.

While the overall environment remains difficult, we did see some growth from the existing and new clients in the OEM space in the third quarter.

The sequential decline in gross written premiums is partially attributable to the Ford Motor Company program which ran through April and May.

That program added about $30 million of gross written premiums in the second quarter.

About $12 million of those premiums were earned in the third quarter.

Businesses sold in the past, including Circuit City production, continues to increase net earned premiums in 2009.

After adjusting for the change in preneed accounting and the impact of foreign exchange, net earned premiums are up 4% for the quarter and 5% for the nine months compared to the prior year.

Our Preneed business had a very solid quarter.

Same funeral home sales grew 5.8% for nine months versus 2008 as we continue to work effectively with our sales partner, SCI.

SCI's increase utilization of different distribution channels, new outside sales offices and general agents have helped us begin to attract younger customers.

The business will also grow due to the acquisition by SCI of Keystone, the fifth largest funeral home chain in the United States, which we expect to add an additional 200 funeral homes that will sell our preneed policies.

In the wireless space, the integration of the Signal Holdings operations has gone extremely well.

We believe that we now have a compelling offering for the large wireless carriers, and our strength is our ability to provide our clients with integrated full service solutions.

Our integration of GE Warranties Management Group has provided us with specialized direct marketing capabilities.

These capabilities and the win of the Whirlpool account have helped us build a strong position in the OEM appliance market in North America.

And while our acquisitions of mortgage distribution channels in the UK are currently not meeting top line targets due to the economic slow down in that country, we believe we are well positioned to recover once the economy improves.

We have also been able to take expenses out of the operations, which has helped offset part of the top line shortfall.

Overall, we believe that the acquisitions we've made over the past few years have strengthened Solutions in several key markets.

With the formal integration processes for the most part complete, we should see them begin to impact our results more significantly in 2010.

In summary, with the exception of the UK, we were pleased with Solutions' results for the quarter and look forward to further improvements.

Now let's turn to Assurant Health.

Despite a net operating loss for the third quarter, the underlying business results at Assurant Health improved marginally from the second quarter and consistent with our expectations.

June 30th reserves proved to be adequate, and no additional reserve strengthening was required in the third quarter.

Results for the quarter include a charge of $8.1 million after-tax for a reverse ruling in a claim related lawsuit.

Medical utilization rates continued to run at high levels, consistent with trends beginning in the fourth quarter of last year but considerably higher than past years.

We did see a modest slow down in the number of large claims.

Sales of both individual medical and small group plans were up for both the quarter and nine months due to our broad distribution, varied product portfolio, and increases in the numbers of employees leaving employer provided plans.

Direct sales and sales of lower priced plans were particularly strong.

However, the pricing actions we are taking to return our block to profitability may decrease future sales.

Net earned premiums at Health were down 3% for the quarter and were down 4% for the year.

The decreases were driven by high lapses of both individual and small group policies and lower average premiums per member as consumers chose more affordable plans.

While we have not yet seen a discernible impact of H1N1 on our business, we do expect it to cause increased utilization in costs.

We are pleased to announce that through a new partnership with Walgreen's, we plan to cover the costs of administering the H1N1 vaccine for our insured customers who get their shots at any of the more than 7,000 Take Care clinics located in Walgreen's drug stores.

We estimate that the cost of administering the vaccines and H1N1 related medical services will increase our claim expenses by 8 to $10 million after-tax during the next six to eight months, which we see as a great investment in our customers' health.

We expect that our pricing and plan changes combined with expense reduction efforts will return the Health business to target profitability by late in 2010.

We remain optimistic that by leveraging our expertise, product breath and distribution reach, we'll find numerous growth opportunities in the individual medical marketplace.

Now let's move to Assurant Employee Benefits.

Net operating income was down 47% and 46% for the quarter and nine month periods, respectively.

The declines reflect less favorable loss experience across all product lines.

This is not an unusual trend during tough economic times.

Net earned premiums for the quarter and the year are down as small businesses continue to reduce headcount, curtail salary increases and scale back their benefit offerings.

In these difficult times, we are increasing our focus on voluntary or employee-paid coverages.

Sales of voluntary coverage were up 35% to $18 million in the third quarter.

In addition, we are encouraged by the sales pipeline in our Disability RMS channel, and we are pleased to announce the acquisition of the majority of the group business of Shenandoah Life, which will add approximately $15 million of annual premium next year.

I'll turn next to our investment portfolio, which as Rob mentioned, benefited from improvements in the credit markets and government efforts to engineer a lower interest rate environment.

AOCI improved by $793 million versus December 31st, primarily due to the improvement in the portfolio market values.

Lower interest rates have put downward pressure on investment income; however, we have reduced our cash position, which has helped stabilize quarterly investment income, albeit at lower levels versus 2008.

Longer term, we expect interest rates to move higher and provide better overall risk adjusted yields.

Our commercial mortgage portfolio, which is about 11% of total investments continues to perform well, and we have no delinquencies as of quarter-end.

During the third quarter, we completed our annual appraisal process in which we effectively underwrite every loan in the portfolio using current market metrics.

The portfolio's loan to value ratio increased to 62% versus 53% last year, due primarily to an increase in market capitalization rates.

Our debt service ratio improved slightly to 1.87 compared to 1.85 the prior year.

While we are quite pleased with the portfolio's performance, we are mindful of the potential effects of sustained high levels of unemployment on the commercial property market.

Our balance sheet remains solid.

Stockholders equity, excluding AOCI, increased to $4.8 billion in the quarter.

We have no debt maturing until 2014, and overall asset leverage of 2.7 to 1 and a 17% debt to equity ratio.

Book value per diluted share, excluding AOCI, increased to $40.57, up 9% from year-end and 3% from the second quarter.

Before I finish my prepared remarks, I'd like to comment on two other corporate matters.

The first pertains to the goodwill asset carried on our balance sheet.

Our policy is to perform our annual impairment testing during the fourth quarter of each year.

Due to the significant increases in unrealized gains in our investment portfolio, we performed an interim review of the goodwill ascribed to the Solutions and Employee Benefits segments in the third quarter.

We concluded that the asset was not impaired as of September 30th.

It is possible that our fourth quarter tests will indicate that an impairment charge is necessary.

Finally, we wanted to provide an update on the previously disclosed SEC investigation.

After a period of inactivity, we have had recent discussions with the SEC staff about the investigation.

Beyond the fact that contact has resumed, we have nothing new to announce at this time.

I should note that because of the discussions with the SEC, we did not renew our share repurchase program.

As Rob noted, we continue our shares to be attractively priced at current levels, so we look forward to buying additional shares as soon as we can.

In summary, third quarter results reflect our continuing effort to strengthen the Company despite macroeconomic challenges and we believe that Assurant remains fundamentally sound at its core.

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

Thanks, Mike.

Operator, we're ready for questions.

(Operator Instructions).

And we will take our first question from Jeff Schuman with KBW.

Good morning, Jeff.

Good morning, can you hear me?

Yes.

I had a question about Specialty Property, I was curious about the placement rates sequentially.

Subprime placement rates continue to increase, whereas prime sort of flattened out.

And I guess I was kind of thinking that maybe the reverse would be more likely.

Do you think prime placement has flattened out here, or was that just kind of a one quarter flattening out, do you think?

I believe that in any particular quarter, Jeff, things like that can happen.

We brought, as Mike mentioned, some new loans into the portfolio.

I wouldn't read anything into the one quarter number.

Okay, that's helpful.

And then, obviously extremely difficult to kind of think about scenarios for the Health business, but it's also difficult to ignore the issue, as well.

Certainly one of the concepts of kicking out there would sort of move you off of an -- sort of an underwritten model.

If you can't really underwrite for pre-existing conditions, potentially how dramatic is that scenario?

Does that mean kind of the whole kind of existing book of business would sort of go away and you'd kind of have to start over wit kind of a new product, a new underwriting model?

Or is it -- could it potentially be less dramatic than that?

Well, a couple of different things I'll comment on.

First is Don Hamm and the team at Assurant Health have put together a variety of different scenarios, including the one you talk about, Jeff, and said "In that environment, how would we play and win?" And we believe we have strategies that could operate there.

Remember that the reform that's talked about takes place and is effective 2013, so we're looking several years out in the future, before that comes into effect.

I think another important point to consider in all that is that existing people will be allowed to maintain or, in much of legislation, keep the plans they have.

Meaning, you're going to kind of have a different set of risks after 2013 compared to ones that are underwritten prior to, so maintaining that block of business of what you have on the books prior to reform will be a consideration as well.

But again, until things are finalized, we're guessing -- and our goal is to make sure we understand how we can effectively play in the new environment -- go ahead.

I was just going to mention, too, the size of the market is another factor, because certainly we expect the market to be a lot bigger under the scenarios, particularly as we think is right, there's a coverage mandate.

Okay, and then lastly, on the SEC discussions, and I guess kind of the suspension again of the share repurchase, if those discussions continue, are there other ways for you to manage capital other than share repurchase or acquisitions?

I'm trying to think about how that would go if that was sort of protracted.

Well, there's dividends -- I mean, there are some other options, and at the end of the day, we make a judgment about whether we have material inside information.

That's what precludes us from instituting a share repurchase.

And the fact that there's ongoing discussions may or may not lead us to draw that conclusion, Jeff.

I'd also point out, our goal, Jeff, is to consistently return capital to shareholders, and I think we have a track record of doing that, both through dividends and regular increases to the dividends, as well as repurchase.

So those are two ways we look at things.

Okay.

That's helpful.

Thank you very much, guys

Our next question comes from the Steven Schwartz with Raymond James.

Good morning, Steven.

Hey there, everybody.

Just a few.

Following up on the SEC investigation, I saw a -- I saw a piece that you guys put out about Adam Lanmin.

Is he back now, or was he already back?

He has been back, Steven, and as we recently announced, he's joined Assurant Health as the Chief Operating Officer.

Okay, I was wondering if that was telling me anything about the SEC investigation.

I guess not.

Vis-a-vis the SEC investigation,and the rating agencies, I guess you've done your tail model, you've came up what you think you need at the holding Company.

Has -- I don't know, given the SEC , I guess, is the question -- have you bothered to show that and discuss potential share repurchase with the rating

Go ahead.

Yes, we've had -- and we've continued to have regular dialogues with all the rating agencies and we've shared a lot of detailed tail about analysis with them.

Chris, I don't know if you want to amplify on that, but?

Yes, again, the decision about holding Company capital was really the result of the enterprise risk management efforts that we've been -- we've undertaken during the course of the year.

The enterprise risk management has been a focal point for the rating agencies, and we have shared both the process and the conclusions with them.

So they are aware of how we go about doing this and the conclusions that we've reached.

Okay, and then just two more fast ones.

Mike, the potential for goodwill impairment in the fourth quarter, vis-a-vis what you've kind of done preliminary in the third quarter.

What could change, what could make that happen?

What do you think could -- what would have the biggest effect, I guess?

Well, you're looking at -- you go through a process of looking at the value of each of the businesses and then you take that value and kind of subtract off other assets in each of the businesses, and then you're balancing item is goodwill, and so you determine a value of that.

And so the things that go into it are your projections of future earnings for the business.

You also look at changes in the market values at a point in time of the tangible assets you have to the balance sheet, your estimates of intangible values.

So you're going through a lot of different assumptions -- you're looking at current events at any point in time along with future projections.

And so as things change in the environment that affect any of those things, it can cause you to reach a different conclusion.

But I think one of the important things for investors to take away is whatever goes on with goodwill has nothing -- has no impact on our holding Company capital.

Right.

Okay?

So that amount of money we're talking about at year-end will be there regardless of anything that happens here.

Right.

Okay, and then finally, Mike, you mentioned that TIV might come down in Specialty Property.

Would that just reflect a mix shift?

I think so.

Yes, pretty much, Steven.

Okay, that's what I got.

Thanks, guys

And our next question comes from the Ed Spehar with Bank of America-Merrill Lynch.

Good morning, Ed.

Thank you, good morning.

I wanted to talk a little bit more about the capital and share buyback, and I guess, in terms of the -- you don't have any authorization out standing now, is that correct?

No, we do have authorization outstanding, Ed.

I believe it's $170 million, I think --

-- authorizations we made.

Okay, then what was the comment about didn't renew share repurchase program because of the discussions?

We had a 10b5-1 program in operation, Ed, and when this came up we believed it was prudent to not renew that program.

Okay.

Okay, but then, if we're talking about the -- so share buyback from here, I mean, I think what you're saying is that discussions with the SEC do not necessarily preclude you from buying back stock, and the fact that you have now disclosed to us that you're having discussions, that at least is not a material non-public piece of information?

I think two things, Ed.

First, we have -- we're a conservative Company, we don't want to do anything that could have unintended consequences, and so we're just being prudent as we consider all the things that are going on related to the investigation.

Okay.

And then just on the capital numbers, if I heard you correctly, Rob, you said that you thought that the balance -- the holding Company capital was going to build from 360 to 550 to 650 by year-end?

Correct .

Okay, what is leading to the 200 to 300 million increase in one quarter?

Just dividends.

We -- we've pointed out before, Ed, that we tend to have our dividends focused toward the end of the year after tax season, because we have a line of sight then on our earnings a little better, particularly in property, and so we've just set things up that way.

Also allows us to have that feedback and dialogue with the rating agencies.

So it's kind of our normal process, and Chrism maybe you want to amplify a little about ordinary versus extraordinary dividends?

Yes, and again, just a couple of things, again, Rob's point that we tend to back end load the dividend from the various operating subsidiaries.

A couple things that change from last year, again, the portfolio results are not going to be the drag that they were last year.

Properties -- we've not -- we've taken about 250 or 260 of Property's profits, which is less than the full profitability through three quarters.

We think we are going to get all of Property's profits up to the holding Company.

And again, the idea is we take -- we capitalize to the AM Best ratings and to maintain -- to maximize financial flexibility, we take every extra dollar up and put it at the holding Company.

So you add up a variety of factors and we feel like 550 to 650 number is a good range for year-end.

Okay, and I guess then, if we're thinking about free cash flow from here, I guess it doesn't seem like there's any reason to think that your ability to take up 100%, especially Property earnings, is going to change any time soon, given top line trends?

Isn't that fair?

Yes, I think that's a fair statement.

Again, it's about -- it's the earnings, and then, of course, moderating and potentially declining top line growth, making additional capital available.

Okay, and I think you used to talk about the other segments providing you somewhere in the neighborhood of $200 million a year of dividend capacity.

Is that still a reasonable expectation?

Again, lots of factors that come into play, not the least of which is how AM Best modifies the best -- their BCAR ratings -- BCAR measures on an annual basis.

When I think about it, I think -- you think about earnings, adjusted for any kind of additional growth to be held back, and then net of portfolio effects.

So I mean, that's probably a better rule of thumb, rather than putting a set dollar amount on the numbers.

And at least in the near-term, Ed -- obviously we've had difficulty in the Health business, so at least for near-term, that's affecting it, too.

Okay, but I mean, I guess the point is that the free cash flow generation seems to be running at -- I mean, I guess an even higher level than I think people had been assuming.

So I guess that the final thing I would like to ask is you gave us, I think, a good comment here, at least for -- in terms of optimism on the Health business of a target of getting back to a 4% after-tax margin by the fourth quarter of 2010.

There's a lot of uncertainty in Health, and you guys are willing to give a target, a forward-looking statement on an earnings -- I mean, at least on a margin number for that business.

I'm wondering if there's any reason you can't potentially -- not that I don't want to work, but just potentially give us a little bit of a helping hand on a couple of these other segments, at least from a margin standpoint?

I'm not sure you would argue that there's any less uncertainty in Health than there is in some of the other businesses in terms of margins.

Sure, so if we go to Solutions, we've tried to provide combined ratio targets domestically.

We think we're operating at those, Ed.

We know we need to ultimately improve things internationally.

We'll have a little better line of sight on that as we get a little more clarity on the economy, so we're trying to do that.

The other side of things, obviously is just the investment portfolio, and Chris and Mike both mentioned that new money yields are down.

We don't think that's going to last forever.

Okay?

But right now, it's -- you can see the dampening impact it's had on investment income this year versus last.

So we're trying to give more qualitative color related to that, and we'll continue to work to do that as we move forward.

Okay, thanks.

We'll next hear from Mark Hughes with SunTrust.

Good morning, Mark.

Good morning.

And just to be clear, since you're speaking with the SEC, you're going to be restrained?

Or you're going to be hesitant to buyback shares, or are you open to buying back shares now?

We have to make an evaluation, Mark, of whether we have material inside information.

And if we do, then we can't institute a new 10b5 plan, which is the way we buyback shares -- it's an automatic plan, so --

So practically you could be buying back shares at any time?

Sorry?

Practically speaking, you could be buying back shares at any time if you make that determination?

If a plan was put in place, then we could buy under the terms of that plan.

Okay, and then in the Health business, have you adjusted the pricing yet?

And what do you anticipate the magnitude will be of any rate changes?

Well two things, Mark.

I think first is that our normal trend in this business, we pointed out, has run in the mid-teens, depending on where we're talking about in the country.

And then obviously, we've had to put in additional price or plan change to deal with the higher utilization we've seen.

We're going that.

We're doing it on renewals.

We've started it on new business as well.

And again, this is something, part of our history having been in this business for such a long time, we believe we have good line of sight on how those changes work their way through a block of business.

Okay.

And then this question may have been asked before, but the flexibility and cutting costs in the Property business, the question of fixed versus variable.

If you have been running at expense ratios in the low 40s, with the circumstances you anticipate, how should we think about where that ratio will be a couple of years down the road?

Well, I think we can look back at run rate levels on expenses over time.

We obviously -- prior to the increase in penetration rates, we had a run rate.

We know we got some benefits related to the SafeCo acquisition, and I think that was a good starting point.

On top of that, however, is Gene and his team are working very hard to find additional operating efficiencies.

We mentioned last quarter some of the ones we've found.

We're looking to take action to improve results.

They're looking at that, they're trying to come up with additional ones, and I'm confident that over time they'll find some.

And I guess I'd just point out, too, that we have a bit of a balancing act in working with our clients, because the clients are struggling themselves with work loads, and have been inundated with new work that they've asked us to help them with.

So some of that expense -- that creates expense for us, that then enters into a -- part of the discussions with them about how to price and all that sort of stuff, too.

Thank you.

Our next question comes from the John Nadel with Sterne, Agee.

Good morning, John.

Hey, good morning, Rob, how are you doing?

Good.

So I know we're all targeting this SEC issue and the buyback, but maybe a couple of different questions about it for you.

So it appears to me, based on the average price that you guys paid buying back your stock during the quarter, that you were doing sort of mid to late August, early September, so is it fair to say the SEC has sort of reinitiated contact with you sometime in September?

I think that's about when it happened, John.

Okay, and so my question is, if you feel like discussions with them, just simply re-engaging in discussions, does -- is that a material event and now we've disclosed it?

Or is it a fear that there's potential for a meaningful cost of resolution, i.e., fine or penalties, and you need to hold back capital for something like that?

I guess, John, we're not buying back now.

At the end of the day, we hope to be able to do so at -- as soon as possible, but we have to -- as I said earlier, we have to make a judgment about whether we have inside information.

That's really the call that we're making.

And as Rob said, we're a conservative Company, so we want to be -- we want to make that decision as thoughtfully as possible.

Well, and I -- all right, so I guess the question then is -- and maybe we already know the answer, maybe based on what you said -- when do you make that judgment?

I mean, has that judgment been made?

I think a couple things, John.

If you look at, when we got out of the market, we then got into a black out period, okay?

For earnings, yes.

Okay, so it's something we're assessing on a regular basis, and we'll continue to do so.

I think the big take away here is we see the stock as attractively priced and we want to buyback as soon as we can.

I want you to, too.

We're aligned.

Okay, so let's switch gears for a second.

So I know Steve touched on this with you, Mike, but the goodwill idea that you guys did sort of a preliminary review, I mean, can you prepare the depth of that sort of review that you already did with how much additional incremental work you'd do in a more "formal" impairment testing in the fourth quarter?

I mean, how much has to really change in a two or three month period of time for an impairment to be recorded?

Well, a lot of the -- you have to relook at all the assumptions, John.

During the interim period, we did look -- we go through the same process.

You're looking at external events, though.

Like, one of the ways, for example, that you would try to look at the value of each of the segments is by looking at values of peer companies which can move around.

You've got market values of assets that move around.

You've got changes in interest rates.

And then another one is just your internal projections which typically aren't going to change radically in a three-month period, but they can change.

So there's just lots of different variables, John, but we're not -- it's not like we didn't use the same process.

I mean, it is the same process.

Okay, okay.

That was sort of what I was getting at is just how much more involved.

And then just specifically on the goodwill, how much is there related to Solutions verses benefits, and is there any in any other segments?

Yes, we have goodwill in all our segments.

It's actually in the 10-K, but Solutions is about $370 million of goodwill, and Benefits has, I think, $180 or so million.

Okay, all right.

And then last question is, just on the Health segment, , I think in our discussion last night and then in your comments this morning, it sounds like definitely the pricing actions that you've taken are negatively impacting your lapse rates, i.e., your lapse rates have definitely spiked a bit.

Can you give us a sense for how much they've moved from a normal -- I sort of typically think historically your lapse rates at about 25%

Yes.

Is it -- how much higher is it now running?

Well first, I think it's hard to separate, John, just the one variable, because a lot of just what's happened because of the economy has caused things to go up as well.

Sure.

We think our lapse rates are running a couple points higher, okay?

And again, we're certainly trying to be mindful of that.

Don and his team work hard to -- we've got a retention unit trying to keep people.

Little anecdotes are a lot of the lapses are occurring just because people don't have money to pay for the coverage.

And that's a different dynamic than we've historically seen, so it's hard to separate the pricing action from that economic action.

Again, we're trying to be responsive and find ways to keep more of that business in a changing environment.

Okay.

And then, relatedly, with the pricing actions you've taken, I know there's a lot of different product designs and a lot of different price points, but can you give us a sense for, as you look across the market at the typical competitors that you run up against, especially in the individual market, how radically -- or I mean, how different are your prices right now?

How much higher relative to your top competitors in the marketplace right now?

Yes, that's a really hard question to answer, John, because it's so market-specific, and typically there's -- this here relative comparison can vary vastly from one competitor to the next.

There's not a single competitor in every market.

And we also that think the trends that are affecting our business are affecting other carriers, too.

This is not like it's stuff that's unique to us.

So -- but I think the one thing that is clear is our affordable Health Care, which is a modified design.

More first dollar benefit coverage is resonating in the market, so it's a lower premium per member product and we're seeing a lot of response to that product.

Right.

Yes, well, I mean, your sales have definitely held out.

It's not like they dropped through the floor, so your pricing can't be that radical versus others.

Just a quick clarification on the claims cost of the 8 to $10 million after-tax for the H1N1 flu shots that you're covering, could you -- I just missed what the timeframe is for that?

And is there anybody else picking up that cost or just you guys?

Are you passing it along in any way?

We're paying for the cost of the vaccinations.

If there's flu -- if people actually get the flu and go in and get treatment, that would be treated like a normal claim.

But we're picking up the cost of administering the vaccines and we were excited to have this opportunity with Walgreen's to let our customers go in and get that at any of the Walgreen's clinics.

And that's 8 to 10 million over what period?

Yes, six to eight months, I said, John.

Okay, and that begins sort of now?

Yes, yes.

Okay.

All right, thank you

And our final question will come from Adam Klauber with Fox-Pitt.

Good morning, Adam.

Thanks, good morning, guys.

On the Specialty Property, is the natural attrition of the subprime portfolio running around 10% this year?

I don't have the number off the top of my head Adam, but we have got them in our supplement of subprime loans.

There really haven't been any new ones coming on this year, so you could kind of look at the draw down there.

Okay, and do you think that draw down will accelerate in 2010, 2011 as more of the older vintages of subprime just eventually go away or payoff, or do you think it stays more level next year?

Well, I think some of that will be dependent on if there's any new subprime issues.

Because again, we look at it as an inventory, Adam.

Certainly, there are going to be some that move out into a foreclosed and then an REO status.

If there's new subprime loans originated, they can replace that.

Obviously, there just hasn't been any of that replacement origination been going on for a while.

On the other hand, I'd point out historically, there has been a subprime market -- and maybe not at the levels of the last few years, but certainly it's contributed to 10% or so of the outstanding mortgage loans.

Okay, also in your early remarks you said there's obviously risk of losing business in consolidation.

Has that been heightened recently as we see more and more banks get in trouble?

Well, there's been lots of consolidation going on.

This is where we benefit from having the market share that we do, and we have two-thirds of the market, so we believe that when there's consolidation, we're more likely to win than lose.

But certainly we have lost loans through consolidations, but over the long-term, we believe as consolidation continues, we're going to win more than our share.

We'll win more than we lose, I guess.

But do you think consolidation will pick up over the next 12 months compared to what we've seen?

Well boy, it's been, if you look at the top four, the growth has been enormous over the last three or four years, Adam.

I think -- I don't have the numbers in front of me, but I think the share of the top four has almost doubled in the last couple of years.

So they can only get 100% of the market.

I don't think they'll get all of it.

So I think that maybe that will slow down a bit.

Okay, and then on -- you mentioned the goodwill.

Which areas, I guess, would be under greater stress for potential goodwill writedowns?

Well, we look at all our segments.

We did the interim review of Solutions and Employee Benefits, so those are the that ones you'd look at a little closer to the edge, I guess.

Okay, thank you very much.

Thank you, Adam.

Each of our businesses is working to improve performance through operating efficiencies while pursuing additional clients to grow their businesses.

We've strengthened our enterprise risk management activities to better understand and plan for scenarios that could adversely impact results.

We've remained well-positioned with holding Company capital to meet a variety of needs.

We look forward to updating you on our continued progress

This does conclude Assurant's third quarter 2009 call.

Please note that a replay will be available as of 11:00 a.m.

Eastern Time.

You may now disconnect.