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Executives

Melissa Kivett – Senior Vice President, Investor Relations

Rob Pollock – President and CEO

Mike Peninger – Chief Financial Officer

Chris Pagano – Chief Investment Officer and Treasurer

Analysts

Jeff Schuman – KBW

John Nadel – Sterne, Agee

Ed Spehar – Bank of America/Merrill Lynch

Mark Finkelstein – Macquarie

Jack Sherck – SunTrust

Steve Labbe – Langen McAlenney

Assurant Inc. (AIZ) Q3 2010 Earnings Call October 28, 2010 8:00 AM ET

Operator

Please standby, we are about to begin. Good day, everyone, and welcome to the Assurant Third Quarter 2010 Financial Results Conference Call. Today’s call is being recorded. All lines will be in a listen-only mode until the end of the call at which point there will be a Q&A session and instructions on how to queue up for a question will be given at that time.

I would now like to turn the call over to Ms. Melissa Kivett, Senior Vice President, Investor Relations. Please go ahead, Ms. Kivett.

Melissa 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 the discussions of risks and uncertainties associated with our business and results of operations contained in our 2009 Form 10-K and subsequently filed 10-Q and 8-K, which can be accessed from our website. The company undertakes no obligation to update or revise any forward-looking statement.

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.

Rob Pollock

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 premium business continued 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 faith 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 products 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 run-off 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 efforts 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. Improve financial results over the prior year were driven primarily by pricing actions and plan design changes implemented in the second half of 2009. However, health care 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 customer’s is positive, an encouraging signs 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 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 grow through disability RMS, our alternative distribution channel along with work site 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?

Mike Peninger

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 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 contracts 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 lost 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 104.1%, overall sales increases improve results in the U.K. due to our pricing and underwriting actions and expense reductions in our European business drove the improvement.

Preneed Life Insurance continue to be a strong performer for Solutions. Preneed net operating income increased 12.5% versus the third quarter of 2009. Third quarter Canadian Preneed sales were higher than expected as we work 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 faith sales during the third quarter on top of $55 million last quarter. That backlog has now been process so Canadian Preneed sales should revert to more normal levels in the fourth quarter. We have a strong business model in Preneed 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 cause by the run-off block of business. We look for further growth and profit improvement 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 clients ceded 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 ceded creditor-placed homeowners premiums and lower real estate-owned premiums. The increased in ceded premium was 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 overtime 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 rate due to limitations under the health care 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 prove -- 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 the 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 then our prior levels due to lingering consumer uncertainty related to health care 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 towards achieving a sustainable specialty business model.

Turning now to Assurant Employee Benefits, net operating income increased significantly during the -- 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 from 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%. 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 policy holder benefits by roughly $8 billion pre-tax 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 dividend up stream will equal operating income plus the excess capital freed-up by our restructuring and solutions. Year-to-date, we have taken dividends in 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 bonds index. At the end of the third quarter, net pre-tax 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 declined 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 in 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 pre-tax retirement expenses will be about $10 million higher than in 2009. Approximately $4 million of that increase will be expense 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 pre-tax in 2011.

We also want to remind you that in line with our accounting policy, we’ll 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 and Health will also factor in the impact of health care reform. We’ll report the results of our goodwill 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.

Rob Pollock

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 in developing new services and product offerings.

Assurant Solutions is continuing to improve international and Preneed results. We are expanding our service contract and wireless sales pipeline to offset the run-off 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 adopting 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 benefit continues to develop new work sites and voluntary products to meet the changing needs 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 focused to position Assurant for sustainable profitable growth.

And with that, I’d like to open the call for questions. Operator, first question please?

Question-and-Answer Session

Operator

Yeah, sir. (Operator Instructions) And our first question will come from Jeff Schuman with KBW.

Rob Pollock

Good morning Jeff

Jeff Schuman – KBW

Good morning. How are you?

Rob Pollock

Good.

Jeff Schuman – KBW

A couple of questions. 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?

Mike Peninger

I think there is likely to be some compensation that would be not allowed. You know, we may have some opportunities to impact just how much that is over time, Jeff but will probably increase overall slightly the long-term rate in health.

Jeff Schuman – KBW

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 overtime or how do you, kind of, think about that generally?

Mike Peninger

Yeah. We try to look at, I’d say, somewhat long-term. We’ve used portfolio rate in the past then just given the decline, you know, we think we’re 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 environment as soon we set that.

Jeff Schuman – KBW

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

Mike Peninger

We are investing now. I’d say what Chris 5%?

Chris Pagano

Yeah. 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 four to 4.25 level, the rate though for disability block because it is a longer duration as 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 yields but deploying it prudently in the new money rate environment.

Jeff Schuman – KBW

Okay. Great. Thank you very much.

Operator

And our next question comes from John Nadel with Sterne, Agee.

Rob Pollock

Good morning, John.

John Nadel – 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?

Rob Pollock

I don’t know that I have that with me right now, John, but I think a couple of things to think about here again our 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’re going to start placing new policies. So what will grade in overtime 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 you know 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.

John Nadel – Sterne, Agee

Okay. That would be helpful. I mean, it was just -- it was sort of staggeringly high this quarter and…

Mike Peninger

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, you know, 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’s flat cancel, John, is exactly why it’s hard to interpret the gross written because you get these kind of bounces around in that.

John Nadel – Sterne, Agee

Okay. All right. Good. I’ll follow up with you guys. To more real quick ones, just how can you help us a little bit on how we should think about the pace of your capital management activities from here? You know the 460 million of capital cushion, you know, I assume there is more dividends that come up during 4Q or maybe right after fourth quarter. Hurricane season sort of behind us, can you just help us think about that?

Rob Pollock

Are you sure, it will help, John.

John Nadel – Sterne, Agee

Yeah. Sure, it helps.

Rob Pollock

Yeah, 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.

John Nadel – Sterne, Agee

Yeah.

Rob Pollock

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 give it back to shareholders if we don’t find those opportunities over a near-term period of time.

John Nadel – Sterne, Agee

Okay. And then finally on solutions, the U.S. 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 U.S. or I don’t know some other means, whatever, sort of, make sense to you?

Rob Pollock

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’ll 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 very ability, I think what Mike mentioned just remember to that Circuit City runs off and becomes a smaller portion of our earnings premium in every quarter, you know, that businesses run little more favorably

John Nadel – Sterne, Agee

Yeah.

Rob Pollock

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

John Nadel – Sterne, Agee

Okay. I guess that’s really the point of my question is there anything here that needs to be corrected or is this just sort of a tough quarter for that business?

Rob Pollock

Again let’s look at our international combined ratio, okay so…

John Nadel – Sterne, Agee

Yeah, I get it

Mike Peninger

John, in the second quarter, we thought we are on a 1% to 2% path is 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, if we, you know, that line if we’ve got the right things in place. I think that’s all you’re seeing here.

John Nadel – Sterne, Agee

All right. That’s helpful. Thank you.

Operator

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

Rob Pollock

Good morning, Ed.

Ed Spehar – Bank of America/Merrill Lynch

Thank you. Good morning everyone. Good morning. I had a few, I guess, a couple of specific and then may be a couple of bigger picture. The more specific question would be, Mike, when you talked about this discount rate, did you say the new claims discount rate is 5.25 today?

Mike Peninger

For discounting, we had a portfolio rate so all of our current reserves are at 5.25 yeah.

Ed Spehar – Bank of America/Merrill Lynch

Okay. And so, I mean, historically you want to have some, sort of, margin between that discount rate, between your new money yield and discount rate right is that a less than 50 basis points or somewhere in that range?

Mike Peninger

It’s a little bit higher than that I think that somewhere in that range.

Ed Spehar – Bank of America/Merrill Lynch

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?

Rob Pollock

Yeah.

Mike Peninger

Correct. Yeah

Ed Spehar – Bank of America/Merrill Lynch

Okay. And so if I’m looking at, I mean, I stepped to update the model here by 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…

Mike Peninger

I think the first thing, Ed, is that 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, operating…

Ed Spehar – Bank of America/Merrill Lynch

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

Chris Pagano

Ed, its Chris. Maybe I can help -- may be that I can help answer John’s question from earlier but you are absolutely on a right track. You know, if you look at segment NOI which when I look at that I think if you’re looking at the supplement, the first quarter lines of page five, that was $505 million through the first three quarters. We took 450, 90 of which was part of this capital efficiency effort at solutions. So we had 360 of dividend related to operating earnings.

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

Ed Spehar – Bank of America/Merrill Lynch

Okay. And then as a related question, can you give us an update on what you think the debt capacity is?

Chris Pagano

Yeah. We still think it’s in the 3 to 500,000,000 range in terms of an opportunistic financing and again 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 site or 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.

Rob Pollock

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

Chris Pagano

I think this year it’s 526. That’s a function of 2009 earnings and so that goes back to this question of what would be deemed extraordinary and the additional regulatory approval that would be required.

Ed Spehar – Bank of America/Merrill Lynch

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 solution say it’s a 8% ROE and I understand there’s a lot of complicating factors, international versus domestic we have the time per written premiums to be earned but just 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 a couple years out?

Rob Pollock

Well, I can’t 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. We get this scale, we think we can be of those 95% combined ratios in countries and we think the improvement we’re 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 that attract the returns in the business.

And, of course, then we are dealing with a few the legacy businesses, where we can do anything about those things. You know the old Preneed runoff business, some of the domestic credit but all the new stuff is going to just help lift the ROE. And timing, you know, again I think we’ve made progress. This year, we will continue to make progress moving forward.

Ed Spehar – Bank of America/Merrill Lynch

Rob, is this -- I mean, is this a business, I know, you’ve always had this 14 to 16 ROE target, obviously that seems extremely ambitious with the ROE at 8. So is this a business where there’s an opportunity for the returns to go up to 300 basis points in the short-term or is the kind of business unit everything is working, it’s a gradual, you know, very fortifying?

Rob Pollock

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’re pursuing those as well. We obviously have to get more operationally efficient to. We are working on all those things. So I think you can see meaningful improvement. I haven’t quite centered it around basis point improvement in the ROE but I think we can see meaningful improvement.

Ed Spehar – Bank of America/Merrill Lynch

Thank you.

Operator

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

Rob Pollock

Hi, good morning.

Mark Finkelstein – Macquarie

Good morning. I guess I’ll take the bait from Nadel on health. I don’t know where to start. Actually let me start here, what is on the new product, what is the average premium change to the consumer and what is the average commission change to the agent?

Rob Pollock

It’s a lower premium products. 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. Okay. So to me we’ve got a product offerings 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. Consumers really want some lower cost options and so that’s what these plans are designed to give them.

Mark Finkelstein – Macquarie

Okay. And I guess you noted that, I mean, sales were a little bit sluggish, I guess, you’ve been out with this product for five or six weeks.

Rob Pollock

Yeah. 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.

Mike Peninger

I guess, the way I think about it, Mark is, look we’re adapting to a lot of change in one of the things we had to do was pull a bunch of product that weren’t in compliance with the health care reform laws and those had been big sellers. So to me, 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 me probably put this out in front of others who might be looking at that and I think I 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 all sold them for a half a month. Okay and didn’t have, if you will, the productivity in that affordability issue available to us for much of the third quarter.

Mark Finkelstein – Macquarie

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 couple years. So I mean, how do we even think about premium?

Rob Pollock

Boy, the question, 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’s tailored to their healthcare needs, not something that’s prescribed to them, 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’re going to sort through that and learn as we go through the transition period. But again we believe there is a huge opportunity around the affordability issue.

Mark Finkelstein – Macquarie

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?

Rob Pollock

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 clarification required around transition relief agent commission in the issue on Texas. 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 and the short-term. And there’s just a lot to be played out here.

Mike Peninger

I think Rob’s listed a number of details to Mark. And 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 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.

Rob Pollock

Very well said Mike. And I guess if you think about it the medical loss ratio, we started doing some pricing changes to reflect what we think things are going to be. But as Mike pointed out we are not quite sure what those are yet.

Mike Peninger

And we are able to do those a little faster on the new business because on the renewal business the in-force block that we re-priced, 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 next year.

Mark Finkelstein – Macquarie

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 moratorium et cetera. How do you expect that placement rate to trend going forward?

Mike Peninger

Yeah. I think that -- when I think about the prime placement rate, remember the prime-sub prime 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 affected by things like unemployment et cetera.

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 G, if the loans 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.

Mark Finkelstein – Macquarie

Okay. That’s helpful. Thank you.

Operator

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

Mike Peninger

Good morning Jack

Jack Sherck – SunTrust

Thank you very much. Good morning. Question for you on the foreclosure moratoriums. I guess kind of where are your clients there now? This time -- was Wells Fargo still moving forward with them, but kind of where’s the rest of your client base, what are they thinking right now on that?

Rob Pollock

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

Jack Sherck – SunTrust

Okay. And then on the placement rates with the decline moving up nicely, I kind of expected the average insured value to start moving up also but it looks like it may have been topped out. And I know it always been the replacement cost of the home, but our home prices, is actually starting to have a bearing on that or kind of what’s going on there?

Rob Pollock

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. So 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 voluntary carrier.

Jack Sherck – SunTrust

Okay. And my final question just on share repurchase activity I know it slowdown in 3Q, because of respected of possible [card] activity. And since we didn’t have any so far -- still 400 million on that authorization, is that going to pick up again in 4Q? And what are your thoughts there?

Rob Pollock

Chris, you want to comment?

Chris Pagano

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 or through acquisitions. 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 have the financial flexibility to go in and retire, roughly 9% of outstanding shares at an average cost that was significantly below book as well as below current market. But, again, we will look at it and look to execute on the priorities as we always have with a focus on financial flexibility.

Jack Sherck – SunTrust

Great. Thank you very much.

Operator

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

Rob Pollock

Hi, Steve.

Steve Labbe – Langen McAlenney

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 would be most scrutinized or the most at risk of being written down and then…

Rob Pollock

We look at -- Sorry.

Steve Labbe – Langen McAlenney

That’s okay. We’ve can go that on first and then go back.

Rob Pollock

Okay. Yeah, we look at all of our segments real carefully, Steve. The current balances, I think is like 360 in the solutions segment, slightly more than 200 and Health which of course we look at carefully because of the impact of health care reform. Specialty property has got to 240 or so and then there’s about 100 employee benefits.

Steve Labbe – Langen McAlenney

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

Rob Pollock

Remember on all the, 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 is just kind of works through this mechanical process.

Steve Labbe – Langen McAlenney

Okay. Second question, you alluded to the higher pension and retirement costs. To all of those and the numbers that you’ve quoted, are those running through the corporate line?

Rob Pollock

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 business units.

Steve Labbe – Langen McAlenney

Okay. Great. Thanks a lot.

Operator

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

John Nadel – Sterne Agee

I figured if we still had a few minutes may as well. So I think we’re really well aware of your priorities for capital management. I just want to come back to the case 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?

Rob Pollock

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

We’ve got to evaluate those opportunities against the share price. And evaluate in acquisition against cost of capital. And we write new business at attractive rates, et cetera. Saying all that, we think the share price is still attractive and that’s part of the work we will go through in evaluating anything.

John Nadel – Sterne Agee

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 clients 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 just sets around that opportunity?

Rob Pollock

Absolutely. So when we did the signal acquisition, we said it would be important that we land a major client and we identified in the U.S. Okay.

John Nadel – Sterne Agee

Okay.

Rob Pollock

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 U.S. 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 we’re 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 to. So I’m pleased with the progress we are making, we will report out on – hopefully, when we land clients on a regular basis.

Chris Pagano

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 for quite sometime. 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, to I think it brings a lot -- gives us a lot of credibility.

John Nadel – Sterne Agee

And just if I may 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 there contract is coming up within the say the next 6 to 12 months?

Rob Pollard

Yeah. 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.

John Nadel – Sterne Agee

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 are with today…

Rob Pollard

There are some contracts coming up John.

John Nadel – Sterne Agee

That’s my question. All right. Thank you.

Rob Pollard

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.

John Nadel – Sterne Agee

I certainly wouldn’t disagree. Thanks.

Rob Pollard

Okay.

Operator

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

Ed Spehar – Bank of America/Merrill Lynch

You paid for the hour. You going to use the hour.

Rob Pollard

We love that.

Mike Peninger

Otherwise, I got to go back to other work.

Ed Spehar – Bank of America/Merrill Lynch

All right. I guess the question on the Health business. I think that -- I’m not sure if 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?

Rob Pollard

Well, again, a couple different things. First is, I think we pointed out that we have a strategy that we think does not require us providing a lots 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 the low capital requirement, be a good return. Now that’s when transition is fully implemented, 2014 and we’ve got work to do between today and then add and that is what we are working on.

Ed Spehar – Bank of America/Merrill Lynch

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 we talk about funding this business, it’s whatever earnings this segment is generating that is what’s required to sort of fund to your efforts there?

Rob Pollard

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.

Ed Spehar – Bank of America/Merrill Lynch

Okay. Thanks a lot.

Rob Pollard

Yeah. 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 -- I guess that will be in February. Thanks.

Operator

Thank you sir this does conclude Assurant Third Quarter 2010 Call. Please note that a replay will be available as of 11 AM. You may now disconnect.

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