Assurant Inc (AIZ) 2010 Q3 法說會逐字稿

Good day everyone, and welcome to the Assurant third quarter 2010 financial results conference call.

Today's call is being recorded.

(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

Great, thanks so much.

Welcome to Assurant's 2010 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 20 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 2010 financial results.

The news release as well as corresponding supplemental financial information is available on our website at 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 to consider that discussions of risks and uncertainties associated with our business and results of operations contained in our 2009 Form 10K and subsequently filed 10Q and 8K, which can be accessed from our website.

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

Additionally, this presentation will contain non-GAAP financial measures, which we believe are meaningful in evaluating the Company's performance.

For more detailed disclosures on these non-GAAP measures, the most comparable GAAP measures, and a reconciliation of the two; please refer to yesterday's earnings release and supplementary financial information that's posted on our website at Assurant.com.

And with that I will now turn the call over to Rob.

Thanks, Melissa.

And good morning, everyone.

We are pleased with our third quarter performance.

Operating results improved in all four businesses compared to the third quarter of 2009.

Net operating income was up 9% and diluted earnings per share increased 19%.

Annualized operating return on equity was 11.5% for the quarter.

Our diluted book value per share increased about 3% in the quarter and about 10% compared to year end 2009.

Our actions to adapt our product offerings and manage expenses while pursuing new sources of revenue are building a stronger foundation for long-term growth.

I will begin by highlighting a few trends and market conditions related to performance from each of our businesses.

During the quarter Assurant Solutions made progress in developing new customers and distribution channels.

International profitability improved and our Pre-need business continue to grow by successfully executing its business plan.

Based upon the actions we have taken, the international combined ratio showed meaningful improvement in the quarter.

We expect continued improvement in the fourth quarter consistent with our prior estimates.

Our premium life insurance business continues to produce strong results from our partnership with SCI the leading funeral services provider in North America.

Operating income in face sales both showed nice gains over the third quarter of 2009.

Looking ahead, we expect international credit insurance, service contracts worldwide including wireless, and our pre-funded funeral product will drive growth for solutions.

We have solid sales pipelines in each of these areas that we expect to translate into revenues.

This will help compensate for the runoff from Circuit City and our domestic credit products.

At Solutions, revenue growth and operational efficiency remain priorities.

Turning to Assurant specialty property, third quarter results were strong aided by the mild hurricane season.

The business continues to deliver outstanding results in a very dynamic market.

We are seeing production from a new client added during the last quarter.

At the same time, our effort to expand other products such as renters and flood are going well.

Our new clients will continue to support solid results for specialty property in 2011.

Moving on to Assurant health.

The business continues to focus operations around customers.

Improved financial results over the prior year were driven primarily by pricing actions and plan design changes implemented in the second half of 2009.

However, healthcare reform is beginning to impact our results.

We expect this will continue in both the fourth quarter and 2011 as the marketplace evolves.

We pride ourselves in our ability to adapt to changing markets.

Health demonstrated this by modifying products, discontinuing the sale of other products, and reducing expenses.

We also developed and introduced new products that address customer needs around coverage and affordability.

These products were introduced in mid-September.

Initial feedback from our agents and customers is positive, an encouraging sign as we move forward.

We continue to believe there are significant opportunities in the individual medical market, and that we have the specialty expertise to be successful.

Our experience with individual health products and our excellent relationship with our distribution partners will continue to serve as well.

We are in the early innings of our repositioning our health business.

We have taking costs out of the business and will continue to drive for greater efficiency and effectiveness in our operations.

While the transformation will not be easy or quick, we believe we are on the right path for success.

Our commitment remains the same.

To pursue the best course of action for the benefit of our customers and shareholders.

At Assurant employee benefits, we achieved strong results through continued focus on the small employer, pricing discipline, and expense management.

Operating results benefited from very favorable disability incidents rates and improving dental product line and continued good mortality experience.

Looking ahead, we expect the disability loss ratio to move upward as disability experience begins to revert to more traditional levels and the low interest rate environment requires higher reserves for new claims.

However, dental loss experience should continue to improve and the business will continue to benefit from the expense reductions implemented earlier this year.

On the revenue side when our small business customers start hiring again, premiums will increase.

In the meantime employee benefits is focused on driving growth through disability RMS, our alternative distribution channel, along with worksite and voluntary products.

Moving to highlights on the balance sheet, our corporate capital position increased to $710 million during the quarter.

It provides us with a great deal of financial flexibility.

As we enter the last two months of 2010, we will continue to be disciplined in deploying our capital.

Our priorities are to continue to make prudent investments to fuel growth and return capital to our shareholders.

So overall, a good quarter for Assurant.

Our businesses are creating opportunities aimed at generating long-term results while managing changing market dynamics.

Now, I'll let Mike walk you through the operating results for each business.

Mike?

Thanks, Rob.

I'll start with Assurant Solutions where international results showed strong improvement while domestic pressures remain.

Net operating income of about $32 million for the third quarter of 2010 increased 2% compared to the third quarter of 2009.

Income increased due to improved international underwriting experience particularly in the United Kingdom, the favorable impact of foreign exchange rates, and lower tax rates.

Domestically, net earned premiums declined for the quarter primarily due to the discontinuation of Extended Service Contract sales from Circuit City in 2009 and the continued decline of credit insurance.

Gross written premiums decreased 2.4% versus the third quarter of 2009 due to lower credit insurance premiums.

Sales of service contracts were up by about 5%.

The domestic combined ratio increased during the quarter due to higher loss experienced in Extended Service Contracts resulting from an increase in the severity of claims within the consumer goods market.

Internationally, we saw increases in net earned premiums in Canada and Latin America reflecting new and existing client growth and favorable impact from foreign exchange rates.

Gross written premiums increased 7.5% due to the growth of Extended Service Contracts in Brazil and Argentina, growth in new and existing Latin American credit insurance clients.

As Rob mentioned, the international combined ratio improved to 104.1%.

Overall sales increases improved results in the UK due to our pricing and underwriting actions and expense reductions in our European business drove the improvement.

Pre-need life insurance continued to be a strong performer for Solutions.

Pre-need net operating income increased 12.5% versus the third quarter of 2009.

Third quarter Canadian Pre-need sales were higher than expected as we worked through a backlog of business sold in anticipation of provincial tax changes that went into effect in July.

As a result, the business in Canada added about $45 million of face sales during the third quarter on top of $55 million last quarter.

That backlog has now been processed so Canadian Pre-need sales should revert to more normal levels in the fourth quarter.

We have a strong business model in Pre-need with a positive sales outlook.

In summary, we are pleased with progress internationally during the quarter.

Solutions continues to find growth opportunities, which help offset premium pressures caused by the runoff blocks of business.

We look for further growth and profit improvements from international through the rest of this year and next.

We continue to review experience with our domestic clients and make the modifications necessary to drive improved results.

I'll now turn to Assurant specialty property, which produced another strong quarter.

Net operating income was approximately $107 million a 3% improvement versus the third quarter of 2009.

We experienced no reportable third quarter catastrophes in either 2009 or 2010.

Operational improvements along with lower commission expenses due to greater client seeded reinsurance activity drove the expense ratio down and the combined ratio dropped.

Net earned premiums for the quarter increased slightly primarily due to growth in creditor placed homeowners and flood insurance as well as renters insurance.

This was partially offset by increased seeded creditor placed homeowners premiums and lower real estate owned premiums.

The increase in seeded premium was the result of previously disclosed changes in client contracts.

Overall, specialty property delivered excellent results for the quarter and the first nine months of the year.

We've told you in the past that we expect a decline in creditor placed revenue over time, but we are pleased to say that new clients we have added during the past several quarters are helping to counter this longer-term trend.

Turning next to Assurant Health, which continues to make progress in adapting to the new healthcare landscape.

Net operating income of $5.3 million for the quarter compared favorably to a loss of $4.8 million in the prior year.

Workforce reductions that we announced in August reduced third quarter income by about $5 million after-tax and will have an additional $1.3 million after-tax impact in the fourth quarter.

I'd also note that Assurant Health's third quarter and year-to-date results reflect higher tax rates due to limitations under the Healthcare Reform Act on the deductibility of employee compensation.

Net earned premiums for the quarter were down slightly versus 2009 primarily due to a decline in members.

The impact of the membership decline was partially offset by pricing and plan design changes implemented to improve underwriting results.

Sales during the quarter were adversely impacted as we modified our product portfolio to comply with the healthcare legislation.

Certain products were discontinued and others were replaced in order to address the affordability concerns of consumers.

Sales of these new products began in mid-September.

Despite encouraging early responses to them, sales in the fourth quarter are likely to be lower than our prior levels due to lingering consumer uncertainty related to Healthcare Reform.

The Assurant Health team is responding to the changing marketplace by reducing expenses and making numerous pricing and plan design changes.

Overall, we are confident that our actions preserve a path toward achieving a sustainable specialty business model.

Turning now to Assurant employee benefits, net operating income increased significantly versus the third quarter of 2009 to approximately $17 million in the current quarter due to extremely favorable long-term disability incidents and improved dental results.

Premiums grew compared to the prior-year due to the addition of the previously reported assumption of the Shenandoah block and business assumed from clients that disability RMS in 2009.

These accounted for $29 million of premium in the third quarter and $94 million for the nine months.

Sales in our traditional channel remain challenging.

The continued low interest rate environment will pressure investment income for employee benefits as we move into 2011.

As a result we expect to lower the reserve interest assumption for new long-term disability claims beginning in 2011.

Our disability rate for all LTD reserves is currently 5.25%.

The 2011 rate has not been determined, but to give you a sense of the impact, a 50 basis point decrease in the discount rate applied to reserves for new claims would increase policyholder benefits by roughly $8 million pretax in 2011.

Turning now to corporate matters, our capital position remains strong.

At the end of the third quarter we had $710 million of capital at the holding company, an increase of $135 million since the end of the second quarter.

This total includes our $250 million capital buffer for tail event risks.

So our total deployable capital was approximately $460 million at the end of the quarter.

For 2010, we continue to expect that total dividends upstreamed will equal operating income plus the excess capital freed up by our restructuring and solutions.

Year to date we have taken dividends of more than $450 million from our operating companies including $90 million from the Solutions restructuring.

Annual uses of capital excluding share repurchases are approximately $170 million.

Our investment portfolio continues to track the broad investment grade corporate bond index.

At the end of the third quarter, net pretax unrealized gains were $944 million, an increase of $663 million during 2010.

We also think it's important to comment on the current interest rate environment.

While we expect rates to rise eventually, the timing is uncertain.

And similar to other insurance companies, we face reductions in investment income from declining reinvestment yields.

However, we believe that our low turnover investment strategy will moderate the pace of decline in our overall portfolio yield.

In addition, our business mix with its low asset leverage means that a decrease in investment yields will have less of an impact on overall earnings compared to companies with greater asset leverage.

There are, however, certain areas where low interest rates do have a meaningful impact on our results such as the employee benefits LTD reserve as I mentioned earlier.

Additionally, all of our businesses are affected by the cost of our retirement benefit plans.

Due to reductions in the pension liability discount rate used to value our plans, 2010 pretax retirement expenses will be about $10 million higher than in 2009.

Approximately $4 million of that increase will be expensed in the fourth quarter of this year.

We expect the discount rate next year to decline by approximately 70 basis points to about 5.2%, which will cause a further increase of approximately $10 million pretax in 2011.

We also want to remind you that in line with our accounting policy, we will perform our annual goodwill impairment testing during the fourth quarter.

While we hold our goodwill in the corporate segment, our testing is done at the business unit level.

We will carefully consider the impact of the economic environment on each business.

In health, we will also factor in the impact of Healthcare Reform.

We will report the results of our good will testing on our fourth quarter call.

In summary, we are pleased with the third quarter and year-to-date results for 2010.

We made significant progress on many of the initiatives we have discussed with you, and look forward to continuing our progress as we close out the balance of this year.

And with that, I'll turn the call back to Rob.

Thanks, Mike.

To recap, it was another good quarter for the Company.

While some of our businesses are transitioning, others are maximizing their market opportunities and developing new services and product offerings.

Assurant Solutions is continuing to improve international and Pre-need results.

We are expanding our service contract and wireless sales pipelines to offset the runoff of other revenues.

Specialty property continues to add clients in a dynamic environment while building key adjacency markets such as renters and flood.

Assurant Health is adapting its operating structure to respond to the changing healthcare market.

We continue to focus on providing customers with solutions that meet their personal coverage needs at an affordable price.

And employee benefits continues to develop new worksite and voluntary products to meet the changing need of small business clients.

Our businesses continue to generate strong cash flows and our strong capital position gives us considerable flexibility as we evaluate opportunities to enhance shareholder value.

We're becoming more efficient and more focussed to position Assurant for sustainable profitable growth.

And with that, I'd like to open the call for questions.

Operator, first question please.

(Operator Instructions) Our first question will come from Jeff Schuman with KBW.

Good morning, Jeff.

Good morning.

How are you?

Good.

First of all the higher tax rate in health, is that sort of fixable by restructuring comp, or should we just assume that kind of rate going forward?

I think there is likely to be some compensation that would be not allowed.

We may have some opportunities to impact just how much that is over time, Jeff.

But it will probably increase overall at slightly the long-term rate in health.

Okay.

And then I realize that you don't want to predict the new disability reserve discount rate, but I was wondering if you could help us better understand the thought process.

When you set that rate, I mean do you primarily reference what the new money rate is?

Or is there some thought about what that rate is likely to revert to over time?

Or how do you kind of think about that generally?

Yes.

We try to look at, I'd say, somewhat long-term.

We've used portfolio rate in the past, and just given the decline, we think we are likely to divorce from that.

But we will look at sort of expected new money rates and what kind -- and probably discounted something consistent with that, but we do try to take a bit of a longer-term view of the disability -- of the interest rate environments when we set that.

And what would be the approximate new money rate it in that particular business at this point?

We are investing now I'd say what, Chris, 5%?

Yes.

Well, the new money rate is going to be a function of the duration of the liability stream.

I think in -- the blended rate throughout all the segments is somewhere in the 4% to 4.25% level.

The rate though for the disability block, because it is a longer duration is probably north of 5%.

But again, that's a number that moves around quite a bit; and again, the goal here for us is preserving the existing book yield.

But deploying it prudently in the new money rate environment.

Okay.

Great.

Thank you very much

And our next question comes from John Nadel with Sterne Agee

Hey.

Good morning, everybody.

I've got a couple for you.

I'm sure somebody else will get to the health division.

So I'll pass on that.

In Specialty Property can you give us some help on quantifying how much the new customer you referenced added to the gross written premium this quarter for creditor placed?

I don't know that I have that with me right now, John.

But I think a couple things to think about here again are to look at our placement rates, and the placement rates have continued to go up on the prime block of business.

Now, the customer we brought in was a subprime client.

Remember the way that the business that's added from that client is, we got all the loans but we are going to start placing new policies.

So what we'll grade in over time over the course of the next year, I believe.

So again, I think that the key thing because we've got other new clients coming on in the fourth quarter and first quarter of next year really relates to their particular placement rates and the way we are taking things on.

Let me take that back.

I guess the client we added during the third quarter was a flat cancellation.

So that's what causing a part of the rise in the gross written.

And we can get the details, I just don't happen to have that right now, John.

Okay.

That would be helpful.

It just -- it was sort of staggeringly high this quarter.

And --

But the thing to remember with that gross written number, just a little bit, is as you can imagine with all the dynamics moving on in the healthcare market with loans moving around between servicers, you can have -- the gross written is moving around.

Again, I think gross earned is probably a better measure to look at in terms of what's going on with the business

That portfolio Rob mentioned, that flat cancel, John, is exactly why it's hard to interpret the gross written because you get these kind of bounces around in them.

All right.

Good.

I'll follow-up with you guys.

Two more quick ones.

How -- can you help us a little bit on how we should think about the pace of your capital management activities from here?

The $460 million of capital cushion, I assume there's more dividends to come up during 4Q or maybe right after fourth quarter.

Hurricane season sort of behind us, can you just help us think about that?

I sure hope so, right?

Exactly.

So again, I think that this is -- one of the real benefits of our business model is that it generates a lot of free cash flow, and our capital management priorities have been pretty consistent over time, which is we want to use the capital to build the franchise; but we don't hold the capital, we get it back to shareholders if we don't find those opportunities over a near-term period of time.

Okay.

And then finally on Solutions, the US claims activity this quarter in the warranty and service contract business.

How quickly can we expect that to be corrected and can you quantify maybe how much of a drag that was and maybe just in terms of thinking about the combined ratio for US?

Or I don't know some other means whatever sort of make sense to you?

Sure.

I think we haven't changed sort of our long-term target for this business, John, of being in the high 90s; and you do get a certain amount of bounce in that I think.

And we did see, as I said, a bit of an uptick in some claim severity.

But there is no -- at least at this point, we certainly don't believe there's any kind of a systemic problem.

So what we do is with every major client, we sit down really I think virtually every quarter and review experience in some detail client by client.

And to the extent necessary, we will adjust the pricing or contract terms or whatever it takes to correct it.

So that is what we are going through now is sitting down and it really is sort of a client by client story.

Again, there is some variability I think what Mike mentioned.

Just remember to that as Circuit City runs off and becomes a smaller portion of our earned premium in every quarter, that business is run a little more favorably

Yes

There's nothing here that we at this point have any concerns about, John.

Okay.

I guess that's really the point of my question is, is there anything here that needs to be corrected?

Or is this just sort of a tough quarter for that business?

Again, let's look at our international combined ratio okay so --

Yes, I get it

In the second quarter we thought we are on a 1% to 2% path.

It was a little low on that.

We got a little more this quarter.

I think things are pretty much trending as we think, but they don't go in a perfect straight line.

They kind of -- we'll bounce around that line if we've got the right things in place.

I think that's all you're seeing here

All right that's helpful thank you

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

Good morning.

I had a few.

I guess, a couple of specific and then a couple of bigger picture.

The more specific question would be, Mike, when you talked about the discount rate, did you say the new claims discount rate is 5.25 today?

We are discounting.

We had a portfolio rate so all of our current reserves are at 5.25, yes.

Okay and so historically you want to have some sort of margin between that discount rate -- between your new money yield and discount rate, right?

Is that like less than 50 basis points or somewhere in that range?

It's a little bit higher than that I think, Ed, but somewhere in that range.

Okay.

All right.

And then I guess the other question was on your comments on dividends, I think you said $450 million of dividends including $90 million of solutions restructuring.

So does that mean sort of $360 million that relates to operating earnings?

Correct, yes.

Okay.

So if I'm looking at -- I mean, I still have to update the model here, but considering the fact that you didn't have any caps this quarter, I mean the operating earnings number, isn't it going to be something like it's 650 or more or something?

In terms of --?

I think the first thing, Ed, is you can compare the 360 against what the operating earnings of the segments have been through three quarters.

And then you can look at your forecast for the fourth quarter.

Okay.

That wasn't a back door attempt to get a fourth quarter estimate, by the way.

Ed, it's Chris.

Maybe I can help answer John's question from earlier.

But you are absolutely on the right track.

If you look at segment NOI, which when I look at that, I think if you're looking at the supplement the first four lines of page five.

That was $505 million through the first three quarters.

We took $450 million, $90 million of which was part of this capital efficiency effort at Solutions.

So we had $360 million of dividends related to operating earnings.

So what that tells you is that there is $145 million of operating earnings that are still in the segment and available to take up as dividends in the fourth quarter.

We'll let you put in the number for fourth quarter earnings and give yourself a sense of what sort of dividend capacity or dividend plan we are looking at in the fourth quarter.

Now the one thing to keep in mind is that some of these earnings are going to have to come off as extraordinary dividends.

That will require regulatory approval.

It's not typically been an issue in the past, but we have to be careful about that.

But you are on the right track in terms of thinking about what sort of earnings will come up in dividends in the fourth quarter.

Okay and then the related question is can you give us an update on what you think the debt capacity is?

Yes.

We still think it's in the $300 million to $500 million range in terms of an opportunistic financing; and again, when I think about that I think about a few things.

One, this is an extremely attractive time to be borrowing.

The challenges on the investment portfolio side are the opportunities on the financing side.

Having said that, any debt issue will result in interest costs, and we are very focused on containing expenses.

And we also know we have readily available capital in the form of holding company capital, existing deployable capital plus operating earnings.

And I just think the other thing in context to what Chris provided, Ed, is I think our ordinary dividend capacity is about 560

I think -- this year it's 526; and again, that's a function of 2009 earnings.

So that goes back to this question of what would be deemed extraordinary and the additional regulatory approval that would be required.

Okay and then just finally, I guess if I said to you that we were about to have a modest but sustained economic recovery and it began right now, how long would it take for -- if I look at the Solutions, say it's at 8% ROE and I understand there's a lot of complicating factors, we have international versus domestic, we have the time for written premiums to be earned.

But can you give us some guidance as to -- if I told you that the world was going to be okay, how high could the ROE get a couple years out?

Well, again, I think we have opportunities with economic recovery in all of the businesses, Ed.

I think you're seeing the improvement that's taking place internationally.

If we get to scale, we think we can be at those 95% combined ratios in countries.

And we think the improvements we are seeing our demonstration that we can get there.

We think that wireless OEM, we have a variety of opportunities that we think are all going to allow us to price products at attractive returns in the business.

And, of course, then we're dealing with a few of the legacy businesses where we can't do anything about those things.

The old Pre-need runoff business some of the domestic credit, but all the new stuff is going to just help lift ROE.

And timing, again, I think we've made progress this year.

We will continue to make progress moving forward.

Rob, is this a business -- is this a business, I know you've always had this 14 to 16 ROE target, obviously that seems extremely ambitious with ROE at 8.

Is this a business where there's an opportunity for the returns to go up 200 to 300 basis points in the short-term, or is this the kind of business where even if everything is working it's a gradual --?

Well, a lot of that, Ed, really is how the revenues come in.

So the service contract business we know in general has that you write it, it's held up on the balance sheet and comes out after the manufacturers warranty.

Okay?

But the wireless business we like is it earns monthly, so it can come faster as we make progress in the wireless area.

Remember, we think we've gotten that capital efficiencies Chris talked about, we think there's more to get.

We are pursuing those as well.

We obviously have to get more operationally efficient too.

We are working on all those things.

So I think you can see meaningful improvement.

I haven't quite centered around basis point improvement in the ROE, but I think we can see meaningful improvement.

Thank you.

(Operator Instructions) Next we will take a question from Mark Finkelstein with Macquarie.

Hi.

Good morning.

I guess I'll take the bait from Nadel on Health.

I don't even know where to start.

Actually, let me start here.

On the new product what is the average premium change to the consumer, and what is the average commission change to the agent?

It's a lower premium product.

I don't have those in particular, Mark.

But in essence if you look at the transition that's going on, certainly addressing agent compensation is something that's required at some point in time on all the products that fall under the legislation.

So to me we've got a product offering here that's a lower price point to the buyer and still is a place where the distributor feels they can be compensated for their efforts.

We still think that the affordability issue is huge in the marketplace, Mark.

That consumers really want some lower cost options.

And so that's what these plans are designed to give them.

Okay.

And I guess you noted that -- I mean sales were a little bit sluggish.

You've been out with this product for five or six weeks.

Yes.

We really started selling them only in the middle of September.

So I think we've had some pretty positive early responses to them.

But it does take time and agents have to get used to the nuances and things like that

I guess the way I think about it, Mark, is look, we are adapting to a lot of change and one of the things we had to do was pull a bunch of products that weren't in compliance with the Healthcare Reform laws.

And those had been big sellers.

So to meet, we pulled products, we modified others and added benefits, and then we were able in short order to get a whole series of products filed and approved, which to meet probably put this out in front of others who might be looking at that.

And I think are just a real good indication of our ability to respond to those changes in the market.

So boy when I look at those new product sales, we are very encouraged and we only sold them for a half a month; okay?

And didn't have, if you will, the product hitting that affordability issue available to us for much of the third quarter.

Okay.

I guess what I'm getting at initially is how should we even think about premium?

We are in a period where we've got new products, we've got new benefit packages, and at the same time the penalty to the individual for kind of not having a health plan doesn't go into effect for a of couple years.

How do we even think about premium?

Boy, it's a good question.

I start with medical insurance for many is a demand product.

They want to have coverage, they want to have access to the healthcare system.

And they are balancing all that against affordability.

As we've sat down and done studies of individuals, they want to buy a plan that is tailored to their healthcare needs; not something that's prescribed to them of you must have these benefits.

And that's where we see some of the issues between what's been prescribed with the legislation and what individuals want.

And we are going to sort through that and learn as we go through the transition period.

But again, we believe there is a huge opportunity around that affordability issue.

Okay maybe I'll take a shot at one last question on the health issue.

I guess, do you expect to make money in health in 2011?

Well, again, we are waiting for a couple of things that are still coming through.

I think that what HHS has proposed is consistent with what we thought would happen; but there is still clarifications required around transition relief, agent commissions, and the issue on taxes.

So, again, I look at everything and say those are important issues that we need answers to, and we are trying to deal with all of them.

But right now we just need to look at how those three are going to play through.

We also need to know how -- states may come asking for any kind of dispensation from the rules in the short-term.

And there's just a lot to be played out here.

I think Rob's listed a number of details too, Mark.

I think -- when I think about it, we don't know the specific rules because right now we are still -- the NAIC has made recommendations but HHS hasn't signed off.

We know that our loss ratios will go up next year because the MLR requirements come into effect.

So the profitability will depend on the, obviously, the loss ratio and the expense ratio; and we are working hard to get more efficient and effective in our operations.

And so the pace of that improvement versus the change in the loss ratio starts to determine where you end up.

Very well said, Mike.

And I guess that if you think about the medical loss ratio; we've started doing some pricing changes to reflect what we think things are going to be, but as Mike pointed out, we're not quite sure what those are yet.

And we are able to do those a little faster on the new business because on the renewal business, the enforce block that we repriced we sort of wanted to get more clarity around the transition rules.

But all of this goes back to -- look, when the dust settles here, we are going to sit down and spend time maybe have a workshop on what our strategy is and lay it out in more detail when we have a little more clarity on just how the market is going to evolve around these rules .

And we'll probably do that in the spring of

Okay.

Just one quick question on specialty property.

The prime placement rate went up nicely in the quarter, 1.38% I think.

I guess just given foreclosure moratoriums, etc.

How do you expect that placement rate to trend going forward?

Yes.

I think that -- when I think about the prime placement rate, remember the prime the subprime determinants are determined by the originator when the loan goes out.

So I look at it and say in the prime market a lot of it's been driven by the economy, okay?

And is effected by things like unemployment, etc.

On the other hand, we have issues now coming into play around the value of the home.

And as home prices come down, you can ask questions of, gee, if the loan's greater than the houses value, how do you think about what happens there in the eyes of the homeowner?

So it's lagged the subprime side.

It's gone up quite a bit from where we've been in particular.

We do think that policies are staying on the books a little longer because of all the moratoriums.

Okay that's helpful.

Thank you.

And our last question today will come from Jack Sherck with SunTrust.

Good morning Jack

Thank you very much.

Good morning.

Question for you back on the foreclosure moratoriums, I guess kind of where are your clients there now?

Because I saw that Wells Fargo was still moving forward with them.

But kind of where's the rest of your client base, what are they thinking right now on that?

This is a very dynamic market in the whole area of foreclosures.

You've got things going on at both the federal level and state by state level.

What we are trying to do is help our mortgage servicers with whatever we can to help them serve their clients.

If that involves trying to do things around providing loan modifications, we are doing that.

But remember the mortgage serves as our client, and we are trying to be as helpful as we can in whatever way to help them service their clients.

Okay.

And then on the placement rates with the prime moving up nicely, I kind of expected the average insured value to start moving up also but it looks like it may have topped out.

I know it's always been the replacement cost of the home, but are home prices actually starting to have a bearing on that; or kind of what's going on there?

There's many different factors.

One of them is around geography, okay?

So depending on where the issues are taking place.

If it's in a higher priced area versus lower price that can contribute.

You can see that if you look, for instance, at REO.

The average insured value on REO is down, and I believe it's up on the creditor placed side.

A lot of that is really a function of geography because remember, we typically are providing coverage for the last insured value, which is a function of the voluntary carrier.

Okay.

And just my final question.

Just on share repurchase activity, I know it slowed down in 3Q because of suspected or possible CAD activity .

And I guess we didn't have any so far -- you're still $400 million on that authorization is that going to pick up again in 4Q?

What are your

Chris, you want to comment?

Sure.

This is Chris.

We are going to do what we always do, which is reassess the situation as we end the blackout associated with earnings.

Again, the priorities remain the same though - - investing in the business either organically through acquisition.

And then to the extent that there are not opportunities, return capital to shareholders.

Just one thing to point out on the repurchase, if you look back at the first three quarters of activity, we are very pleased with the results we were able to -- because we had the financial flexibility go in and retire roughly 9% of the outstanding shares at an average cost that was significantly below book as well as below current market.

But again, we will look at it, look to execute on the priorities as we always have with a focus on financial flexibility.

Great.

Thank you very much

And actually we are going to take another question from Steve Labbe with Langen McAlenney.

Good morning, Steve

Good morning.

Two quick ones.

One, you alluded to the goodwill impairment test that you will be doing at year-end.

I was curious if you could update us on the balances that will be most scrutinized or the most at risk of being written down?

We look at -- sorry.

That's okay.

We can go with that one first and then go back

Yes.

We look at all of our segments real carefully, Steve, the current balance is, I think, is like 360 and the solutions segment, slightly more than 200 in health, which of course we look at carefully because of the impact of Healthcare Reform.

Specialty property has got 240 or so and then there's about 100 at employee benefits.

But I would guess that the specialty property balance and the employee benefits balance would be theoretically at least, less at risk than the former two.

Remember on all this, Steve, this is an accounting exercise with just a lot of assumptions related to it.

So, again, we run through things and we had -- we took a goodwill write-off in AEB last year, and it just of kind of works through this mechanical process.

Okay .

Second question you alluded to the higher pension and retirement costs.

Do all of those and the numbers that you quoted, are those running through the

No.

They actually go out to all the businesses .

I think roughly 25% go through corporate and then the other 75% are distributed throughout the

Okay.

Great thanks a lot.

Yes

And we do have a follow-up from John Nadel with Sterne Agee

I figured if we still had a few minutes, may as well.

So I think we're all -- I think we're all really well aware of your priorities for capital management.

I just want to come back to the pace, and maybe go about it this way.

Are there properties or opportunities in the acquisition pipeline right now that we should be thinking about as potentially delaying the deployment of capital?

As you guys work through those opportunities?

We are always looking at things John, but I think we have kind taken -- if you look at acquisition opportunities, I think one of the things we've mentioned is anything we look at, and it can be acquisition, it can be someone wants to sign up a new client .

Any of those kind of things.

We've got to evaluate those opportunities against the share price.

And evaluate an acquisition against cost of capital.

Can we write new business at attractive rates, etc.

Saying all of that, we think the share price is still attractive and that's part of work we will go through in

Okay.

And then last one for me is just you mentioned maybe once or twice on this call wireless opportunities.

And I guess I'm just wondering if you could give us an update on your expectations around landing a reasonably sized sort of new client in the wireless space.

I believe if memory serves correctly, it was sort of an expectation of trying to get something accomplished by the end of this year.

And just wondering where you are and where your optimism sits around that opportunity?

Absolutely.

So when we did the Signal acquisition, we said it would be important that we land a major client.

And we identify in the US; okay?

Over a three year period of time what's happened thus far is we've landed clients internationally, which are equally as good to us.

We understand -- we understood the US market better, but we've learned a lot about the international market as well.

So we like the space .

We like the profile of -- there's only 15 or 20 of these guys worldwide that matter.

And we think were good at dealing with large clients.

We also have pointed out that the cycle to land one of these clients is a long cycle.

And many of them were locked up under long-term relationships, which fits our model well too.

So I'm pleased with the progress we are making.

We will report out on -- hopefully when we land clients on a regular

I might also add, John, just -- we don't have one of the largest four in the US; but even domestically we've got great relationships with several clients that we've had some for quite some time.

We've been able to expand and make enhancements to the programs we offer to them and that gives us a nice basis for going in and selling our value proposition internationally too.

I think it gives us a lot of credibility.

And just if I might follow-up real quick.

Without naming any names of course, these sort of long cycle -- long contracts that come up sort of every so often for an opportunity for you guys to make your pitch.

If you're talking about 15 or 20 worldwide that truly matter, and I'm sure that doesn't include some that you would still like to get but just aren't quite as material.

Are any of those in the process where their contract is coming up within, let's say the next 6 or 12 months?

Yes.

We are talking to many of them, John.

I think I'd say -- I don't know, Mike says all of them.

I don't know if I'd go quite to all of them, but I'd say the majority of them.

Well, I guess my question is this.

Is there an opportunity -- I would expect you're talking and working with all of them to assess the possibility.

But if a contract is not coming up with whoever they're with today --?

There are some contracts coming up, John.

That's my question.

All right.

Thank you.

We feel really good about the value we can provide there.

We've worked to tailor the value proposition on a by client basis.

And again, this really plays to our sweet spot of working with large employer -- large relationships whether it's retail, OEM or service providers.

I certainly wouldn't disagree.

Thanks

And we do have another follow-up from Ed Spehar with Bank of America Merrill Lynch.

You paid for the hour, you're going to use the hour.

We love that.

Otherwise I got to go back to other work.

All right.

I guess the question on the health business.

I think that -- I'm not sure you have any other choice right now other than to make a go at it, and I think that's maybe what you're doing.

But I guess the question is how much would you tolerate in terms of losses if you -- in that business?

As you kind of work through and try to figure out what the right strategy is, or how to approach a post or foreign market?

Should we be thinking about some lower limit of how poorly this one segment could do in the near term?

Well, again, a couple different things.

First is I think we've pointed out that we have a strategy that we think does not require us providing a lot of additional capital to execute; okay?

So I think that is one thing we've pointed out.

So we think whatever needs to be done there can be self-financed.

We also think that this is a specialty business, and that we can earn attractive returns.

I continue to say in the long-term, we think we can get to that 4% after-tax margin on a business with a low capital and be a good return.

Now, we have to -- that's when transition is fully implemented 2014, and we've got work to do between today and then, Ed, and that is what we are working on.

I mean, think about the free cash flow of the business and you talk about this year being the operating earnings as a reasonable proxy.

Going forward, should we -- I guess it's not going to matter that much in terms of health whether that's in there or not; but do you suspect that whatever -- when we talk about funding this business, it's whatever earnings this segment is generating that is what's required to sort of fund your efforts there?

I think so.

And again, we will have a little more clarity around these open items, and I think be able to lay it out a little bit more, Ed, when we see how things work through HHS.

But there is no material capital required from the other businesses to put in the health business.

Okay.

Thanks a lot.

Yes So I want to thank everyone for joining us today, and we look forward to updating you on our progress on our next call.

We'll see you in -- gee, I guess that will be February, huh?

Thanks.

Thank you, sir.

This does conclude Assurant's third quarter 2010 call.

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

You may now disconnect.