As a part of periodic review of Assurant Inc.’s (AIZ) financial strength ratings, Moody’s downgraded the outlook for the company’s life and health insurance segments to “Negative” from “Stable.”
The deteriorated outlook reflects concerns over the restrictions imposed on Assurant Health and Assurant Employee Benefits by the Patient Protection and Affordable Care Act (PPACA), which President Obama had signed in March 2010.
In 2010, Moody’s lowered the financial strength rating of Assurant’s life and health insurance subsidiaries to A3 from A2 and also downgraded the senior debt rating of Assurant, Inc. to Baa2 from Baa1, citing uncertainty surrounding the viability of several of the company’s core insurance products, resulting from PPACA driven changes in the health insurance marketplace.
The PPACA requires Assurant Health to increase benefits for some products, in order to limit rescission to cases of intentional fraud and, eventually, to insure pre-existing conditions in all lines of insurance, among other things.
If, for those products, Assurant Health’s actual loss ratios fall short of required minimum loss ratios (by state and legal entity), the company will have to rebate the difference to consumers. Although the company is attempting to make its products and operations conform to the new regulations, there is no certainty as to how successful the attempt will be.
In the fourth quarter of 2010, Assurant recorded impairment charges of $102,078 and $204,303 related to the Assurant Employee Benefits and Assurant Health reporting units respectively, representing their entire goodwill asset balances.
Goodwill impairment refers to reducing the value of the units; it reflects the adverse effects of the PPACA, a low interest rate environment, continuing high unemployment, sluggish economic recovery, and increased net book values, primarily associated with the company’s investment portfolios.
Assurant, a Delaware corporation, operates four business segments– Solutions, Specialty Property, Health, and Employee Benefits. The stock carries a Zacks #3 Rank, which translates into a Hold recommendation over the short term (1-3 months). Over the long term (6+ months), we carry a Neutral rating on the company.
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