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K
2015
Annual Report and Form 10-K
Financial Highlights
Total Revenue
2015
2014
$10,325
$10,382
Net Earned Premiums, Fees & Other
9,654
9,666
2013
$9,048
8,347
650
461
2012
$8,508
7,712
713
397
4,355
2011
$8,273
7,530
690
397
4,316
626
454
656
503
4,405
4,625
4,407
Net Investment Income
Net Operating Income1, 2
Shareholders’ Equity3
(U.S. dollars in millions)
1 Please see footnote 1 on page 7 of this report for more information
on this non-GAAP financial measure and a reconciliation of net
operating income to its most comparable GAAP measure.
that Assurant sold to National General Holdings Corp. on
Oct. 1, 2015. Prior year amounts have been revised to conform to
the 2015 presentation.
2 Excluding Assurant Health runoff operations. Assurant Health
runoff operations include results for the total segment,
including major medical operations and portions of the business
3 Excluding accumulated other comprehensive income (AOCI). Please
see footnote 3 on page 8 of this report for a reconciliation of this
non-GAAP measure to its most comparable GAAP measure.
Cash Flow Generation
2011–2015 (in millions)
Dividend & Share Repurchases
2011-2015 (in millions)
$600
$472
$472
$623
$582 $563
$379
$296
$454
$175
2015
2014
2013
2012
2011
2015
2014
2013
2012
2011
Share Repurchases
Dividends
Note: Consists of dividends from operating
subsidiaries to the holding company, net of
infusions, and excluding acquisitions and
divestitures.
V I I | 2 0 1 5 A s s u r a n t A n n u a l R e p o r t
A Message to Our Shareholders
During 2015 we accelerated the
transformation of Assurant and made
significant progress to ensure we achieve
sustainable long-term, profitable growth.
Alan B. Colberg
President and CEO
Assurant
Our vision for the future is clear as we aspire to be a
leading provider of housing and lifestyle risk
management solutions with a proven record of
outperformance.
Our strategy starts with our customers and the
actions we take each day to help them protect what
matters most. Our employees bring
these
commitments to life and make certain Assurant is
the best place to learn and work. We believe this
steadfast focus will produce top-quartile total
shareholder returns, which we delivered in 2015
when measured against the S&P 500.
2015 RESULTS: EXECUTING OUR STRATEGY
Assurant’s net earned premiums, fees and other
income, excluding Assurant Health runoff operations,
totaled $7.4 billion, a four percent decrease from
2014. We generated $1.3 billion of fee income as we
expanded our mobile programs and our mortgage
solutions business.
Net operating income(1) was $454.4 million. Annual
operating return on equity, excluding accumulated
other comprehensive income (AOCI) and Assurant
Health runoff operations(2) was 11.3 percent.
In 2015, we focused our portfolio on market-leading
products and services in the housing and lifestyle
sectors and began to put in place the go-forward
organizational framework that will support profitable
growth. We took decisive action to begin exiting the
health insurance market and announced the sale of
our employee benefits business, which closed on
March 1, 2016. We did not believe these businesses
could generate the specialty returns we require and
shareholders expect going forward. We then began
to realign talent to move to an integrated enterprise
operating model that is more agile and cost efficient.
All of these steps are critical in our multi-year
transformation to build a stronger Assurant for
the future.
In 2015, we also continued to generate strong cash
flows – driven by our Assurant Specialty Property and
Assurant Solutions
segments, which provided
approximately $600 million dollars of dividends to
the holding company, or almost 120 percent of their
combined earnings. This allowed us to invest in our
housing and lifestyle offerings, capitalize the wind
down of Assurant Health and still return $380 million
dollars to shareholders. For full-year 2015, dividends
to shareholders totaled $94.2 million and Assurant
repurchased approximately 4.2 million shares of
common stock for $284.6 million. We ended the year
with $460 million of corporate capital.
2 0 1 5 A s s u r a n t A n n u a l R e p o r t | 1
HOUSING & LIFESTYLE SPECIALTY PROTECTION
We are focused on two key markets – housing and lifestyle specialty protection. We see great opportunities
to provide specialty protection for where people live and the goods they buy. Today, about 40 percent of our
revenues are from the housing market, with the balance of revenues coming from our lifestyle offerings.
in
2015
increased
our Multi-family Housing business
22 percent
for
$280 million dollars of premiums and fees. We
increased our share of wallet with affinity partners
and added several new national property manager
relationships.
accounted
and
Similarly, our Mortgage Solutions business captured
share and generated nearly $290 million of fee
income for the year. Currently, we provide valuation
or property preservation services to seven of the top
10 servicers and many of the top mortgage
originators. We believe there are significant
opportunities to cross-sell additional offerings and
grow with existing and new clients.
We also provide protection products and services in
North and South America for 10 million vehicles. We
offer protection against mechanical breakdown or
failure and to safeguard against unexpected and
costly repairs once manufacturer warranties expire.
In 2015, we passed the $1 billion mark in vehicle
protection gross written premiums and delivered
record profitability.
With two million contracts in force, our Pre-funded
funeral coverage offers peace of mind. Our long-term
partnership with Service Corporation International
aligns us with a market leader and offers a strong
base as demographic trends for future growth
indicate broader interest among baby boomers.
HOUSING
In the housing market, we are taking many actions
to grow our leadership position. We already work
with nine of the top 10 mortgage originators. In
2015, we monitored more than 33 million mortgages
nationwide and processed close to 100 million
transactions. We also made significant progress
transforming our lender-placed platform as that
business normalizes. These efforts will help us
maintain strong customer service levels and our
leadership position while we also generate savings in
2016 and beyond.
We are leveraging our deep industry expertise and
capabilities to increase revenue and profitability in
areas we have targeted for growth. Revenue from
LIFESTYLE
leaders
Three global business lines are focused on lifestyle
specialty protection – Connected Living, Vehicle
Protection and Pre-funded funeral insurance. We
in multiple
align with global market
distribution channels as we work with
large
distributors, mobile carriers as well as online
retailers. In 2015, we integrated our global business
lines and moved away from operating separately in
each country we serve. Now we take a global view to
deploy resources in support of the best opportunities
worldwide.
In 2015, we continued to strengthen our competitive
position in the mobile industry where we now protect
more than 29 million devices worldwide. Our logistics
and repair facilities in the United States processed
more than 8 million mobile devices that help people
stay connected.
2 | 2 0 1 5 A s s u r a n t A n n u a l R e p o r t
A MESSAGE TO OUR SHAREHOLDERS LOOKING AHEAD
As we transform Assurant we will sustain our core set
of capabilities, including: integrated solutions; deep
consumer
insights; management of complex
administrative and delivery networks; compliance
expertise; and, seamless customer experiences.
Building on our progress in 2015, we expect to
complete our portfolio realignment and establish
our new organizational framework in 2016. We are
taking additional steps to position the company for
profitable growth in 2017 and beyond.
BUILDING A STRONGER ASSURANT
The proceeds from the sale of Assurant Employee
Benefits, dividends from Assurant Health and cash
flow from our ongoing businesses will provide
significant financial flexibility. With this capital, we
intend to return a total $1.5 billion to shareholders
by the end of 2017 while also funding meaningful
investments to build our global housing and lifestyle
offerings.
I want to thank our employees for their hard work and commitment to our strategic transformation. In a short
period of time, we have made significant progress. While there is more work to do, we are proud of what we
have accomplished and confident in our future.
We see great opportunities ahead as we build an even stronger Assurant for the future.
Alan B. Colberg
President & CEO
Assurant
Global Reach
Assurant operates in the United States as
well as select worldwide markets, including
but not
limited to: Argentina, Brazil,
Canada, Chile, China, France, Germany,
Ireland, Italy, Mexico, Puerto Rico, Spain
and the United Kingdom.
2 0 1 5 A s s u r a n t A n n u a l R e p o r t | 3
A MESSAGE TO OUR SHAREHOLDERS Our Corporate Social Responsibility Commitment
Our values — Common Sense, Common Decency, Uncommon Thinking and Uncommon Results — guide our
every action as we strive to help people protect what matters most to them.
Embedded in our Assurant culture is a passion to serve our communities. Being a responsible corporate citizen
makes sense — for our customers, business partners, shareholders, employees and communities.
We apply our passion for developing risk management solutions to everything we do. We are proud to be
there to help our customers when they need us the most.
ENVIRONMENT MATTERS
While we help our customers, we also help the
environment.
As we helped consumers protect their increasingly
connected lives in 2015, Assurant processed 8
million mobile devices — repairing or reselling them,
while adhering to rigorous environmental practices.
We recycled 80,000 mobile devices as scrap,
ensuring valuable materials were recycled and
reducing the amount of e-waste dumped in landfills.
We also leverage our scale to ensure vendors
involved employ best practices to protect our
COMMUNITIES MATTER
Our work to find and create solutions is visible in the
communities in which we live and work too.
During the past two years, Assurant has made a
series of impact investments to help address social
and environmental challenges facing communities
in the U.S. These investments provide support for
affordable housing, charter schools, job creation
and community health facilities.
Through the Assurant Foundation, we extend our
commitments by allocating grants to support core
charitable partners that operate local initiatives
aimed at improving the quality of life available in
the hometowns where we operate. Through our
Employee Matching Gifts Program employees double
their dollars to support their chosen charities. In
environment. Many of our protection plans and
services also extend the lives of millions of cars and
appliances that need repair each year.
Assurant’s efforts to reduce our environmental
impact extends to our facilities where we are
reducing energy consumption and operating more
efficiently. Since 2009, we’ve cut our energy usage
by 17 percent. We have earned ENERGY STAR
certifications at nine of our 15 main office buildings
and are working to achieve certification at the
remaining locations by the end of 2016.
2015, the Assurant Foundation provided more than
$3.5 million to our core charitable partners to help
feed the hungry, build affordable housing, support
military families, encourage healthy lifestyles and
provide financial education experiences to students.
Our commitment
to volunteerism empowers
employees to make a positive impact in their
communities. Assurant provides employees with
eight hours of paid time off a year to volunteer for
charitable causes that interest them. Our employees
express their generosity in many ways. By linking
volunteer
grants with employee
charitable
activities, we see how our dollars help others while
we encourage and support the involvement of our
employees in their communities.
Assurant Cares. In everything we do,
we remember that people count on us.
4 | 2 0 1 5 A s s u r a n t A n n u a l R e p o r t
SOCIAL RESPONSIBILITY HOMES MATTER
The Assurant Foundation encourages fresh starts by supporting charitable organizations with a focus on
homes and property. With helping hands, employees across Assurant take hammers to nails, paint to walls and
compassion to communities as they help build strong foundations for homes — literally.
Assurant employees have built 15 Habitat for
Humanity homes in Miami to provide affordable
housing for low-income families in neighborhoods
near Assurant’s office. In Atlanta, employees donned
their tool belts in the spring of 2015 to participate in
their fourteenth home build with an annual, eight-
week Habitat event in Cobb County. Assurant also is
the longest-running “whole house” partner of Habitat
for Humanity of Northwest Metro Atlanta. We also
partner with and support Habitat for Humanity to
help families in communities we serve in California,
Minnesota and Ohio.
FINANCIAL EDUCATION MATTERS
Assurant reinforces the importance of financial literacy by supporting nonprofit partners such as Junior
Achievement. In greater Atlanta, Assurant is a lead sponsor with multi-year commitments to two Junior
Achievement Discovery Centers – one that opened in the Georgia World Congress Center in 2013 and another in
Gwinnett County that debuted in August 2015.
Through hands-on experiences at the Discovery Center, students from metro Atlanta school systems learn
personal budgeting and financial skills. Assurant maintains an insurance “store” at the Center’s Finance Park,
where students can learn about the importance of insurance and how it can help them and their families
safeguard their future. During the past two years,
nearly 100 Assurant employees have volunteered
regularly to help students at the Discovery Center
in Atlanta and in local classrooms.
The JA Atlanta Discovery Center serves 30,000
students per year, involves 6,000 volunteers from
leading companies in greater Atlanta and supports
the educational efforts of 1,200 teachers. The JA
Gwinnett Discovery Center is expected to serve
25,000 more students, engage another 6,000
volunteer partners and support approximately
1,200 teachers each year.
2 0 1 5 A s s u r a n t A n n u a l R e p o r t | 5
SOCIAL RESPONSIBILITY Assurant Management Committee
Alan B. Colberg
President and Chief
Executive Officer, Assurant
Michael D. Anderson
Interim President,
Assurant Solutions
Gene E. Mergelmeyer
President and Chief
Executive Officer, Assurant
Specialty Property and
Chief Administrative
Officer, Assurant
Christopher J. Pagano
Executive Vice President,
Chief Financial Officer and
Treasurer, Assurant
Robyn Price Stonehill
Executive Vice President,
Chief Human Resources
Officer, Assurant
Peter A. Walker
Executive Vice President,
Chief Strategy Officer,
Assurant
Francesca Luthi
Executive Vice President,
Chief Communication and
Marketing Officer, Assurant
Bart R. Schwartz
Executive Vice President,
Chief Legal Officer and
Secretary, Assurant
Assurant Board of Directors (Date following name = Year joined Board)
Elaine D. Rosen (2009)
Elyse Douglas (2011)
Paul J. Reilly (2011)
Chair of the Board, Assurant;
Chair of the Board, The Kresge
Foundation; former President, UNUM Life
Insurance Company of America
Former Executive Vice President and
Chief Financial Officer, Hertz Global
Holdings, Inc. and The Hertz Corporation
Executive Vice President and
Chief Financial Officer,
Arrow Electronics, Inc.
Howard L. Carver (2002)
Lawrence V. Jackson (2009)
Robert W. Stein (2011)
Former Office Managing Partner,
Ernst & Young LLP
Senior Advisor, New Mountain Capital, LLC;
Chairman, SourceMark, LLC; former
President and Chief Executive Officer,
Global Procurement Division, Wal-Mart
Stores, Inc.
Former Global Managing Partner,
Actuarial Services, Ernst & Young LLP
Juan N. Cento (2006)
Charles J. Koch (2005)
President, FedEx Express – Latin America
& Caribbean Division
Former Chairman, President and
Chief Executive Officer, Charter One
Financial, Inc.
Alan B. Colberg (2015)
President and Chief Executive Officer,
Assurant
Jean-Paul L. Montupet (2012)
Former Chair, Emerson Industrial
Automation and Former President,
Emerson Europe
For more information on our executive officers and directors, please see our 2016 Proxy Statement, which accompanies this report and also is available online in
the Investor Relations section of www.assurant.com
6 | 2 0 1 5 A s s u r a n t A n n u a l R e p o r t
6 | 2 0 1 5 A s s u r a n t A n n u a l R e p o r t
Non-GAAP Financial Measures
Assurant uses the following non-GAAP financial measures to analyze the Company’s operating performance
for the periods presented in this report. Because Assurant’s calculation of these measures may differ from
similar measures used by other companies, investors should be careful when comparing Assurant’s non-GAAP
financial measures to those of other companies.
(1) Assurant uses net operating income as an important measure of the Company’s operating performance. As
shown in the following reconciliation table, net operating income equals net income, excluding Assurant
Health runoff operations, net realized gains (losses) on investments and other unusual and/or infrequent
items. The Company believes net operating income provides investors a valuable measure of the
performance of the Company’s ongoing business, because it excludes both the effect of net realized gains
(losses) on investments that tend to be highly variable from period to period, and those events that are
unusual and/or unlikely to recur.
Assurant Solutions
Assurant Specialty Property
Assurant Employee Benefits
Corporate and other
Amortization of deferred gain on disposal of
businesses
Interest expense
Net operating income
Adjustments:
2015
$197.2
307.7
47.3
(70.4)
2014
$218.9
341.8
48.7
(67.7)
2013
$125.2
423.6
34.6
(82.9)
2012
$123.8
305.0
58.1
(62.4)
2011
$136.1
303.7
43.1
(60.0)
8.4
(1.0)
10.6
12.0
13.3
(35.8)
454.4
(37.9)
502.8
Assurant Health runoff operations
(367.9)
(63.7)
Net realized gains on investments
Change in tax valuation allowance
Gain (loss) on divested business
Change in tax liabilities
Payment received related to previous sale
of subsidiary
20.8
-
10.7
16.0
9.9
39.4
-
(19.4)
14.0
-
Change in derivative investment
(2.3)
(2.2)
(50.5)
460.6
5.9
22.4
-
-
-
-
-
(39.2)
397.3
(39.2)
397.0
52.0
41.8
-
-
(7.4)
-
-
40.9
21.1
80.0
-
-
-
-
Net income
(dollars in millions, net of tax)
$141.6
$470.9
$488.9
$483.7
$539.0
2 0 1 5 A s s u r a n t A n n u a l R e p o r t | 7
(2) Assurant uses operating return on equity (ROE), excluding accumulated other comprehensive income
(AOCI) and Assurant Health runoff operations, as an important measure of the Company’s operating
performance. Operating ROE, excluding AOCI and Assurant Health runoff operations, equals net operating
income for the periods presented divided by average stockholders’ equity for the year to date period,
excluding AOCI and Assurant Health runoff operations. The Company believes operating ROE, excluding
AOCI and Assurant Health runoff operations, provides investors a valuable measure of the performance of
the Company’s ongoing business, because it excludes the effect of net realized gains (losses) on investments
that tend to be highly variable from period-to-period, other AOCI items, Assurant Health runoff operations
and those events that are unusual and/or unlikely to recur. The comparable GAAP measure would be GAAP
ROE, defined as net income, for the period presented, divided by average stockholders’ equity for the
period. Consolidated GAAP ROE for the twelve months ended Dec. 31, 2015 was 2.9 percent, as shown in
the following reconciliation table.
Annual operating return on average equity (excluding AOCI and Assurant Health Runoff operations)
Assurant Health runoff operations
Net realized gains on investments
Gain on divested business
Change in tax liabilities
Payment received related to previous sale of subsidiary
Change in derivative investment
Change due to effect of including AOCI
Annual GAAP return on average equity
2015
11.3%
(9.2)%
0.5%
0.3%
0.4%
0.2%
(0.1)%
(0.5)%
2.9%
(3) A reconciliation of stockholders’ equity, excluding AOCI, to GAAP equity is as shown below.
Stockholders’ equity (excluding AOCI)
AOCI
Total equity
(dollars in millions)
2015
$4,405
119
2014
$4,625
556
2013
$4,407
426
2012
$4,355
830
2011
$4,316
558
$4,524
$5,181
$4,833
$5,185
$4,874
8 | 2 0 1 5 A s s u r a n t A n n u a l R e p o r t
Form 10-K
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2015
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission file number 001-31978
ASSURANT, INC.
(Exact name of registrant as specified in its charter)
DELAWARE
(State or Other Jurisdiction of Incorporation or Organization)
28 Liberty Street, 41st Floor, New York, New York
(Address of Principal Executive Offices)
39-1126612
(I.R.S. Employer Identification No.)
10005
(Zip Code)
(212) 859-7000
Registrant’s telephone number, including area code:
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
Title of Each Class
Common Stock, $0.01 Par Value
Name of Each Exchange on Which Registered
New York Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
NONE
Indicate by check mark
YES
NO
•• if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
•• if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
•• Note—Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Exchange
Act from their obligations under those Sections.
•• whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
•• whether the registrant has submitted electronically and posted on its corporate Website, if any, every
Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T
(§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant
was required to submit and post such files).
•• if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter)
is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in
definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or
any amendment to this Form 10-K.
•• whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or smaller reporting company. See the
definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
Accelerated filer
Non-accelerated filer
Smaller reporting company
(Do not check if a smaller reporting company)
••whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
The aggregate market value of the Common Stock held by non-affiliates of the registrant was $4,458 million at June 30,
2015 based on the closing sale price of $67.00 per share for the common stock on such date as traded on the New York
Stock Exchange.
The number of shares of the registrant’s Common Stock outstanding at February 10, 2016 was 64,777,357.
Certain information contained in the definitive proxy statement for the annual meeting of stockholders to be held on
May 12, 2016 (2016 Proxy Statement) is incorporated by reference into Part III hereof.
DOCUMENTS INCORPORATED BY REFERENCE
Table of Contents
PART I
3
Business ���������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������3
ITEM 1
ITEM 1A Risk Factors ������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������� 15
ITEM 1B Unresolved Staff Comments ������������������������������������������������������������������������������������������������������������������������������������������������������������� 29
Properties ������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������ 29
ITEM 2
Legal Proceedings ����������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������� 29
ITEM 3
Mine Safety Disclosures �������������������������������������������������������������������������������������������������������������������������������������������������������������������������� 29
ITEM 4
PART II
30
ITEM 5
ITEM 6
ITEM 7
Market for Registrant’s Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities ������������������������������������������������������������������������������������������������������������������������� 30
Selected Financial Data ��������������������������������������������������������������������������������������������������������������������������������������������������������������������������� 32
Management’s Discussion and Analysis of Financial Condition
and Results of Operations ��������������������������������������������������������������������������������������������������������������������������������������������������������������������� 33
ITEM 7A Quantitative and Qualitative Disclosures About Market Risk ������������������������������������������������������������������� 62
Financial Statements and Supplementary Data �������������������������������������������������������������������������������������������������������� 66
ITEM 8
Changes in and Disagreements with Accountants on Accounting
ITEM 9
and Financial Disclosure ������������������������������������������������������������������������������������������������������������������������������������������������������������������������� 66
ITEM 9A Controls and Procedures ������������������������������������������������������������������������������������������������������������������������������������������������������������������������� 66
ITEM 9B Other Information ������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������� 67
PART III
68
ITEM 10 Directors, Executive Officers and Corporate Governance ��������������������������������������������������������������������������� 68
Executive Compensation ������������������������������������������������������������������������������������������������������������������������������������������������������������������������ 68
ITEM 11
Security Ownership of Certain Beneficial Owners and Management
ITEM 12
and Related Stockholder Matters ������������������������������������������������������������������������������������������������������������������������������������������������ 69
ITEM 13 Certain Relationships and Related Transactions, and Director Independence ������������������� 69
ITEM 14 Principal Accounting Fees and Services ������������������������������������������������������������������������������������������������������������������������������� 69
PART IV
70
ITEM 15
Exhibits and Financial Statement Schedules����������������������������������������������������������������������������������������������������������������� 70
SIGNATURES �������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������������� 74
Amounts are presented in United States of America (“U.S.”) dollars and all amounts are in thousands, except for number
of shares, per share amounts, registered holders, number of employees, beneficial owners, number of securities in an
unrealized loss position and number of loans.
Forward-Looking Statements
Some statements under “Business,” “Management’s Discussion
and Analysis of Financial Condition and Results of Operations” and
elsewhere in this report, particularly those anticipating future
financial performance, business prospects, growth and operating
strategies and similar matters, are forward-looking statements
within the meaning of the U.S. Private Securities Litigation
Reform Act of 1995. You can identify these statements by the
use of words such as “will,” “may,” “anticipates,” “expects,”
“estimates,” “projects,” “intends,” “plans,” “believes,”
“targets,” “forecasts,” “potential,” “approximately,” or the
negative version of those words and other words and terms with
a similar meaning. Any forward-looking statements contained
in this report are based upon our historical performance and
on current plans, estimates and expectations. The inclusion
of this forward looking information should not be regarded
as a representation by us or any other person that the future
plans, estimates or expectations contemplated by us will be
achieved. Our actual results might differ materially from those
projected in the forward-looking statements. Assurant, Inc.
(“the Company”) undertakes no obligation to update or review
any forward-looking statement, whether as a result of new
information, future events or other developments.
In addition to the factors described under “Critical Factors
Affecting Results,” the following risk factors could cause
our actual results to differ materially from those currently
estimated by management:
i.
actions by governmental agencies or government
sponsored entities or other circumstances, including
pending regulatory matters affecting our lender-placed
insurance business, that could result in reductions
of premium rates or increases in expenses, including
claims, fines, penalties or other expenses;
inability to implement, or delays in implementing,
strategic plans for the Assurant Employee Benefits
and Assurant Health segments;
loss of significant client relationships or business,
distribution sources or contracts and reliance on a
few clients;
the effects of the Patient Protection and Affordable Care
Act and the Health Care and Education Reconciliation
Act of 2010 (the “Affordable Care Act”), and the
rules and regulations thereunder, on our health and
employee benefits businesses;
potential variations between the final risk adjustment
amount and reinsurance amounts, as determined by the
U.S. Department of Health and Human Services under
the Affordable Care Act, and the Company’s estimate;
unfavorable outcomes in litigation and/or regulatory
investigations that could negatively affect our results,
business and reputation;
inability to execute strategic plans related to
acquisitions, dispositions or new ventures;
ii.
iii.
iv.
v.
vi.
vii.
2
viii.
ix.
x.
xi.
xii.
xiii.
xiv.
xv.
xvi.
failure to adequately predict or manage benefits,
claims and other costs;
inadequacy of reserves established for future claims;
current or new laws and regulations that could increase
our costs and decrease our revenues;
significant competitive pressures in our businesses;
failure to attract and retain sales representatives,
key managers, agents or brokers;
losses due to natural or man-made catastrophes;
a decline in our credit or financial strength ratings
(including the risk of ratings downgrades in the
insurance industry);
deterioration in the Company’s market capitalization
compared to its book value that could result in an
impairment of goodwill;
risks related to our international operations, including
fluctuations in exchange rates;
xvii. data breaches compromising client information and
privacy;
xviii. general global economic, financial market and political
conditions (including difficult conditions in financial,
capital, credit and currency markets, the global
economic slowdown, fluctuations in interest rates or
a prolonged period of low interest rates, monetary
policies, unemployment and inflationary pressure);
cyber security threats and cyber attacks;
failure to effectively maintain and modernize our
information systems;
uncertain tax positions and unexpected tax liabilities;
risks related to outsourcing activities;
xxi.
xxii.
xxiii. unavailability, inadequacy and unaffordable pricing
xix.
xx.
of reinsurance coverage;
xxiv. diminished value of invested assets in our investment
portfolio (due to, among other things, volatility in
financial markets; the global economic slowdown;
credit, currency and liquidity risk; other than temporary
impairments and increases in interest rates);
insolvency of third parties to whom we have sold or
may sell businesses through reinsurance or modified
co-insurance;
xxv.
xxvi. inability of reinsurers to meet their obligations;
xxvii. credit risk of some of our agents in Assurant Specialty
Property and Assurant Solutions;
xxviii. inability of our subsidiaries to pay sufficient dividends;
xxix. failure to provide for succession of senior management
and key executives; and
xxx. cyclicality of the insurance industry.
For a more detailed discussion of the risk factors that could affect
our actual results, please refer to “Critical Factors Affecting
Results” in Item 7 and “Risk Factors” in Item 1A of this Form 10-K.
ASSURANT, INC. – 2015 Form 10-K
Part I
ItEm 1 Business
Part I
Unless the context otherwise requires, references to the terms “Assurant,” the “Company,” “we,” “us” and “our” refer to
our consolidated operations.
ItEm 1 Business
Assurant, Inc. was incorporated as a Delaware corporation
in 2004.
Assurant safeguards clients and consumers when the unexpected
occurs. A global provider of specialty protection products and
related services, Assurant operates in North America, Latin
America, Europe and other select worldwide markets through
four operating segments. Assurant Solutions, Assurant Specialty
Property, Assurant Health and Assurant Employee Benefits
partner with clients who are leaders in their industries to
provide consumers peace of mind and financial security. Our
diverse range of products and services include mobile device
protection products and services; extended service products
and related services for consumer electronics, appliances
and vehicles; pre-funded funeral insurance; lender-placed
homeowners insurance; property preservation and valuation
services; flood insurance; renters insurance and related products;
debt protection administration; credit insurance; manufactured
housing homeowners insurance; group dental insurance; group
disability insurance; and group life insurance.
As previously announced, the Company will substantially
exit the health insurance market in 2016 and has signed a
definitive agreement to sell its Assurant Employee Benefits
segment to Sun Life Assurance Company of Canada (“Sun
Life”), a subsidiary of Sun Life Financial Inc. this transaction
is expected to close by the end of the first quarter of 2016.
See Note 3 and Note 4, respectively, contained elsewhere in
the report for more information.
Assurant’s vision is to be the premier provider of specialty
protection products and related services in North America,
Latin America, Europe and other select worldwide markets.
to achieve this vision, we focus on the following areas:
Building and managing a portfolio of specialty
insurance businesses and related services
Our operating segments are focused on serving specific
sectors of the housing and lifestyle protection market. We
continue to develop and add specialty market capabilities
where we can meet unserved consumers’ needs, achieve
superior returns, and leverage enterprise resources.
Leveraging a set of core capabilities for
competitive advantage
We apply our core capabilities to create competitive advantages
– managing risk; managing relationships with large distribution
partners; and integrating complex administrative systems.
These core capabilities represent areas of expertise that
are advantages within each of our businesses. We seek to
generate attractive returns by building on specialized market
knowledge, well-established distribution relationships and, in
some businesses, economies of scale.
Identifying and adapting to evolving market
needs
Assurant’s businesses strive to adapt to changing market
conditions by tailoring product and service offerings to specific
client and customer needs. By understanding consumer
dynamics in our core markets, we seek to design innovative
products and services that will enable us to sustain long-term
profitable growth and market leading positions.
Strategic capital deployment
We deploy capital to invest in our businesses, repurchase shares
and pay dividends. Our approach to mergers, acquisitions
and other growth opportunities reflects our prudent and
disciplined approach to managing our capital. Our mergers,
acquisitions and business development process targets new
business and capabilities that complements or supports our
business model.
3
ASSURANT, INC. – 2015 Form 10-K Part I
ItEm 1 Business
Competition
Assurant’s businesses focus on niche products and related
services within broader insurance markets. Although we
face competition in each of our businesses, we believe
that no single competitor competes against us in all of our
business lines. the business lines in which we operate are
generally characterized by a limited number of competitors.
Competition in each business is based on a number of factors,
including quality of service, product features, price, scope of
distribution, financial strength ratings and name recognition.
the relative importance of these factors varies by product
and market. We compete for customers and distributors with
insurance companies and other financial services companies
in our businesses.
Segments
Competitors of Assurant Solutions and Assurant Specialty
Property include insurance companies, financial institutions
and mobile device repair and logistics companies. Historically,
Assurant Health’s main competitors were other health
insurance companies, Health Maintenance Organizations
(“HmOs”) and the Blue Cross/Blue Shield plans in states where
we sold business. Assurant Employee Benefits’ competitors
include other benefit and life insurance companies, dental
managed care entities and not-for-profit dental plans.
For additional information on our segments, see “Item 7. management’s Discussion and Analysis of Financial Condition and
Results of Operations – Results of Operations” and Note 22 to the Notes to the Consolidated Financial Statements included
elsewhere in this report.
Assurant Solutions
For the Years Ended
December 31, 2015 December 31, 2014
$
$
Net earned premiums for selected product groupings:
Extended service contracts and warranties—domestic(1)
Extended service contracts and warranties—international(1)
Preneed life insurance
Credit insurance—domestic
Credit insurance—international
Other
tOtaL
Fees and other income
Segment net income
Combined ratio(2):
Domestic
International
Equity(3)
(1) Extended service contracts include warranty contracts for products such as mobile devices, personal computers, consumer electronics, appliances,
1,644,352
802,477
60,403
132,130
254,211
122,273
3,015,846
1,631,339
850,454
61,093
160,794
318,104
107,084
3,128,868
93.5%
101.5%
1,605,669
95.1%
102.8%
$
667,852
218,948
785,611
197,183
2,035,772
$
$
$
$
$
$
$
automobiles and recreational vehicles.
(2) The combined ratio is equal to total benefits, losses and expenses divided by net earned premiums and fees and other income excluding the
preneed business.
(3) Equity excludes accumulated other comprehensive income.
4
ASSURANT, INC. – 2015 Form 10-K
Products and Services
Assurant Solutions targets profitable growth in three key product
areas: domestic and international extended service contracts
(“ESCs”) and warranties, including mobile device protection;
preneed life insurance; and international credit insurance.
ESC and Warranties
through partnerships with leading retailers, mobile carriers
and original equipment manufacturers (“OEMs”) and direct
to consumer distribution, we underwrite and provide
administrative services for ESCs and warranties. these contracts
provide consumers with coverage on mobile devices, personal
computers, consumer electronics, appliances, automobiles and
recreational vehicles, protecting them from certain covered
losses. We pay the cost of repairing or replacing customers’
property in the event of mechanical breakdown, accidental
damage, and casualty losses such as theft, fire, and water
damage. Our strategy is to provide service to our clients
that addresses all aspects of the ESC or warranty, including
program design and marketing strategy. We also provide
administration, claims handling, logistics, and customer
service. We believe that with both the required administrative
infrastructure and insurance underwriting capabilities, we
maintain a differentiated position in this marketplace.
Preneed Life Insurance
Preneed life insurance allows individuals to prepay for a
funeral in a single payment or in multiple payments over a
fixed number of years. the insurance policy proceeds are
used to address funeral costs at death. These products are
only sold in the U.S. and Canada and are generally structured
as whole life insurance policies in the U.S. and annuity
products in Canada.
Credit Insurance
Our credit insurance products offer protection from life events
and uncertainties that arise in purchasing and borrowing
transactions. Credit insurance programs generally offer
consumers the option to protect a credit card or installment
loan balance or payments in the event of death, involuntary
unemployment or disability, and are generally available to all
consumers without the underwriting restrictions that apply
to term life insurance.
Regulatory changes have reduced the demand for credit
insurance sold through banks in the U.S. Consequently, we
continue to experience a reduction in credit insurance domestic
gross written premiums, a trend we expect to continue.
marketing and Distribution
Assurant Solutions focuses on establishing strong, long-term
relationships with leading distributors of its products and
services. We partner with some of the largest consumer
electronics and appliance retailers and OEms to market our
ESC and warranty products. In our mobile business, we partner
with leading mobile service providers, retailers and banks and
Part I
ItEm 1 Business
market our mobile protection insurance and related services
through them. In our preneed life insurance business, we have
an exclusive relationship with Services Corporation International
(“SCI”), the largest funeral provider in North America.
Several of our distribution agreements are exclusive. typically
these agreements have terms of one to 10 years and allow
us to integrate our administrative systems with those of
our clients.
In addition to the domestic market, we do business in Canada,
the United Kingdom (“U.K.”), Ireland, Argentina, Brazil,
Puerto Rico, Chile, Germany, Spain, Italy, France, mexico,
China, Colombia, Peru and South Korea. In these markets, we
primarily sell consumer service contracts, including mobile
device protection, and credit insurance products through
agreements with financial institutions, retailers and mobile
service providers. Systems, training, computer hardware and
our overall market development approach are customized to
fit the particular needs of each targeted international market.
In 2014, we acquired CWI Group (“CWI”), a market-leading
mobile administrator in France. This acquisition has
strengthened Assurant Solutions’ market-leading capabilities
in mobile device protection and expanded its distribution
into independent retailers and the financial services affinity
market in Europe.
In 2013, we acquired Lifestyle Services Group (“LSG”), a mobile
phone insurance provider based in the U.K. this acquisition
has allowed us to develop and expand our European mobile
business platform. In addition, we made an investment in
Ike Asistencia (“Iké”), a services assistance business with
significant business in mexico and other countries in Latin
America. Iké primarily provides roadside assistance, home
assistance, travel, mobile and other protection products.
this investment has allowed us to expand our customer base
and strengthen our presence in Latin America.
As of December 31, 2015 no single Assurant Solutions client
accounted for 10% or more of our consolidated revenue.
However, Assurant Solutions is dependent on a few clients,
the loss of any one or more such clients could have a material
adverse effect on the Company’s results of operations and
cash flows.
Underwriting and Risk management
We write a significant portion of our contracts on a
retrospective commission basis. this allows us to adjust
commissions on the basis of claims experience. Under these
commission arrangements, the compensation of our clients is
based upon the actual losses incurred compared to premiums
earned after a specified net allowance to us. We believe that
these arrangements better align our clients’ interests with
ours and help us to better manage risk exposure.
Profits from our preneed life insurance programs are generally
earned from interest rate spreads—the difference between
the death benefit growth rates on underlying policies and the
investment returns generated on the assets we hold related
to those policies. to manage these spreads, we regularly
adjust pricing to reflect changes in new money yields.
5
ASSURANT, INC. – 2015 Form 10-K Part I
ItEm 1 Business
Assurant Specialty Property
For the Years Ended
December 31, 2015 December 31, 2014
$
$
1,425,799
165,657
453,245
Net earned premiums by major product grouping:
Homeowners (lender-placed and voluntary)
manufactured housing (lender-placed and voluntary)
Other(1)
tOtaL
Fees and other income
Segment net income
Loss ratio(2)
Expense ratio(3)
Combined ratio(4)
Equity(5)
(1) Other primarily includes multi-family housing, lender-placed flood, and miscellaneous insurance products.
(2) The loss ratio is equal to policyholder benefits divided by net earned premiums.
(3) The expense ratio is equal to selling, underwriting and general expenses divided by net earned premiums and fees and other income.
(4) The combined ratio is equal to total benefits, losses and expenses divided by net earned premiums and fees and other income.
(5) Equity excludes accumulated other comprehensive income.
38.6%
52.7%
84.9%
405,545
307,705
1,351,122
2,044,701
$
$
$
$
$
$
$
$
1,743,965
237,576
524,556
2,506,097
301,048
341,757
43.3%
46.5%
85.2%
1,264,216
Products and Services
Assurant Specialty Property targets profitable growth in lender-
placed homeowners insurance, and adjacent niches such as
multi-family housing insurance; lender-placed and voluntary
flood insurance; home appraisal, inspection and preservation;
receivables management for property management companies;
and other property risk management services.
Lender-placed and voluntary homeowners
insurance
the largest product line within Assurant Specialty Property
is homeowners insurance, consisting principally of fire and
dwelling hazard insurance offered through our lender-placed
program. the lender-placed program provides collateral
protection to lenders, mortgage servicers and investors in
mortgaged properties in the event that a homeowner does
not maintain insurance on a mortgaged dwelling. Lender-
placed insurance coverage is not limited to the outstanding
loan balance; it provides structural coverage, similar to that
of a standard homeowners policy. the amount of coverage is
often based on the last known insurance coverage under the
prior policy for the property and provides replacement cost
coverage on the property and thus ensures that a home can
be repaired or rebuilt in the event of damage. It protects both
the lender’s interest and the borrower’s interest and equity.
We also provide insurance on foreclosed properties managed
by our clients. this type of insurance is Real Estate Owned
(“REO”) insurance. the lender-placed homeowners and REO
markets experienced significant growth in prior years as a
result of the housing crisis, but they are now declining.
In the majority of cases, we use a proprietary insurance-tracking
administration system linked with the administrative systems of
our clients to monitor clients’ mortgage portfolios to verify the
existence of insurance on each mortgaged property and identify
those that are uninsured. If there is a potential lapse in insurance
coverage, we begin a process of notification and outreach to both
the homeowner and the last-known insurance carrier or agent
through phone calls and written correspondence. this process
takes up to 90 days to complete. If coverage cannot be verified
at the end of this process, the mortgage servicer procures a
lender-placed policy for which the homeowner is responsible
for paying the related premiums. The percentage of insurance
policies placed to loans tracked represents our placement rates.
the homeowner is still encouraged, and always maintains the
option, to obtain or renew the insurance of his or her choice.
To meet the changing needs of the lending and housing
industries, Assurant Specialty Property has worked with
regulators to introduce a next generation lender-placed
homeowners product to address some of the unanticipated
issues that developed during the housing crisis. this product
combines flexibility and best practices to address the concerns
of various parties. the product contains expanded geographic
ratings within each state to further differentiate rates for
properties more exposed to catastrophes from those where the
risk is lower, added premium rating flexibility from deductible
options that can be modified based on factors such as coverage
amount and delinquency status, and continued enhancements
to our already extensive customer notification process to
make it more clear to borrowers when they have lender-
placed insurance.
Lender-placed and voluntary manufactured
housing insurance
manufactured housing insurance is offered on a lender-placed
and voluntary basis. Lender-placed insurance is issued after an
insurance tracking process similar to that described above. the
tracking is performed by Assurant Specialty Property using a
proprietary insurance tracking administration system, or by the
lenders themselves. A number of manufactured housing retailers
in the U.S. use our proprietary premium rating technology to
assist them in selling property coverage at the point of sale.
6
ASSURANT, INC. – 2015 Form 10-K
Part I
ItEm 1 Business
Other insurance and mortgage services
We have developed products and services in adjacent and
emerging markets, such as lender-placed and voluntary flood
insurance, multi-family housing insurance and mortgage
property risk management services. In 2013, we acquired
Field Asset Services (“FAS”), a company that leverages its
nationwide network of independent contractors to perform
property preservation, restoration and inspection services for
mortgage servicing clients and investors. In 2014, we acquired
StreetLinks, a leader in valuation solutions and technologies,
which is among the largest independent appraisal management
companies in the United States. Also, in 2014, we acquired
emortgage Logic, a leading provider of property broker price
opinions assisting mortgage servicing clients with determining
property values. the acquisitions of FAS, Streetlinks and
emortgage Logic comprise our mortgage Solutions business.
We are also one of the largest administrators for the U.S.
Government under the voluntary National Flood Insurance
Program, for which we earn a fee for collecting premiums
and processing claims. This business is 100% reinsured to
the U.S. Government.
marketing and Distribution
Assurant Specialty Property establishes long-term relationships
with leading mortgage lenders and servicers. the majority of
our lender-placed agreements are exclusive. typically, these
agreements have terms of three to five years and allow us
to integrate our systems with those of our clients.
We offer our manufactured housing insurance programs
primarily through manufactured housing lenders and retailers,
along with independent specialty agents. the independent
specialty agents distribute flood products and miscellaneous
specialty property products. multi-family housing products
are distributed primarily through property management
companies and affinity marketing partners.
Our property risk management services are provided directly
to mortgage lenders and servicers, typically under non-
exclusive arrangements.
On January 1, 2015, we sold our general agency business
and primary associated insurance carrier, American Reliable
Insurance Company (“ARIC”) to Global Indemnity Group, Inc.,
a subsidiary of Global Indemnity plc. the business offers
specialty personal lines and agricultural insurance through
general and independent agents.
As of December 31, 2015 no single Assurant Specialty Property
client accounted for 10% or more of our consolidated revenue.
However, Assurant Specialty Property is dependent on a
few clients, the loss of any one or more such clients could
have a material adverse effect on the Company’s results of
operations and cash flows.
Underwriting and Risk management
Our lender-placed homeowners insurance program and certain
of our manufactured housing products are not underwritten
on an individual policy basis. Contracts with our clients
require us to issue these policies automatically when a
borrower’s insurance coverage is not maintained. these
products are priced to factor in the additional underwriting
risk from ensuring all client properties are provided continuous
insurance coverage. We monitor pricing adequacy based on
a variety of factors and adjust pricing as required, subject
to regulatory constraints.
Because several of our product lines (such as homeowners,
manufactured housing, and other property policies) are
exposed to catastrophe risks, we purchase reinsurance
coverage to protect the capital of Assurant Specialty Property
and to mitigate earnings volatility. Our reinsurance program
generally incorporates a provision to allow the reinstatement
of coverage, which provides protection against the risk of
multiple catastrophes in a single year.
Assurant Health
For the Years Ended
December 31, 2015 December 31, 2014
$
Net earned premiums:
Individual
Small employer group
tOtaL
Fees and other income
Segment net loss
Loss ratio(1)
Expense ratio(2)
Combined ratio(3)
Equity(4)
(1) The loss ratio is equal to policyholder benefits divided by net earned premiums.
(2) The expense ratio is equal to selling, underwriting and general expenses divided by net earned premiums and fees and other income.
(3) The combined ratio is equal to total benefits, losses and expenses divided by net earned premiums and fees and other income.
(4) Equity excludes accumulated other comprehensive income.
103.5%
23.2%
124.2%
1,895,970
327,726
54,622
(367,907)
2,223,696
574,230
$
$
$
$
$
$
$
$
$
1,544,968
400,484
1,945,452
40,016
(63,748)
81.0%
25.0%
104.3%
443,385
7
ASSURANT, INC. – 2015 Form 10-K
Part I
ItEm 1 Business
Products and Services
After a comprehensive review of strategic alternatives, the
Company decided to exit the health insurance market as
it focuses on its housing and lifestyle protection offerings.
Assurant began to wind down its major medical operations in
June 2015, and the Company expects to substantially complete
its exit of the health insurance market by the end of 2016.
Until we put Assurant Health in run-off in 2015, it competed in
the individual and small-group medical insurance markets by
offering major medical insurance, short-term medical insurance,
and supplemental coverage options to individuals and families.
Our products were offered with different plan options to meet
a broad range of customer needs, levels of affordability and to
meet the requirements of the Patient Protection and Affordable
Care Act and the Health Care and Education Reconciliation Act
of 2010, and the rules and regulations thereunder (together, the
“Affordable Care Act”). Assurant Health also offered medical
insurance to small employer groups.
Individual medical
Assurant Health provided medical insurance products to
individuals, primarily between the ages of 18 and 64, and
their families, who did not have employer-sponsored coverage.
We offered a wide variety of benefit plans at different price
points, which allow customers to tailor their coverage to
fit their unique needs. these plans include those with the
essential health benefits required under the Affordable Care
Act, as well as supplemental products.
Small Employer Group medical
Assurant Health provided group medical insurance to small
companies with two to fifty employees, although larger
employer coverage is available. We offered fully insured
products with the essential health benefits required by the
Assurant Employee Benefits
Affordable Care Act, as well as self-funded employer options
and individual products sold through the workplace.
On October 1, 2015, we sold our supplemental and small-
group self funded lines of business and certain assets to
National General Holdings Corp. (“National General”) for
cash consideration of $14,000.
In march 2012, we entered into a new provider network
arrangement with Aetna Signature Administrators® (“Aetna”).
this multi-year agreement provides our major medical
customers with access to more than one million health care
providers and 7,500 hospitals nationwide.
marketing and Distribution
Until we put Assurant Health in run-off in 2015, our health
insurance products were principally marketed through a
network of independent agents. We also marketed through
a variety of exclusive and non-exclusive national account
relationships and direct distribution channels.
Underwriting and Risk management
Following the passage of the Affordable Care Act, many of the
traditional risk management techniques used to manage the
risks of providing health insurance have become less relevant.
Assurant Health took steps to adjust its products, pricing and
business practices to comply with the new requirements.
Following the announcement of the Company’s decision
to exit the health insurance market, sales of new health
insurance policies have ended.
Please see “management’s Discussion and Analysis — Assurant
Health” and “Risk Factors — Risks Related to our Industry
— Reform of the health insurance industry could materially
reduce the profitability of certain of our businesses or render
them unprofitable” for further details.
For the Years Ended
December 31, 2015 December 31, 2014
$
$
398,172
396,925
204,526
67,131
Net Earned Premiums:
Group disability
Group dental
Group life
Group supplemental and vision products
tOtaL
Voluntary
Employer-paid and other
tOtaL
Fees and other income
Segment net income
Loss ratio(1)
Expense ratio(2)
Equity(3)
(1) The loss ratio is equal to policyholder benefits divided by net earned premiums.
(2) The expense ratio is equal to selling, underwriting and general expenses divided by net earned premiums and fees and other income.
(3) Equity excludes accumulated other comprehensive income.
478,588
588,166
68.4%
36.5%
25,006
47,322
1,066,754
1,066,754
532,332
$
$
$
$
$
$
$
$
$
$
$
$
409,028
392,502
200,285
49,910
1,051,725
441,479
610,246
1,051,725
24,204
48,681
68.2%
37.1%
540,964
8
ASSURANT, INC. – 2015 Form 10-K
Part I
ItEm 1 Business
On September 9, 2015, the Company agreed to sell its
Assurant Employee Benefits Segment business to Sun Life.
the transaction is expected to close by the end of the first
quarter of 2016.
consists primarily of renewable term life insurance with the
amount of coverage provided being either a flat amount, a
multiple of the employee’s earnings, or a combination of the
two. We also reinsure life policies written by other carriers
through DRMS.
Products and Services
Assurant Employee Benefits offers group disability, dental,
life, vision and supplemental products as well as individual
dental products. the group products are offered with funding
options ranging from fully employer-paid to fully employee-
paid (voluntary). In addition, we reinsure disability and life
products through our wholly owned subsidiary, Disability
Reinsurance management Services, Inc. (“DRmS”).
We focus on the needs of the small to mid-size employer.
We believe that our group risk selection expertise, ease of
enrollment and administration, our broad product suite,
expansive dental network and strong relationships with brokers
who work primarily with small to mid-size businesses give us
a competitive advantage versus other carriers in this market.
Group Disability
Group disability insurance provides partial replacement of
lost earnings for insured employees who become disabled, as
defined by their plan provisions. Our products include both
short- and long-term disability coverage options. We also
reinsure disability policies written by other carriers through
our DRMS subsidiary.
Group Dental
Dental benefit plans provide funding for necessary or elective
dental care. Customers may select a traditional indemnity
arrangement, a Preferred Provider Organization (“PPO”)
arrangement, or a prepaid or managed care arrangement.
Coverage is subject to deductibles, coinsurance and annual
or lifetime maximums. In a prepaid plan, members must use
participating dentists in order to receive benefits.
Success in the group dental business is heavily dependent
on a strong provider network. Assurant Employee Benefits
owns and operates Dental Health Alliance, L.L.C. (“DHA”),
a leading dental PPO network. the Company has a larger
network with DHA, marketed as Assurant Dental Network,
which combines network agreements with partners such
as Aetna and United Concordia Dental. We believe that
our large combined network, Assurant Dental Network,
increases the attractiveness of our products in the
marketplace and the strength of the Assurant Employee
Benefits dental offering.
Group Life
Group term life insurance provided through the workplace
provides benefits in the event of death. We also provide
accidental death and dismemberment insurance. Insurance
Group Supplemental and Vision Products
Fully-insured vision coverage is offered through our
agreement with Vision Service Plan, Inc., a leading
national supplier of vision insurance. Our plans cover eye
exams, glasses, and contact lenses and are usually sold in
combination with one or more of our other products. In
addition to the traditional voluntary products, we provide
group critical illness, cancer, accident, and gap insurance.
These products are generally paid for by the employee
through payroll deductions, and the employee is enrolled
in the coverage(s) at the worksite.
marketing and Distribution
Our products and services are distributed through a group
sales force located in 32 offices near major metropolitan
areas. Our sales representatives distribute our products and
services through independent brokers and employee-benefits
advisors. Daily account management is provided through local
sales offices, further supported by a centralized home office
customer service department. Broker compensation in some
cases includes an annual performance incentive, based on
volume and retention of business.
DRmS provides turnkey group disability and life insurance
solutions to insurance carriers that want to supplement
their core product offerings. Our services include product
development, state insurance regulatory filings, underwriting,
claims management, and other functions typically performed by
an insurer’s back office. Assurant Employee Benefits reinsures
the risks written by DRmS’ clients, with the clients generally
retaining shares that vary by contract.
Underwriting and Risk management
The pricing of our products is based on the expected cost of
benefits, calculated using assumptions for mortality, morbidity,
interest, expenses and persistency, and other underwriting
factors. Our block of business is diversified by industry and
geographic location, which serves to limit some of the risks
associated with changing economic conditions.
Disability claims management focuses on helping claimants
return to work through a supportive network of services that
may include physical therapy, vocational rehabilitation, and
workplace accommodation. We employ or contract with a staff
of doctors, nurses and vocational rehabilitation specialists,
and use a broad range of additional outside medical and
vocational experts to assist our claim specialists.
9
ASSURANT, INC. – 2015 Form 10-K Part I
ItEm 1 Business
Ratings
Independent rating organizations periodically review the
financial strength of insurers, including our insurance
subsidiaries. Financial strength ratings represent the opinions of
rating agencies regarding the ability of an insurance company
to meet its financial obligations to policyholders and contract
holders. These ratings are not applicable to our common
stock or debt securities. Ratings are an important factor in
establishing the competitive position of insurance companies.
Rating agencies also use an “outlook statement” of “positive,”
“stable,” “negative” or “developing” to indicate a medium- or
long-term trend in credit fundamentals which, if continued, may
lead to a rating change. A rating may have a stable outlook to
indicate that the rating is not expected to change; however, a
stable rating does not preclude a rating agency from changing
a rating at any time, without notice.
most of our active domestic operating insurance subsidiaries
are rated by the A.m. Best Company (“A.m. Best”). In addition,
six of our domestic operating insurance subsidiaries are also
rated by moody’s Investor Services (“moody’s”) and seven
are rated by Standard & Poor’s Inc., a division of mcGraw Hill
Companies, Inc. (“S&P”).
For further information on the risks of ratings downgrades,
see “Item 1A — Risk Factors — Risks Related to our Company —
A.m. Best, moody’s and S&P rate the financial strength of our
insurance company subsidiaries, and a decline in these ratings
could affect our standing in the insurance industry and cause
our sales and earnings to decrease.”
the following table summarizes our financial strength ratings and outlook of our domestic operating insurance subsidiaries
as of December 31, 2015:
a.M. Best(1)
(4)
Moody’s(2)
(5)
Standard & Poor’s(3)
(6)
Outlook
COMPaNY
A
American Bankers Insurance Company
A
American Bankers Life Assurance Company
A
American memorial Life Insurance Company
A
American Security Insurance Company
N/A
Assurant Life of Canada
N/A
Caribbean American Life Assurance Company
N/A
Caribbean American Property Insurance Company
BB+
John Alden Life Insurance Company
N/A
Reliable Lloyds
N/A
Standard Guaranty Insurance Company
BB+
time Insurance Company
N/A
UDC Dental California
N/A
Union Security Dental Care New Jersey
A-
Union Security Insurance Company
N/A
Union Security Life Insurance Company of New York
N/A
United Dental Care of Arizona
N/A
United Dental Care of Colorado
N/A
United Dental Care of Michigan
N/A
United Dental Care of Missouri
N/A
United Dental Care of New mexico
N/A
United Dental Care of Ohio
N/A
United Dental Care of Texas
N/A
United Dental Care of Utah
Voyager Indemnity Insurance Company
N/A
(1) A.M. Best financial strength ratings range from “A++” (superior) to “S” (suspended). Ratings of A and A- fall under the “excellent” category, which is
A2
A3
N/A
A2
N/A
N/A
N/A
Ba1
N/A
N/A
Ba1
N/A
N/A
A3
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
A
A-
A-
A
A-
A-
A
B+
A
A
B+
A-
A-
A-
A-
A-
A-
NR
A-
A-
NR
A-
NR
A
the second highest of ten ratings categories. Ratings of B+ fall under the “good” category, which is the third highest of ten ratings categories.
(2) Moody’s insurance financial strength ratings range from “Aaa” (exceptional) to “C” (extremely poor). A numeric modifier may be appended to ratings
from “Aa” to “Caa” to indicate relative position within a category, with 1 being the highest and 3 being the lowest. Ratings of A2 and A3 are considered
“good” and fall within the third highest of the nine ratings categories. Ratings of Ba1 are subject to substantial credit risk and fall within the fifth
highest of the nine ratings categories.
(3) S&P’s insurer financial strength ratings range from “AAA” (extremely strong) to “R” (under regulatory supervision). A “+” or “-” may be appended to
ratings from categories AA to CCC to indicate relative position within a category. Ratings of A and A- (strong) and BB+ (vulnerable) are within the third
and fifth highest of the nine ratings categories, respectively.
(4) A.M. Best has a stable outlook on all of the ratings of the above entities, except for Union Security Insurance Company and Union Security Life
Insurance Company of New York, which are under review with negative implications, and the dental HMO entities, which are under review with positive
implications.
(5) Moody’s has a stable outlook on all of the ratings of the above entities, except for John Alden Life Insurance Company and Time Insurance Company,
which have a negative outlook.
(6) S&P has a stable outlook on all of the ratings of the above entities, except for Union Security Insurance Company, which is on Creditwatch Positive.
10
ASSURANT, INC. – 2015 Form 10-K
Enterprise Risk management
As an insurer, we are exposed to a wide variety of financial,
operational and other risks, as described in Item 1A, “Risk
Factors.” Enterprise risk management (“ERm”) is, therefore,
a key component of our business strategies, policies, and
procedures. Our ERm process is an iterative approach with
the following key phases:
1.
2.
3.
4.
5.
Risk identification;
High-level estimation of risk likelihood and severity;
Risk prioritization at the business and enterprise
levels;
Scenario analysis and detailed modeling of likelihood
and severity of key enterprise risks;
Use of quantitative results and subject matter expert
opinion to help guide business strategy and decision
making.
through our ERm process and our enterprise risk quantification
model, we monitor a variety of risk metrics on an ongoing
basis, with a particular focus on impact to net income (both
GAAP and Statutory), company value and the potential need
for capital infusions to subsidiaries under severe stress
scenarios. The analysis of capital under stress scenarios
informs our capital management actions and helps ensure
our continued ability to pay policyholder benefits.
the Company’s ERm activities are coordinated by an Enterprise
Regulation
Part I
ItEm 1 Business
Risk management Committee (“ERmC”), which includes
managers from across the Company with knowledge of the
Company’s business activities, including representation
from the Compliance, Actuarial, Information technology,
Finance, Internal Audit and Asset management departments.
the ERmC develops risk assessment and risk management
policies and procedures. It facilitates the identification,
reporting and prioritizing of risks faced by the Company, and
is responsible for promoting a risk-aware culture throughout
the organization. the ERmC also coordinates with each of the
Company’s Business Unit Risk Committees (“BURCs”), which
meet regularly and are responsible for the identification of
significant risks affecting their respective business units.
Our Board of Directors and senior management are responsible
for overseeing significant enterprise risks. the ERmC presents
its work periodically to the Board of Directors and its Finance
and Investment Committee.
Through the use of regular committee meetings, business
unit and enterprise risk inventory templates and dashboards,
hypothetical scenario analysis, and quantitative modeling,
the Company strives to identify, track, quantify, communicate
and manage our key risks in a manner consistent with our
risk appetite and high level strategy.
Our ERm process continues to evolve, and, when appropriate,
we incorporate methodology changes, policy modifications
and emerging best practices on an ongoing basis.
the Company is subject to extensive federal, state and
international regulation and supervision in the jurisdictions
where it does business. Regulations vary from jurisdiction
to jurisdiction. In 2015, the Company announced a strategic
realignment of its portfolio to focus on specialty housing
and lifestyle protection products and services. As a result
of the partial sale of Assurant Health and the runoff of
the remaining business and the impending sale of Assurant
Employee Benefits, a number of regulations are or will soon
be no longer relevant for Assurant. the following is a summary
of significant regulations that apply to our businesses, and
where applicable, our health business wind-down operations,
but is not intended to be a comprehensive review of every
regulation to which the Company is subject. For information
on the risks associated with regulations applicable to the
Company, please see Item 1A, “Risk Factors.”
U.S. Insurance Regulation
We are subject to the insurance holding company laws in
the states where our insurance companies are domiciled.
these laws generally require insurance companies within
the insurance holding company system to register with the
insurance departments of their respective states of domicile
and to furnish reports to such insurance departments regarding
capital structure, ownership, financial condition, general
business operations and intercompany transactions. these laws
also require that transactions between affiliated companies
be fair and equitable. In addition, certain intercompany
transactions, changes of control, certain dividend payments
and transfers of assets between the companies within the
holding company system are subject to prior notice to, or
approval by, state regulatory authorities.
Like all U.S. insurance companies, our insurance subsidiaries
are subject to regulation and supervision in the jurisdictions
where they do business. In general, these regulations are
designed to protect the interests of policyholders, and
not necessarily the interests of shareholders and other
investors. to that end, the laws of the various states and
other jurisdictions establish insurance departments with
broad powers with respect to such things as:
••licensing;
••capital, surplus and dividends;
••underwriting requirements and limitations (including, in
some cases, minimum or target loss ratios);
••entrance into and exit from states;
11
ASSURANT, INC. – 2015 Form 10-K Part I
ItEm 1 Business
••introduction, cancellation and termination of certain
coverages;
diversification of insurance company investment portfolios and
limit the amount of investments in certain asset categories.
••statutory accounting and annual statement disclosure
requirements;
••product types, policy forms and mandated insurance benefits;
••premium rates;
••fines, penalties and assessments;
••claims practices, including occasional regulatory requirements
to pay claims on terms other than those mandated by
underlying policy contracts;
••transactions between affiliates;
••the form and content of disclosures to consumers;
••the type, amounts and valuation of investments;
••annual tests of solvency and reserve adequacy;
••assessments or other surcharges for guaranty funds and the
recovery of assessments through premium increases; and
••market conduct and sales practices of insurers and agents.
Dividend Payment Limitations
Our holding company’s assets consist primarily of the capital
stock of our subsidiaries. Accordingly, our holding company’s
future cash flows depend upon the availability of dividends and
other statutorily permissible payments from our subsidiaries.
the ability to pay such dividends and to make such other
payments is regulated by the states in which our subsidiaries
are domiciled. these dividend regulations vary from state
to state and by type of insurance provided by the applicable
subsidiary, but generally require our insurance subsidiaries to
maintain minimum solvency requirements and limit the amount
of dividends these subsidiaries can pay to the holding company.
For more information, please see Item 7, “management’s
Discussion and Analysis of Financial Condition and Results of
Operations — Liquidity and Capital Resources — Regulatory
Requirements.”
Risk-Based Capital Requirements
In order to enhance the regulation of insurer solvency, the
National Association of Insurance Commissioners (“NAIC”) has
established certain risk-based capital standards applicable to
life, health and property and casualty insurers. Risk-based
capital, which regulators use to assess the sufficiency of an
insurer’s statutory capital, is calculated by applying factors
to various asset, premium, expense, liability and reserve
items. Factors are higher for items which in the NAIC’s view
have greater underlying risk. the NAIC periodically reviews
the risk-based capital formula and changes to the formula
could occur in the future.
Investment Regulation
Insurance company investments must comply with applicable
laws and regulations that prescribe the kind, quality and
concentration of investments. these regulations require
Financial Reporting
Regulators closely monitor the financial condition of licensed
insurance companies. Our insurance subsidiaries are required
to file periodic financial reports with insurance regulators.
moreover, states regulate the form and content of these
statutory financial statements.
Products and Coverage
Insurance regulators have broad authority to regulate
many aspects of our products and services. For example,
some jurisdictions require insurers to provide coverage to
persons who would not be considered eligible insurance
risks under standard underwriting criteria, dictating the
types of insurance and the level of coverage that must
be provided to such applicants. Additionally, certain
non-insurance products and services, such as service
contracts, may be regulated by regulatory bodies other
than departments of insurance.
Pricing and Premium Rates
Nearly all states have insurance laws requiring insurers to file
price schedules and policy forms with the state’s regulatory
authority. In many cases, these price schedules and/or policy
forms must be approved prior to use, and state insurance
departments have the power to disapprove increases or
require decreases in the premium rates we charge.
market Conduct Regulation
Activities of insurers are highly regulated by state insurance
laws and regulations, which govern the form and content
of disclosure to consumers, advertising, sales practices and
complaint handling. State regulatory authorities enforce
compliance through periodic market conduct examinations.
Guaranty Associations and Indemnity Funds
Most states require insurance companies to support guaranty
associations or indemnity funds, which are established to pay
claims on behalf of insolvent insurance companies. these
associations may levy assessments on member insurers. In
some states member insurers can recover a portion of these
assessments through premium tax offsets and/or policyholder
surcharges.
Insurance Regulatory Initiatives
the NAIC, state regulators and professional organizations
have considered and are considering various proposals that
may alter or increase state authority to regulate insurance
companies and insurance holding companies. Please see Item
1A, “Risk Factors — Risks Related to Our Industry — Changes in
regulation may reduce our profitability and limit our growth”
for a discussion of the risks related to such initiatives.
12
ASSURANT, INC. – 2015 Form 10-K Federal Regulation
Patient Protection and Affordable Care Act
Although health insurance is generally regulated at the
state level, the Affordable Care Act introduced a significant
component of federal regulation for health insurers. Although
the Assurant Health business is in run-off, some provisions of
the Affordable Care Act continue to apply to us. In particular,
provisions of the Affordable Care Act and related reforms include
a requirement that we pay premium rebates to customers if the
loss ratios for some of our product lines are less than specified
percentages; changes in the benefits provided under some
of our products; elimination of limits on lifetime and annual
benefit maximums; a prohibition from imposing any pre-existing
condition exclusion; limits on our ability to rescind coverage
for persons who have misrepresented or omitted material
information when they applied for coverage and, elimination of
our ability to underwrite health insurance products with certain
narrow exceptions; mandated essential health benefits; new
and higher taxes and fees and limitations on the deductibility
of compensation and certain other payments; and the need to
operate with a lower expense structure at both the business
segment and enterprise level. Additionally, under the Affordable
Care Act, significant premium stabilization programs became
effective in 2014. these reinsurance, risk adjustment, and
risk corridor programs impose certain requirements on us,
including, among other things, that we make contributions to
fund the reinsurance program and, under some circumstances,
risk transfer payments related to the risk adjustment program
and payments to the Department of Health and Human Services
related to the risk corridor program.
Employee Retirement Income Security Act
Because we provide products and services for certain U.S.
employee benefit plans, we are subject to regulation under
the Employee Retirement Income Security Act of 1974, as
amended (“ERISA”). ERISA places certain requirements on how
the Company may do business with employers that maintain
employee benefit plans covered by ERISA. Among other things,
regulations under ERISA set standards for certain notice and
disclosure requirements and for claim processing and appeals.
In addition, some of our administrative services and other
activities may also be subject to regulation under ERISA.
HIPAA, HItECH Act and Gramm-Leach-Bliley Act
the Health Insurance Portability and Accountability Act of
1996, along with its implementing regulations (“HIPAA”),
impose various requirements on health insurers, HmOs,
health plans and health care providers. Among other things,
Assurant Health and Assurant Employee Benefits are subject
to HIPAA regulations requiring certain guaranteed issuance and
renewability of health insurance coverage for individuals and
small groups (generally groups with 50 or fewer employees)
and limitations on exclusions based on pre-existing conditions.
HIPAA also imposes administrative simplification requirements
for electronic transactions.
Part I
ItEm 1 Business
HIPAA also imposes requirements on health insurers, health
plans and health care providers to ensure the privacy and
security of protected health information. these privacy and
security provisions were further expanded by the privacy
provisions contained in the Health Information technology
for Economic and Clinical Health Act (the “HItECH Act”) and
its accompanying Omnibus Rule enacted in January 2013,
which enhances penalties for violations of HIPAA and requires
regulated entities to provide notice of security breaches
of protected health information to individuals and HHS. In
addition, certain of our activities are subject to the privacy
regulations of the Gramm-Leach-Bliley Act, which, along with
regulations adopted thereunder, generally requires insurers
to provide customers with notice regarding how their non-
public personal health and financial information is used, and
to provide them with the opportunity to “opt out” of certain
disclosures, if applicable.
Dodd-Frank Wall Street Reform and Consumer
Protection Act
Regulations under the Dodd-Frank Wall Street Reform and
Consumer Protection Act (the “Dodd-Frank Act”) address
mortgage servicers’ obligations to correct errors asserted
by mortgage loan borrowers; to provide certain information
requested by such borrowers; and to provide protections to
such borrowers; in connection with lender-placed insurance;
and these requirements affect our operations because, in
many instances, we administer such operations on behalf of
our mortgage servicer clients. While the CFPB does not have
direct jurisdiction over insurance products, it is possible that
additional regulations promulgated by the CFPB, such as those
mentioned, may extend its authority more broadly to cover
these products and thereby affect the Company or our clients.
International Regulation
We are subject to regulation and supervision of our
international operations in various jurisdictions. these
regulations, which vary depending on the jurisdiction, include
anti-corruption laws; solvency and market conduct regulations;
various privacy, insurance, tax, tariff and trade laws and
regulations; and corporate, employment, intellectual property
and investment laws and regulations.
Outside the U.S., the Company operates in Canada, the U.K.,
Ireland, France, Argentina, Brazil, Puerto Rico, Chile, Germany,
Spain, Italy, mexico and China and our businesses are supervised
by local regulatory authorities of these jurisdictions. We also
have business activities in Peru, Colombia and South Korea
where we have gained access to these markets by registering
certain entities, where required, to act as reinsurers.
Our operations in the U.K., for example, are subject to
regulation by the Financial Conduct Authority and Prudential
Regulation Authority. Authorized insurers are generally permitted
to operate throughout the rest of the European Union, subject
to satisfying certain requirements of these regulatory bodies
and meeting additional local regulatory requirements.
13
ASSURANT, INC. – 2015 Form 10-K Part I
ItEm 1 Business
We are also subject to certain U.S. and foreign laws applicable
to businesses generally, including anti-corruption laws.
the Foreign Corrupt Practices Act of 1977 (the “FCPA”)
regulates U.S. companies in their dealings with foreign
officials, prohibiting bribes and similar practices. In addition,
the U.K. Anti-Bribery Act has wide applicability to certain
activities that affect U.K. companies, their commercial
activities in the U.K., and potentially that of their affiliates
located outside of the U.K.
Additionally, the International Association of Insurance
Supervisors (the “IAIS”) is developing a model common
framework (“ComFrame”) for the supervision of Internationally
Active Insurance Groups (“IAIGs”), which includes additional
group-wide supervisory oversight across national boundaries
and the establishment of ongoing supervisory colleges. the IAIS
has announced that it expects by 2016 to develop a risk-based
global insurance capital standard applicable to IAIGs, with
full implementation beginning in 2019. As of December 31,
2015, Assurant meets the numerical criteria to qualify as an
IAIG, but the decision whether to treat Assurant as an IAIG is
left to the discretion of its domestic and foreign insurance
regulators. Should such regulators decide to treat Assurant as
an IAIG, Assurant will be subject to the additional requirements
of ComFrame. At this time, we cannot predict whether our
insurance regulators will treat us as an IAIG, and what additional
capital requirements, compliance costs or other burdens these
requirements would impose on us, if we were subject to them.
Securities and Corporate Governance
Regulation
As a company with publicly-traded securities, Assurant
is subject to certain legal and regulatory requirements
applicable generally to public companies, including the
Other Information
rules and regulations of the U.S. Securities and Exchange
Commission (the “SEC”) and the New York Stock Exchange
(the “NYSE”) relating to public reporting and disclosure,
accounting and financial reporting, and corporate governance
matters. Additionally, Assurant, Inc. is subject to the corporate
governance laws of Delaware, its state of incorporation.
Environmental Regulation
Because we own and operate real property, we are subject
to federal, state and local environmental laws. Potential
environmental liabilities and costs in connection with any
required remediation of such properties is an inherent risk
in property ownership and operation. Under the laws of
several states, contamination of a property may give rise
to a lien on the property to secure recovery of the costs of
the cleanup, which could have priority over the lien of an
existing mortgage against the property and thereby impair
our ability to foreclose on that property should the related
loan be in default. In addition, under certain circumstances,
we may be liable for the costs of addressing releases or
threatened releases of hazardous substances at properties
securing mortgage loans held by us.
Other Non-Insurance Regulation
As the Company continues to evolve its business mix to cover
other non-insurance based products and services, it becomes
subject to other legal and regulatory requirements, including
regulations of the Consumer Financial Protection Bureau and
other federal, state and municipal regulatory bodies, as well
as additional regulatory bodies in non-U.S. jurisdictions.
Customer Concentration
No one customer or group of affiliated customers accounts
for 10% or more of the Company’s consolidated revenues.
Employees
We had approximately 16,700 employees as of January 31,
2016. Assurant Solutions has employees in Argentina, Brazil,
Italy, Spain and mexico that are represented by labor unions
and trade organizations. We believe that employee relations
are satisfactory.
Sources of Liquidity
For a discussion of the Company’s sources and uses of funds,
see “Item 7 — management’s Discussion and Analysis of
Financial Condition and Results of Operations — Liquidity
and Capital Resources,” and Note 15 to the Consolidated
Financial Statements contained elsewhere in this report.
Taxation
For a discussion of tax matters affecting the Company and
its operations, see Note 8 to the Consolidated Financial
Statements contained elsewhere in this report.
Financial Information about Reportable
Business Segments
For financial information regarding reportable business
segments of the Company, see “Item 7 — management’s
Discussion and Analysis of Financial Condition and Results
of Operations,” and Note 22 to the Consolidated Financial
Statements contained elsewhere in this report.
14
ASSURANT, INC. – 2015 Form 10-K Part I
ItEm 1A Risk Factors
Available Information
Our annual reports on Form 10-K, quarterly reports on Form
10-Q, current reports on Form 8-K, the Statements of Beneficial
Ownership of Securities on Forms 3, 4 and 5 for our Directors
and Officers and all amendments to such reports, filed or
furnished pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934, as amended, are available free of charge
through the SEC website at www.sec.gov. These documents
are also available at the SEC’s Public Reference Room at 100F
Street, NE, Washington, DC 20549. Further information on
the operation of the Public Reference room can be found by
calling the SEC at 1-800-SEC-0330. these documents are also
available free of charge through the Investor Relations page
of our website (www.assurant.com) as soon as reasonably
practicable after filing. Other information found on our
website is not part of this or any other report filed with or
furnished to the SEC.
ItEm 1A Risk Factors
Certain factors may have a material adverse effect on our business, financial condition and results of operations and you
should carefully consider them. It is not possible to predict or identify all such factors.
Risks Related to Our Company
Our revenues and profits may decline if we are
unable to maintain relationships with significant
clients, distributors and other parties important
to the success of our business.
The success of our business depends largely on our relationships
and contractual arrangements with significant clients-including
mortgage servicers, lenders, mobile device carriers, retailers,
OEms and others-and with brokers, agents and other parties.
many of these arrangements are exclusive and some rely
on preferred provider or similar relationships. If our key
clients, intermediaries or other parties terminate important
business arrangements with us, or renew contracts on terms
less favorable to us, our cash flows, results of operations and
financial condition could be materially adversely affected. In
addition, each of our Assurant Solutions and Assurant Specialty
Property segments receives a substantial portion of its revenue
from a few clients. As of December 31, 2015 no single client
accounted for 10% or more of our consolidated revenue.
However, a reduction in business with or the loss of one or
more of our significant clients could have a material adverse
effect on the results of operations and cash flows of individual
segments or of the Company. Examples of important business
arrangement include, at Assurant Solutions, relationships
with mobile device carriers, retailers and financial and other
institutions through which we distribute our products, including
an exclusive distribution relationship with SCI relating to the
distribution of our preneed insurance policies. In Assurant
Specialty Property, we have exclusive and non-exclusive
relationships with certain mortgage lenders and manufactured
housing lenders and property managers, and in turn we are
eligible to insure properties securing loans guaranteed by or
sold to government-sponsored entities (“GSEs”) and serviced
by the mortgage loan servicers with whom we do business.
In our lender-placed insurance business, the change in
requirements for eligibility to insure properties securing loans
of GSEs-and restrictions imposed by state regulators-could
affect our ability to do business with certain mortgage loan
servicers or the volume or profitability of such business. In
addition, the transfer by mortgage servicer clients of loan
portfolios to other carriers or the participation by other
carriers in insuring or reinsuring lender-placed insurance risks
that we have historically insured could materially reduce our
revenues and profits from this business.
We are also subject to the risk that clients, distributors
and other parties may face financial difficulties, reputational
issues or problems with respect to their own products and
services or regulatory restrictions that may lead to decreased
sales of our products and services. moreover, if one or more
of our clients or distributors consolidate or align themselves
with other companies, we may lose significant business,
resulting in material decreases in revenues and profits.
Significant competitive pressures could affect
our results of operations.
We compete for customers and distributors with many
insurance companies and other financial services companies
for business and individual customers, employer and other
group customers, agents, brokers and other distribution
relationships, and with logistics and mobile device repair
companies for the business of cell phone carriers and original
equipment manufacturers. Some of our competitors may
offer a broader array of products than our subsidiaries or
have a greater diversity of distribution resources, better
brand recognition, more competitive pricing, lower costs,
greater financial strength, more resources, or higher ratings.
many of our insurance products, particularly our group benefits
policies, are underwritten annually. there is a risk that group
purchasers may be able to obtain more favorable terms from
competitors, rather than renewing coverage with us. As a
15
ASSURANT, INC. – 2015 Form 10-K Part I
ItEm 1A Risk Factors
result, competition may adversely affect the persistency of
our policies, as well as our ability to sell products. In addition,
some of our competitors may price their products below ours,
putting us at a competitive disadvantage and potentially
adversely affecting our revenues and results of operations.
Additionally, for Assurant Solutions, our ability to adequately
and effectively price our products is affected by, among other
things, the evolving nature of consumer needs and preferences
and improvements in technology, which could cause us to
reduce the price of products and services we offer. For
Assurant Specialty Property, our lender-placed homeowners
insurance program and certain of our manufactured housing
products are not underwritten on an individual policy basis
and our contracts with clients require us to issue these
policies automatically when a borrower’s insurance coverage
is not maintained. Consequently, our inability to adequately
monitor and provide for pricing adequacy for these products,
subject to regulatory constraints, could potentially adversely
affect our results of operations.
New competition and technological advancements could also
cause the supply of insurance to change, which could affect
our ability to price our products at attractive rates and thereby
adversely affect our underwriting results. Although there are
some impediments facing potential competitors who wish to
enter the markets we serve, the entry of new competitors
into our markets can occur, affording our customers significant
flexibility in moving to other insurance providers.
In our lender-placed insurance business, we use a proprietary
insurance-tracking administration system linked with the
administrative systems of our clients to monitor the clients’
mortgage portfolios to verify the existence of insurance
on each mortgaged property and identify those that are
uninsured. If, in addition to our current competitors, others
in this industry develop a competing system or equivalent
administering capabilities, this could reduce the revenues
and results of operations in this business.
A number of factors outside the Company’s
control could impair the Company’s ability
to close the sale of the Assurant Employee
Benefits segment and complete the wind-down
of the Assurant Health segment.
the sale of Assurant Employee Benefits and wind-down of
Assurant Health involve a number of challenges, uncertainties
and risks, including the risk related to the closing of the
Assurant Employee Benefits transaction and regulatory risk
related to the wind-down of Assurant Health.
Sales of our products and services may decline
if we are unable to attract and retain sales
representatives or to develop and maintain
distribution sources.
We distribute many of our insurance products and services
through a variety of distribution channels, including independent
employee benefits specialists, brokers, managing general
agents, life agents, financial institutions, mortgage lenders
and servicers, retailers, funeral homes, association groups
and other third-party marketing organizations.
16
Our relationships with these distributors are significant both for
our revenues and profits. We do not distribute our insurance
products and services through captive or affiliated agents. In
Assurant Employee Benefits, independent agents and brokers
who act as advisors to our customers market and distribute
our products. there is intense competition between insurers
to form relationships with agents and brokers of demonstrated
ability. We compete with other insurers for relationships with
agents, brokers, and other intermediaries primarily on the basis
of our financial position, support services, product features
and, more generally, through our ability to meet the needs of
their clients, our customers. Independent agents and brokers
are typically not exclusively dedicated to us, but instead usually
also market the products of our competitors and therefore we
face continued competition from our competitors’ products.
moreover, our ability to market our products and services
depends on our ability to tailor our channels of distribution to
comply with changes in the regulatory environment in which
we and such agents and brokers operate.
We have our own sales representatives whose distribution
process varies by segment. We depend in large part on
our sales representatives to develop and maintain client
relationships. Our inability to attract and retain effective
sales representatives could materially adversely affect our
results of operations and financial condition.
General economic, financial market and
political conditions may materially adversely
affect our results of operations and financial
condition. Particularly, difficult conditions
in financial markets and the global economy
may negatively affect the results of all of
our business segments.
General economic, financial market and political disruptions
could have a material adverse effect on our results of
operations and financial condition. Limited availability of
credit, deteriorations of the global mortgage and real estate
markets, declines in consumer confidence and consumer
spending, increases in prices or in the rate of inflation,
continuing periods of high unemployment, or disruptive
geopolitical events could contribute to increased volatility
and diminished expectations for the economy and the
financial markets, including the market for our stock. these
conditions could also affect all of our business segments.
Specifically, during periods of economic downturn:
••individuals and businesses may (i) choose not to purchase our
insurance products, warranties and other related products
and services, (ii) terminate existing policies or contracts
or permit them to lapse, and (iii) choose to reduce the
amount of coverage they purchase;
••clients are more likely to experience financial distress or
declare bankruptcy or liquidation which could have an
adverse impact on the remittance of premiums from such
clients as well as the collection of receivables from such
clients for items such as unearned premiums;
••disability insurance claims and claims on other specialized
insurance products tend to rise;
ASSURANT, INC. – 2015 Form 10-K ••there is a higher loss ratio on credit card and installment loan
insurance due to rising unemployment and disability levels;
••there is an increased risk of fraudulent insurance claims;
••insureds tend to increase their utilization of health and
dental benefits if they anticipate becoming unemployed
or losing benefits; and
••substantial decreases in loan availability and origination
could reduce the demand for credit insurance that we write
or debt cancellation or debt deferment products that we
administer, and on the placement of hazard insurance under
our lender-placed insurance programs.
General inflationary pressures may affect the costs of medical
and dental care, as well as repair and replacement costs on
our real and personal property lines, increasing the costs of
paying claims. Inflationary pressures may also affect the costs
associated with our preneed insurance policies, particularly
those that are guaranteed to grow with the Consumer Price
Index (or “CPI”). Conversely, deflationary pressures may
affect the pricing of our products.
Additionally, continued uncertainty surrounding the U.S.
Federal Reserve’s monetary policy could adversely affect
the U.S. and global economy.
Our actual claims losses may exceed our
reserves for claims, and this may require
us to establish additional reserves that may
materially affect our results of operations,
profitability and capital.
We maintain reserves to cover our estimated ultimate exposure
for claims and claim adjustment expenses with respect to
reported claims and incurred but not reported claims (“IBNR”) as
of the end of each accounting period. Whether calculated under
GAAP, Statutory Accounting Principles (“SAP”) or accounting
principles applicable in foreign jurisdictions, reserves are
estimates. Reserving is inherently a matter of judgment;
our ultimate liabilities could exceed reserves for a variety of
reasons, including changes in macroeconomic factors (such
as unemployment and interest rates), case development and
other factors. From time to time, we also adjust our reserves,
and may adjust our reserving methodology, as these factors
and our claims experience changes. Reserve development,
changes in our reserving methodology and paid losses exceeding
corresponding reserves could have a material adverse effect on
our results of operations. Please see “Item 7 — management’s
Discussion & Analysis — Critical Accounting Policies & Estimates
— Reserves” for additional detail on our reserves.
We may be unable to accurately predict
and price for benefits, claims and other
costs, which could reduce our profitability.
Our profitability could vary depending on our ability to predict
and price for benefits, claims and other costs including, but
not limited to, medical and dental costs, disability claims and
the frequency and severity of property claims. this ability
could be affected by factors such as inflation, changes in
Part I
ItEm 1A Risk Factors
the regulatory environment, changes in industry practices,
changes in legal, social or environmental conditions, new
treatments or technologies. Political or economic conditions
can also affect the availability of programs (for example, the
Social Security disability program) on which our business may
rely to accurately predict benefits and claims. the inability
to accurately predict and price for benefits, claims and
other costs could materially adversely affect our results of
operations and financial condition.
Catastrophe losses, including man-made
catastrophe losses, could materially reduce
our profitability and have a material adverse
effect on our results of operations and
financial condition.
Our insurance operations expose us to claims arising out of
catastrophes, particularly in our homeowners, life and other
health insurance businesses. We have experienced, and expect
to experience, catastrophe losses that materially reduce our
profitability or have a material adverse effect on our results
of operations and financial condition. Catastrophes can be
caused by various natural events, including, but not limited
to, hurricanes, windstorms, earthquakes, hailstorms, floods,
severe winter weather, fires, epidemics and the long-term
effects of climate change, or can be man-made catastrophes,
including terrorist attacks or accidents such as airplane
crashes. While the frequency and severity of catastrophes
are inherently unpredictable, increases in the value and
geographic concentration of insured property, the geographic
concentration of insured lives, and the effects of inflation
could increase the severity of claims from future catastrophes.
Catastrophe losses can vary widely and could significantly
exceed our expectations. they may cause substantial volatility
in our financial results for any fiscal quarter or year and could
materially reduce our profitability or materially adversely
affect our financial condition. Our ability to write new business
also could be affected.
Accounting rules do not permit insurers to reserve for such
catastrophic events before they occur. In addition, the
establishment of appropriate reserves, including reserves
for catastrophes, is an inherently uncertain and complex
process. the ultimate cost of losses may vary materially
from recorded reserves and such variance may have a
material adverse effect on our results of operations and
financial condition.
If the severity of an event were sufficiently high (for example,
in the event of an extremely large catastrophe), it could
exceed our reinsurance coverage limits and could have a
material adverse effect on our results of operations and
financial condition. We may also lose premium income due to
a large-scale business interruption caused by a catastrophe
combined with legislative or regulatory reactions to the event.
We use catastrophe modeling tools that help estimate our
exposure to such events, but these tools are based on historical
data and other assumptions that may provide projections that
are materially different from the actual events.
17
ASSURANT, INC. – 2015 Form 10-K Part I
ItEm 1A Risk Factors
Because Assurant Specialty Property’s lender-placed
homeowners and lender-placed manufactured housing
insurance products are designed to automatically provide
property coverage for client portfolios, our concentration in
certain catastrophe-prone states like Florida, California, texas
and New York may increase. Furthermore, the withdrawal of
other insurers from these or other states may lead to adverse
selection and increased use of our products in these areas
and may negatively affect our loss experience.
The exact impact of the physical effects of climate change
is uncertain. It is possible that changes in the global climate
may cause long-term increases in the frequency and severity
of storms, resulting in higher catastrophe losses, which could
materially affect our results of operations and financial
condition.
Our group life and health insurance operations could be
materially impacted by catastrophes such as a terrorist attack,
a natural disaster, a pandemic or an epidemic that causes a
widespread increase in mortality or disability rates or that
causes an increase in the need for medical care. In addition,
with respect to our preneed insurance policies, the average
age of policyholders is approximately 73 years. this group
is more susceptible to certain epidemics than the overall
population, and an epidemic resulting in a higher incidence
of mortality could have a material adverse effect on our
results of operations and financial condition.
A.M. Best, Moody’s, and S&P rate the
financial strength of our insurance company
subsidiaries, and a decline in these ratings
could affect our standing in the insurance
industry and cause our sales and earnings
to decrease.
Ratings are important considerations in establishing the
competitive position of insurance companies. A.m. Best rates
most of our domestic operating insurance subsidiaries. Moody’s
rates six of our domestic operating insurance subsidiaries
and S&P rates seven of our domestic operating insurance
subsidiaries. these ratings are subject to periodic review by
A.m. Best, moody’s, and S&P, and we cannot assure that we
will be able to retain them. In 2015, time Insurance Company
and John Alden Life Insurance Company experienced multiple
rating actions as a result of Assurant’s decision to exit the
health insurance market in 2016 and higher than anticipated
losses in 2015. the following actions took place: A.m. Best
downgraded the companies from A- to B+, moody’s downgraded
the companies from Baa2 to Ba1 and revised the outlook
to negative, and S&P downgraded the companies from BBB
to BB+. A.M. Best also placed the ratings of Union Security
Insurance Company and Union Security Life Insurance Company
of New York under review with negative implications due to
the possible diminished business profile of the entities after
the close of the Assurant Employee Benefits sale.
Rating agencies may change their methodology or
requirements for determining ratings, or they may become
more conservative in assigning ratings. Rating agencies or
regulators could also increase capital requirements for the
18
Company or its subsidiaries. Any reduction in our ratings could
materially adversely affect the demand for our products
from intermediaries and consumers and materially adversely
affect our results. In addition, any reduction in our financial
strength ratings could materially adversely affect our cost
of borrowing.
As of December 31, 2015, contracts representing approximately
33% of Assurant Solutions’ and 27% of Assurant Specialty
Property’s net earned premiums and fee income contain
provisions requiring the applicable subsidiaries to maintain
minimum A.m. Best financial strength ratings ranging from
“A” or better to “B” or better, depending on the contract.
Our clients may terminate these contracts or fail to renew
them if the subsidiaries’ ratings fall below these minimums.
termination or failure to renew these agreements could
materially and adversely affect our results of operations
and financial condition.
Additionally, certain contracts in the DRMS business,
representing approximately 5% of Assurant Employee Benefits’
net earned premiums for the year ended December 31, 2015
contain provisions requiring the applicable subsidiaries to
maintain minimum A.m. Best financial strength ratings of
“A-” or better. DRmS clients may terminate the agreements
and, in some instances, recapture in-force business if the
ratings of applicable subsidiaries fall below “A-”.
We face risks associated with our international
operations.
Our international operations face political, legal, operational
and other risks that we may not face in our domestic
operations. For example, we may face the risk of restrictions
on currency conversion or the transfer of funds; burdens and
costs of compliance with a variety of foreign laws; political or
economic instability in countries in which we conduct business,
including possible terrorist acts; inflation and foreign exchange
rate fluctuations; diminished ability to enforce our contractual
rights; differences in cultural environments and unexpected
changes in regulatory requirements, including changes in
regulatory treatment of certain products; exposure to local
economic conditions and restrictions on the repatriation of
non-U.S. investment and earnings; and potentially substantial
tax liabilities if we repatriate the cash generated by our
international operations back to the U.S.
If our business model is not successful in a particular country,
we may lose all or most of our investment in that country.
As we continue to expand in select worldwide markets, our
business becomes increasingly exposed to these risks identified
above where certain countries have recently experienced
economic instability.
In addition, as we engage with international clients, we have
made certain up-front commission payments and similar
cash outlays, which we may not recover if the business does
not materialize as we expect. these up-front payments are
typically supported by various protections, such as letters
of guarantee, but we may not recover our initial outlays and
other amounts owed to us fully or timely. As our international
business grows, we rely increasingly on fronting carriers or
ASSURANT, INC. – 2015 Form 10-K intermediaries in certain other countries to maintain their
licenses and product approvals, satisfy local regulatory
requirements and continue in business.
For information on the significant international regulations
that apply to our Company, please see Item 1, “Business —
Regulation — International Regulation.”
Fluctuations in the exchange rate of the
U.S. dollar and other foreign currencies may
materially and adversely affect our results
of operations.
While most of our costs and revenues are in U.S. dollars,
some are in other currencies. Because our financial results
in certain countries are translated from local currency into
U.S. dollars upon consolidation, the results of our operations
may be affected by foreign exchange rate fluctuations. to
a large extent, we do not currently hedge foreign currency
risk. If the U.S. dollar weakens against the local currency, the
translation of these foreign-currency-denominated balances
will result in increased net assets, net revenue, operating
expenses, and net income or loss. Similarly, our net assets,
net revenue, operating expenses, and net income or loss
will decrease if the U.S. dollar strengthens against local
currency. For example, Argentina, a country in which Assurant
Solutions operates, is currently undergoing a currency crisis.
these fluctuations in currency exchange rates may result
in gains or losses that materially and adversely affect our
results of operations.
An impairment of goodwill or other intangible
assets could materially affect our results of
operations and book value.
Goodwill represented $833,512 of our $30,043,128 in total
assets as of December 31, 2015. We review our goodwill
annually in the fourth quarter for impairment or more
frequently if circumstances indicating that the asset may be
impaired exist. Such circumstances could include a sustained
significant decline in our share price, a decline in our actual
or expected future cash flows or income, a significant adverse
change in the business climate, or slower growth rates, among
others. Circumstances such as those mentioned above could
trigger an impairment of some or all of the remaining goodwill
on our balance sheet, which could have a material adverse
effect on our profitability and book value per share. For more
information on our annual goodwill impairment testing and the
goodwill of our segments, please see “Item 7 — management’s
Discussion and Analysis — Critical Factors Affecting Results
— Value and Recoverability of Goodwill.” In addition, other
intangible assets collectively represented $277,163 of our
total assets as of December 31, 2015, and an impairment of
these other intangible assets could have a material adverse
effect on our profitability and book value per share.
Part I
ItEm 1A Risk Factors
Unfavorable conditions in the capital and
credit markets may significantly and adversely
affect our access to capital and our ability to
pay our debts or expenses.
In previous years, the global capital and credit markets
experienced extreme volatility and disruption. In many cases,
companies’ ability to raise money was severely restricted.
Although conditions in the capital and credit markets have
improved significantly, they could again deteriorate. Our
ability to borrow or raise money is important if our operating
cash flow is insufficient to pay our expenses, meet capital
requirements, repay debt, pay dividends on our common
stock or make investments. the principal sources of our
liquidity are insurance premiums, fee income, cash flow
from our investment portfolio and liquid assets, consisting
mainly of cash or assets that are readily convertible into
cash. Sources of liquidity in normal markets also include a
variety of short-and long-term instruments.
If our access to capital markets is restricted, our cost of
capital could increase, thus decreasing our profitability and
reducing our financial flexibility. Our results of operations,
financial condition, cash flows and statutory capital position
could be materially and adversely affected by disruptions in
the capital markets.
The value of our investments could decline,
affecting our profitability and financial
strength.
Investment returns are an important part of our profitability.
Significant fluctuations in the fixed maturity market could
impair our profitability, financial condition and cash flows.
Our investments are subject to market—wide risks and
fluctuations, as well as to risks inherent in particular securities.
In addition, certain factors affecting our business, such as
volatility of claims experience, could force us to liquidate
securities prior to maturity, causing us to incur capital losses.
See “Item 7A — Quantitative and Qualitative Disclosures
About market Risk — Interest Rate Risk.”
Market conditions, changes in interest rates,
and prolonged periods of low interest rates
may materially affect our results.
Recent periods have been characterized by low interest rates.
A prolonged period during which interest rates remain at
historically low levels may result in lower-than-expected net
investment income and larger required reserves. In addition,
certain statutory capital requirements are based on formulas
or models that consider interest rates and a prolonged period
of low interest rates may increase the statutory capital we
are required to hold.
19
ASSURANT, INC. – 2015 Form 10-K Part I
ItEm 1A Risk Factors
Changes in interest rates may materially adversely affect the
performance of some of our investments. Interest rate volatility
may increase or reduce unrealized gains or unrealized losses
in our portfolios. Interest rates are highly sensitive to many
factors, including governmental monetary policies, domestic
and international economic and political conditions and other
factors beyond our control. Fixed maturity and short-term
investments represented 82% of the fair value of our total
investments as of December 31, 2015.
the fair market value of the fixed maturity securities in our
portfolio and the investment income from these securities
fluctuate depending on general economic and market
conditions. Because all of our fixed maturity securities
are classified as available for sale, changes in the market
value of these securities are reflected in our consolidated
balance sheets. their fair market value generally increases
or decreases in an inverse relationship with fluctuations
in interest rates, while net investment income from fixed
maturity investments increases or decreases directly with
interest rates. In addition, actual net investment income and
cash flows from investments that carry prepayment risk, such
as mortgage-backed and other asset-backed securities may
differ from those anticipated at the time of investment as
a result of interest rate fluctuations. An increase in interest
rates will also decrease the net unrealized gains in our current
investment portfolio.
We employ asset/liability management strategies to manage the
adverse effects of interest rate volatility and the likelihood that
cash flows are unavailable to pay claims as they become due.
Our asset/liability management strategies do not completely
eliminate the adverse effects of interest rate volatility, and
significant fluctuations in the level of interest rates may require
us to liquidate investments prior to maturity at a significant
loss to pay claims and policyholder benefits. this could have
a material adverse effect on our results of operations and
financial condition.
Our preneed insurance policies are generally whole life
insurance policies with increasing death benefits. In extended
periods of declining interest rates or rising inflation, there
may be compression in the spread between the death benefit
growth rates on these policies and the investment income
that we can earn, resulting in a negative spread. As a result,
declining interest rates or high inflation rates may have a
material adverse effect on our results of operations and our
overall financial condition. See “Item 7A — Quantitative and
Qualitative Disclosures About market Risk — Inflation Risk”
for additional information.
Assurant Employee Benefits calculates reserves for long-
term disability and life waiver of premium claims using net
present value calculations based on interest rates at the time
reserves are established and expectations regarding future
interest rates. Waiver of premium refers to a provision in
a life insurance policy pursuant to which an insured with
a disability that lasts for a specified period no longer has
to pay premiums for the duration of the disability or for a
stated period, during which time the life insurance coverage
continues. If interest rates decline, reserves for open and
new claims in Assurant Employee Benefits may need to be
20
calculated using lower discount rates, thereby increasing the
net present value of those claims and the required reserves.
Depending on the magnitude of the decline, such changes could
have a material adverse effect on our results of operations
and financial condition. In addition, investment income may
be lower than that assumed in setting premium rates.
We may be unable to grow our business as
we would like if we cannot find suitable
acquisition candidates at attractive prices
or integrate them effectively.
We expect acquisitions and new ventures to play a significant
role in the growth of some of our businesses. We may not,
however, be able to identify suitable acquisition candidates
or new venture opportunities or to finance or complete such
transactions on acceptable terms. Additionally, the integration
of acquired businesses may result in significant challenges, and
we may be unable to accomplish such integration smoothly
or successfully.
Acquired businesses and new ventures may not provide us with
the benefits that we anticipate. Acquisitions entail a number
of risks including, among other things, inaccurate assessment
of liabilities; difficulties in realizing projected efficiencies;
synergies and cost savings; difficulties in integrating systems
and personnel; failure to achieve anticipated revenues,
earnings or cash flow; an increase in our indebtedness; and
a limitation in our ability to access additional capital when
needed. Our failure to adequately address these acquisition
risks could materially adversely affect our results of operations
and financial condition.
Our investment portfolio is subject to
various risks that may result in realized
investment losses.
We are subject to credit risk in our investment portfolio,
primarily from our investments in corporate bonds, preferred
stocks, leveraged loans, municipal bonds, and commercial
mortgages. Defaults by third parties in the payment or
performance of their obligations could reduce our investment
income and realized investment gains or result in the continued
recognition of investment losses. the value of our investments
may be materially adversely affected by increases in interest
rates, downgrades in the corporate bonds included in the
portfolio and by other factors that may result in the continued
recognition of other-than-temporary impairments. Each of
these events may cause us to reduce the carrying value of
our investment portfolio.
Further, the value of any particular fixed maturity security
is subject to impairment based on the creditworthiness
of a given issuer. As of December 31, 2015, fixed maturity
securities represented 78% of the fair value of our total
invested assets. Our fixed maturity portfolio also includes
below investment grade securities (rated “BB” or lower by
nationally recognized statistical rating organizations). These
investments comprise approximately 5% of the fair value of
our total investments as of December 31, 2015 and generally
ASSURANT, INC. – 2015 Form 10-K provide higher expected returns but present greater risk
and can be less liquid than investment grade securities. A
significant increase in defaults and impairments on our fixed
maturity investment portfolio could materially adversely
affect our results of operations and financial condition. See
“Item 7A — Quantitative and Qualitative Disclosures About
market Risk — Credit Risk” for additional information on
the composition of our fixed maturity investment portfolio.
We currently invest in a small amount of equity securities
(approximately 4% of the fair value of our total investments
as of December 31, 2015). However, we have had higher
percentages in the past and may make more such investments
in the future. Investments in equity securities generally provide
higher expected total returns but present greater risk to
preservation of capital than our fixed maturity investments.
If treasury rates or credit spreads were to increase, the
Company may have additional realized and unrealized
investment losses and increases in other-than-temporary
impairments. The determination that a security has incurred
an other-than-temporary decline in value requires the
judgment of management. Inherently, there are risks and
uncertainties involved in making these judgments. Changes
in facts, circumstances, or critical assumptions could cause
management to conclude that further impairments have
occurred. this could lead to additional losses on investments.
For further details on net investment losses and other-than-
temporary-impairments, please see Note 5 to the Consolidated
Financial Statements included elsewhere in this report.
Derivative instruments generally present greater risk than
fixed maturity investments or equity investments because of
their greater sensitivity to market fluctuations. Since August 1,
2003, we have been using derivative instruments to manage
the exposure to inflation risk created by our preneed insurance
policies that are tied to the CPI. the protection provided
by these derivative instruments begins at higher levels of
inflation. However, exposure can still exist due to potential
differences in the amount of business and the notional amount
of the protection. this could have a material adverse effect
on our results of operations and financial condition.
Our commercial mortgage loans and real estate
investments subject us to liquidity risk.
Our commercial mortgage loans on real estate investments
(which represented approximately 9% of the fair value of our
total investments as of December 31, 2015) are relatively
illiquid. If we require extremely large amounts of cash on
short notice, we may have difficulty selling these investments
at attractive prices and in a timely manner.
The risk parameters of our investment
portfolio may not assume an appropriate level
of risk, thereby reducing our profitability and
diminishing our ability to compete and grow.
In pricing our products and services, we incorporate
assumptions regarding returns on our investments. Accordingly,
Part I
ItEm 1A Risk Factors
our investment decisions and objectives are a function of
the underlying risks and product profiles of each of our
operating segments. market conditions may not allow us to
invest in assets with sufficiently high returns to meet our
pricing assumptions and profit targets over the long term. If,
in response, we choose to increase our product prices, our
ability to compete and grow may be diminished.
Environmental liability exposure may result
from our commercial mortgage loan portfolio
and real estate investments.
Liability under environmental protection laws resulting from
our commercial mortgage loan portfolio and real estate
investments may weaken our financial strength and reduce
our profitability. For more information, please see Item 1,
“Business — Regulation — Environmental Regulation.”
Unanticipated changes in tax provisions,
changes in tax laws or exposure to additional
income tax liabilities could materially and
adversely affect our results.
In accordance with applicable income tax guidance, the
Company must determine whether its ability to realize
the value of its deferred tax asset is “more likely than
not.” Under the income tax guidance, a deferred tax asset
should be reduced by a valuation allowance if, based on
the weight of all available evidence, it is more likely than
not that some portion of the deferred tax asset will not be
realized. The realization of deferred tax assets depends
upon the existence of sufficient taxable income of the same
character during the carryback or carryforward periods.
In determining the appropriate valuation allowance,
management made certain judgments relating to
recoverability of deferred tax assets, use of tax loss
and tax credit carryforwards, levels of expected future
taxable income and available tax planning strategies.
the assumptions in making these judgments are updated
periodically on the basis of current business conditions
affecting the Company and overall economic conditions.
These management judgments are therefore subject to
change due to factors that include, but are not limited
to, changes in our ability to realize sufficient taxable
income of the same character in the same jurisdiction or
in our ability to execute other tax planning strategies.
management will continue to assess and determine the
need for, and the amount of, the valuation allowance in
subsequent periods. Any change in the valuation allowance
could have a material impact on our results of operations
and financial condition.
Changes in tax laws could increase our corporate taxes or
reduce our deferred tax assets. Certain proposed changes
could have the effect of increasing our effective tax rate
by reducing deductions or increasing income inclusions.
Conversely, other changes, such as lowering the corporate
tax rate, could reduce the value of our deferred tax assets.
21
ASSURANT, INC. – 2015 Form 10-K Part I
ItEm 1A Risk Factors
Failure to protect our clients’ confidential
information and privacy could harm our
reputation, cause us to lose customers,
reduce our profitability and subject us to
fines, litigation and penalties, and the costs
of compliance with privacy and security laws
could adversely affect our business.
Our businesses are subject to a variety of privacy regulations
and confidentiality obligations. If we do not comply with
state and federal privacy and security laws and regulations,
or contractual provisions, requiring us to protect confidential
information and provide notice to individuals whose
information is improperly disclosed, we could experience
adverse consequences, including loss of customers and related
revenue, regulatory problems (including fines and penalties),
harm to our reputation and civil litigation, which could
adversely affect our business and results of operations. As
have other entities in the insurance industry, we have incurred
and will continue to incur substantial costs in complying with
the requirements of applicable privacy and security laws.
For more information on the privacy and security laws that
apply to us, please see Item 1, “Business — Regulation.”
The failure to effectively maintain and
modernize our information systems could
adversely affect our business.
Our business is dependent upon our ability to maintain
the effectiveness of existing technology systems, enhance
technology to support the Company’s business in an efficient
and cost-effective manner, and keep current with technological
advances, evolving industry and regulatory standards and
customer needs. In addition, our ability to keep our systems
integrated with those of our clients is critical to the success
of our business. If we do not effectively maintain our systems
and update them to address technological advancements,
our relationships and ability to do business with our clients
may be adversely affected. We could also experience other
adverse consequences, including unfavorable underwriting and
reserving decisions, internal control deficiencies and security
breaches resulting in loss of data. System development projects
may be more costly or time-consuming than anticipated and
may not deliver the expected benefits upon completion.
Failure to successfully manage outsourcing
activities could adversely affect our business.
As we continue to improve operating efficiencies across the
business, we have outsourced and may outsource selected
functions to third parties, including independent contractors.
For example, we outsource certain key functions in our mortgage
Solutions businesses to certain independent contractors who
we believe offer us expertise in this area, as well as scalability
and cost effective services. We take steps to monitor and
regulate the performance of these independent third parties
to whom the Company has outsourced these functions. If these
third parties fail to satisfy their obligations to the Company
as a result of their performance, changes in their operations,
financial condition or other matters beyond our control,
22
the Company’s operations, information, service standards,
reputation and data could be compromised. In particular, if
we are unable to attract and retain the necessary quality and
number of contracts with enough independent contractors, or
if changes in law or judicial decisions require such independent
contractors to be classified as employees, our mortgage
Solutions businesses could be significantly adversely affected.
In addition, to the extent the Company outsources selected
services or functions to third parties outside the U.S., the
Company is exposed to the risks that accompany operations
in a foreign jurisdiction, including international economic
and political conditions, foreign laws and fluctuations in
currency values and, potentially, increased risk of data
breaches. For more information on the risks associated with
outsourcing to international third parties, please see Item 1A,
“Risk Factors — Risks Related to Our Company — We face
risks associated with our international operations.” If third
party providers do not perform as anticipated, we may not
fully realize the anticipated economic and other benefits of
this outsourcing, which could adversely affect our results of
operations and financial condition.
System security risks, data protection breaches
and cyber-attacks could adversely affect our
business and results of operations.
Our information technology systems are vulnerable to threats
from computer viruses, natural disasters, unauthorized
access, cyber-attack and other similar disruptions. Although
we have network security measures in place, experienced
computer programmers and hackers may be able to penetrate
our network and misappropriate or compromise confidential
information, create system disruptions or cause shutdowns.
As an insurer, we receive and are required to protect confidential
information from customers, vendors and other third parties
that may include personal health or financial information. If
any disruption or security breach results in a loss or damage
to our data, or inappropriate disclosure of our confidential
information or that of others, it could damage to our reputation,
affect our relationships with our customers and clients, lead
to claims against the Company, result in regulatory action
and harm our business. In addition, we may be required to
incur significant costs to mitigate the damage caused by any
security breach or to protect against future damage.
Reinsurance may not be available or adequate
to protect us against losses, and we are subject
to the credit risk of reinsurers.
As part of our overall risk and capacity management strategy,
we purchase reinsurance for certain risks underwritten by
our various operating segments. Although the reinsurer is
liable to us for claims properly ceded under the reinsurance
arrangements, we remain liable to the insured as the direct
insurer on all risks reinsured. Ceded reinsurance arrangements
therefore do not eliminate our obligation to pay claims.
We are subject to credit risk with respect to our ability to
recover amounts due from reinsurers. the inability to collect
amounts due from reinsurers could materially adversely
affect our results of operations and our financial condition.
ASSURANT, INC. – 2015 Form 10-K Reinsurance for certain types of catastrophes could become
unavailable or prohibitively expensive for some of our
businesses. In such a situation, we might also be adversely
affected by state regulations that prohibit us from excluding
catastrophe exposures or from withdrawing from or increasing
premium rates in catastrophe-prone areas.
Our reinsurance facilities are generally subject to annual
renewal. We may not be able to maintain our current
reinsurance facilities and, even where highly desirable or
necessary, we may not be able to obtain other reinsurance
facilities in adequate amounts and at favorable rates. Inability
to obtain reinsurance at favorable rates or at all could cause
us to reduce the level of our underwriting commitments, to
take more risk, or to incur higher costs. these developments
could materially adversely affect our results of operations
and financial condition.
Through reinsurance, we have sold businesses
that could again become our direct financial
and administrative responsibility if the
reinsurers become insolvent.
In the past, we have sold, and in the future we may sell,
businesses through reinsurance ceded to third parties. For
example, in 2001 we sold the insurance operations of our Fortis
Financial Group (“FFG”) division to the Hartford Financial
Services Group, Inc. (“the Hartford”) and in 2000 we sold
our Long term Care (“LtC”) division to John Hancock Life
Insurance Company (“John Hancock”), now a subsidiary of
manulife Financial Corporation. most of the assets backing
reserves coinsured under these sales are held in trusts
or separate accounts. However, if the reinsurers became
insolvent, we would be exposed to the risk that the assets in
the trusts and/or the separate accounts would be insufficient
to support the liabilities that would revert to us.
In January 2013, the Hartford sold its Individual Life Operations
to Prudential Financial, Inc. (“Prudential”). Included in this
transaction are the individual life policies remaining in force
that were originally transferred to the Hartford as part of
the sale of FFG. the assets backing the reserves coinsured
from the Hartford to Prudential continue to be held in trusts
or separate accounts, and we are subject to the risk that
the trust and/or separate account assets are insufficient
to support the liabilities that would revert to us. Although
the Hartford remains responsible for the sufficiency of the
assets backing the reserves, we face risks related to any
administrative system changes Prudential implements in
administering the business.
the A.m. Best ratings of the Hartford and John Hancock
are currently A- and A+, respectively. A.m. Best currently
maintains a stable outlook on both the Hartford’s and John
Hancock’s financial strength ratings.
We also face the risk of again becoming responsible for
administering these businesses in the event of reinsurer
insolvency. We do not currently have the administrative systems
and capabilities to process these businesses. Accordingly, we
would need to obtain those capabilities in the event of an
Part I
ItEm 1A Risk Factors
insolvency of one or more of the reinsurers. We might be
forced to obtain such capabilities on unfavorable terms with a
resulting material adverse effect on our results of operations
and financial condition. In addition, third parties to whom
we have sold businesses in the past may in turn sell these
businesses to other third parties, and we could face risks
related to the new administrative systems and capabilities
of these third parties in administering these businesses.
For more information on these arrangements, including the
reinsurance recoverables and risk mitigation mechanisms
used, please see “Item 7A — Quantitative and Qualitative
Disclosures About market Risks — Credit Risk.”
Due to the structure of our commission
program, we are exposed to risks related
to the creditworthiness and reporting
systems of some of our agents, third party
administrations and clients in Assurant
Solutions and Assurant Specialty Property.
We are subject to the credit risk of some of the clients
and agents with which we contract in Assurant Solutions
and Assurant Specialty Property. For example, we advance
agents’ commissions as part of our preneed insurance product
offerings. these advances are a percentage of the total face
amount of coverage. there is a one-year payback provision
against the agency if death or lapse occurs within the first
policy year. If SCI, which receives the largest shares of
such agent commissions, were unable to fulfill its payback
obligations, this could have an adverse effect on our operations
and financial condition.
In addition, some of our clients, third party administrators
and agents collect and report premiums or pay claims on our
behalf. These parties’ failure to remit all premiums collected
or to pay claims on our behalf on a timely and accurate basis
could have an adverse effect on our results of operations.
The inability of our subsidiaries to pay
sufficient dividends to the holding company
could prevent us from meeting our obligations
and paying future stockholder dividends.
As a holding company whose principal assets are the capital
stock of our subsidiaries, Assurant, Inc. relies primarily on
dividends and other statutorily permissible payments from
our subsidiaries to meet our obligations for payment of
interest and principal on outstanding debt obligations, to
repurchase shares, to acquire new businesses and to pay
dividends to stockholders and corporate expenses. the
ability of our subsidiaries to pay dividends and to make such
other payments depends on their statutory surplus, future
statutory earnings, rating agency requirements and regulatory
restrictions. Except to the extent that Assurant, Inc. is a
creditor with recognized claims against our subsidiaries,
claims of the subsidiaries’ creditors, including policyholders,
have priority over creditors’ claims with respect to the assets
and earnings of the subsidiaries. If any of our subsidiaries
should become insolvent, liquidate or otherwise reorganize,
23
ASSURANT, INC. – 2015 Form 10-K Part I
ItEm 1A Risk Factors
our creditors and stockholders will have no right to proceed
against their assets or to cause the liquidation, bankruptcy
or winding-up of the subsidiary under applicable liquidation,
bankruptcy or winding-up laws. the applicable insurance laws
of the jurisdiction where each of our insurance subsidiaries
is domiciled would govern any proceedings relating to that
subsidiary, and the insurance authority of that jurisdiction
would act as a liquidator or rehabilitator for the subsidiary.
Both creditors and policyholders of the subsidiary would
be entitled to payment in full from the subsidiary’s assets
before Assurant, Inc., as a stockholder, would be entitled to
receive any distribution from the subsidiary.
the payment of dividends by any of our regulated domestic
insurance company subsidiaries in excess of specified amounts
(i.e., extraordinary dividends) must be approved by the
subsidiary’s domiciliary state department of insurance. Ordinary
dividends, for which no regulatory approval is generally
required, are limited to amounts determined by a formula,
which varies by state. the formula for the majority of the
states in which our subsidiaries are domiciled is based on the
prior year’s statutory net income or 10% of the statutory surplus
as of the end of the prior year. Some states limit ordinary
dividends to the greater of these two amounts, others limit
them to the lesser of these two amounts and some states
exclude prior year realized capital gains from prior year net
income in determining ordinary dividend capacity. Some states
have an additional stipulation that dividends may only be paid
out of earned surplus. If insurance regulators determine that
payment of an ordinary dividend or any other payments by
our insurance subsidiaries to us (such as payments under a
tax sharing agreement or payments for employee or other
services) would be adverse to policyholders or creditors, they
may block such payments that would otherwise be permitted
without prior approval. Future regulatory actions could
further restrict the ability of our insurance subsidiaries to
pay dividends. For more information on the maximum amount
our subsidiaries could pay us in 2016 without regulatory
approval, see “Item 5 — market For Registrant’s Common
Equity, Related Stockholder matters and Issuer Purchases of
Equity Securities — Dividend Policy.”
Assurant, Inc.’s credit facilities also contain limitations on
our ability to pay dividends to our stockholders if we are in
default or such dividend payments would cause us to be in
default of our obligations under the credit facilities.
Any additional material restrictions on the ability of insurance
subsidiaries to pay dividends could adversely affect Assurant,
Inc.’s ability to pay any dividends on our common stock and/or
service our debt and pay our other corporate expenses.
The success of our business strategy depends
on the continuing service of key executives and
the members of our senior management team,
and any failure to adequately provide for the
succession of senior management and other key
executives could have an adverse effect on our
results of operations.
Our business and results of operations could be adversely
affected if we fail to adequately plan for and successfully
carry out the succession of our senior management and other
key executives.
Risks Related to Our Industry
We are subject to extensive laws and
regulations, which increase our costs and could
restrict the conduct of our business.
Our insurance and other subsidiaries are subject to extensive
regulation and supervision in the jurisdictions in which they
do business. Such regulation is generally designed to protect
the interests of policyholders or other customers. To that
end, the laws of the various states and other jurisdictions
establish insurance departments and other regulatory bodies
with broad powers over, among other things: licensing and
authorizing the transaction of business; capital, surplus and
dividends; underwriting limitations; companies’ ability to enter
and exit markets; statutory accounting and other disclosure
requirements; policy forms; coverage; companies’ ability to
provide, terminate or cancel certain coverages; premium
rates, including regulatory ability to disapprove or reduce
the premium rates companies may charge; trade and claims
practices; certain transactions between affiliates; content
of disclosures to consumers; type, amount and valuation of
investments; assessments or other surcharges for guaranty
funds and companies’ ability to recover assessments through
premium increases; and market conduct and sales practices.
For a discussion of various laws and regulations affecting
our business, please see Item 1, “Business — Regulation.”
If regulatory requirements impede our ability to conduct
certain operations, our results of operations and financial
condition could be materially adversely affected. In addition,
we may be unable to maintain all required licenses and
approvals and our business may not fully comply with the
wide variety of applicable laws and regulations or the relevant
regulators’ interpretation of these laws and regulations.
In such events, the insurance regulatory authorities could
preclude us from operating, limit some or all of our activities,
or fine us. Such actions could materially adversely affect our
results of operations and financial condition.
24
ASSURANT, INC. – 2015 Form 10-K Our business is subject to risks related to
litigation and regulatory actions.
From time to time, we may be subject to a variety of legal
and regulatory actions relating to our current and past
business operations, including, but not limited to:
••industry-wide investigations regarding business practices
including, but not limited to, the use of the marketing of
certain types of insurance policies or certificates of insurance;
••actions by regulatory authorities that may restrict our ability
to increase or maintain our premium rates, require us to
reduce premium rates, imposes fines or penalties and result
in other expenses;
••market conduct examinations, for which we are required
to pay the expenses of the regulator as well as our own
expenses, and which may result in fines, penalties, or other
adverse consequences;
••disputes regarding our lender-placed insurance products
including those relating to rates, agent compensation,
consumer disclosure, continuous coverage requirements,
loan tracking services and other services that we provide
to mortgage servicers;
••disputes over coverage or claims adjudication;
••disputes over our treatment of claims, in which states or
insureds may allege that we failed to make required payments
or to meet prescribed deadlines for adjudicating claims;
••disputes regarding sales practices, disclosures, premium
refunds, licensing, regulatory compliance, underwriting
and compensation arrangements;
••disputes with agents, brokers or network providers over
compensation and termination of contracts and related claims;
••disputes alleging bundling of credit insurance and warranty
products with other products provided by financial institutions;
••disputes with tax and insurance authorities regarding our
tax liabilities;
••disputes relating to customers’ claims that the customer
was not aware of the full cost or existence of the insurance
or limitations on insurance coverage.
Further, actions by certain regulators may cause changes to the
structure of the lender—placed insurance industry, including
the arrangements under which we issue insurance and track
coverage on mortgaged properties. these changes could
materially adversely affect the results of operations of Assurant
Specialty Property and the results of operations and financial
condition of the Company. See Item 1, “Business — Regulation”
and Item 7, “management’s Discussion and Analysis — Results of
Operations — Assurant Specialty Property — Regulatory matters.”
In addition, the Company is involved in a variety of litigation
relating to its current and past business operations and may
from time to time become involved in other such actions.
In particular, the Company is a defendant in class actions
in a number of jurisdictions regarding its lender-placed
insurance programs. these cases allege a variety of claims
under a number of legal theories. the plaintiffs seek premium
refunds and other relief. The Company continues to defend
Part I
ItEm 1A Risk Factors
itself vigorously in these class actions and, as appropriate,
to enter into settlements.
We participate in settlements on terms that we consider
reasonable in light of the strength of our defenses; however,
the results of any pending or future litigation and regulatory
proceedings are inherently unpredictable and involve
significant uncertainty. Unfavorable outcomes in litigation
or regulatory proceedings, or significant problems in our
relationships with regulators, could materially adversely
affect our results of operations and financial condition, our
reputation, our ratings, and our ability to continue to do
business. they could also expose us to further investigations
or litigation. In addition, certain of our clients in the mortgage
and credit card and banking industries are the subject of
various regulatory investigations and litigation regarding
mortgage lending practices, credit insurance, debt-deferment
and debt cancellation products, and the sale of ancillary
products, which could indirectly affect our businesses.
Our business is subject to risks related to
reductions in the insurance premium rates
we charge.
the premiums we charge are subject to review by regulators.
If they consider our loss ratios to be too low, they could
require us to reduce our rates. Significant rate reductions
could materially reduce our profitability.
Lender-placed insurance products accounted for approximately
73% and 71% of Assurant Specialty Property’s net earned
premiums for the twelve months ended December 2015
and 2014, respectively. the approximate corresponding
contributions to segment net income in these periods were
78% and 73%. the portion of total segment net income
attributable to lender-placed products may vary substantially
over time depending on the frequency, severity and location
of catastrophic losses, the cost of catastrophe reinsurance and
reinstatement coverage, the variability of claim processing
costs and client acquisition costs, and other factors. In addition,
we expect placement rates for these products to decline.
the Company files rates with the state departments of
insurance in the ordinary course of business. In addition to
this routine correspondence, from time to time the Company
engages in discussions and proceedings with certain state
regulators regarding our lender-placed insurance business.
the results of such reviews may vary. As previously disclosed,
the Company has reached agreements with the New York
Department of Financial Services (the “NYDFS”), the Florida
Office of Insurance Regulation (the “FOIR”) and the California
Department of Insurance regarding the Company’s lender-
placed insurance business in those states. It is possible
that other state departments of insurance and regulatory
authorities may choose to initiate or continue to review
the appropriateness of the Company’s premium rates for
its lender-placed insurance products. If, in the aggregate,
further reviews by state departments of insurance lead to
significant decreases in premium rates for the Company’s
lender-placed insurance products, our results of operations
could be materially adversely affected.
25
ASSURANT, INC. – 2015 Form 10-K Part I
ItEm 1A Risk Factors
Changes in regulation may reduce our
profitability and limit our growth.
Legislation or other regulatory reform that increases the
regulatory requirements imposed on us or that changes the
way we are able to do business may significantly harm our
business or results of operations in the future. If we were
unable for any reason to comply with these requirements,
it could result in substantial costs to us and may materially
adversely affect our results of operations and financial
condition.
In addition, new interpretations of existing laws, or new judicial
decisions affecting the insurance industry, could adversely
affect our business.
Legislative or regulatory changes that could significantly harm
our subsidiaries and us include, but are not limited to:
••imposed reductions on premium levels, limitations on
the ability to raise premiums on existing policies, or new
minimum loss ratios;
••increases in minimum capital, reserves and other financial
viability requirements;
••enhanced or new regulatory requirements intended to
prevent future financial crises or to otherwise ensure the
stability of institutions;
••new licensing requirements;
••restrictions on the ability to offer certain types of insurance
products or service contracts;
••prohibitions or limitations on provider financial incentives
and provider risk-sharing arrangements;
••more stringent standards of review for claims denials or
coverage determinations;
••new benefit mandates;
••increased regulation relating to lender-placed insurance;
••limitations on the ability to manage health care and
utilization due to direct access laws that allow insureds
to seek services directly from specialty medical providers
without referral by a primary care provider;
••new or enhanced regulatory requirements that require
insurers to pay claims on terms other than those mandated
by underlying policy contracts; and
••restriction of solicitation of insurance consumers by funeral
board laws for prefunded funeral insurance coverage.
In recent years, significant attention has been focused on the
procedures that life insurers follow to identify unreported
death claims. In November 2011, the National Conference of
Insurance Legislators (“NCOIL”) proposed a model rule that
would govern unclaimed property policies for insurers and
mandate the use of the U.S. Social Security Administration’s
Death Master File (the “Death Master File”) to identify
deceased policyholders and beneficiaries. Certain state
insurance regulators have also focused on this issue. For
example, the NYDFS issued a letter requiring life insurers
doing business in New York to use data from the Death
26
master File to search proactively for deceased policyholders
and to pay claims without the receipt of a valid claim by
or on behalf of a beneficiary. the Company evaluated the
impact of the NCOIL model rule and established reserves
for additional claim liabilities in certain of its businesses.
It is possible that existing reserves may be inadequate and
need to be increased and/or that the Company may be
required to establish reserves for businesses the Company
does not currently believe are subject to the NCOIL model
rule or any similar regulatory requirement. In addition, it is
possible that these regulators or regulators in other states
may adopt regulations similar to the NCOIL model rule or to
the requirements imposed by the NYDFS.
In addition, regulators in certain states have hired third party
auditors to audit the unclaimed property records of insurance
companies operating in those states. Among other companies,
the Company is currently subject to these audits in a number
of states and has been responding to information requests
from these auditors.
Proposals are currently pending to amend state insurance
holding company laws to increase the scope of insurance
holding company regulation. these include the NAIC
“Solvency modernization Initiative,” which focuses on capital
requirements, and the Solvency II Directive, which became
effective in January 2016. the Solvency II Directive reforms
the insurance industry’s solvency framework, including, among
other items, minimum capital and solvency requirements.
Various state and federal regulatory authorities have taken
actions with respect to our lender-placed insurance business. On
January 16, 2015, at the request of the Indiana Department of
Insurance, the National Association of Insurance Commissioners
(the “NAIC”) authorized an industry-wide multistate targeted
market conduct examination focusing on lender placed
insurance. Several insurance companies, including American
Security Insurance Company, are subject to the examination.
At present, 43 jurisdictions are participating. During the
course of 2015, the Company has cooperated in responding to
requests for information and documents and has engaged in
various communications with the examiners. the examination
continues and no final report has been issued.
We cannot predict the full effect of these or any other
regulatory initiatives on the Company at this time, but they
could have a material adverse effect on the Company’s results
of operations, cash flows and financial condition.
Reform of the health insurance industry could
materially reduce the profitability of certain
of our businesses or render them unprofitable.
Although the Assurant Health business is in run-off, some
provisions of the Affordable Care Act continue to apply to us.
As a result, although Assurant Health has made, and continues
to make, significant changes to its operations and products to
adapt to the new environment consistent with the wind-down,
this business continues to experience losses, which we have
been and may continue to be unable to limit to the extent
we would like through the completion of the wind-down.
ASSURANT, INC. – 2015 Form 10-K In addition, the results of our health insurance operations
are heavily dependent on the ongoing implementation of
the reinsurance, risk adjustment and risk corridors programs
under the Affordable Care Act. These programs may not be
effective in appropriately mitigating any adverse effects of
the Affordable Care Act on the Company. Furthermore, the
reinsurance and risk corridor programs may not be adequately
funded by the United States Congress from time to time.
Consequently, it may be difficult, in some circumstances,
to capture, determine and deliver amounts payable to or
receivable by us under these programs, which could have a
material adverse effect on our results of operations.
the Affordable Care Act and related reforms have made and
will continue to make sweeping and fundamental changes
to the U.S. health care system. For more information on the
Affordable Care Act and its impact on our Assurant Health
and Assurant Employee Benefits segments, please see Item 1,
“Business — Regulation — Federal Regulation — Patient
Protection and Affordable Care Act.”
Among other requirements, the Affordable Care Act requires
that Assurant Health rebate to consumers the difference
between its actual loss ratios and required minimum medical
loss ratios (by state and legal entity) for certain products.
Please see “Item 7 — management’s Discussion & Analysis —
Critical Accounting Estimates — Health Insurance Premium
Rebate Liability” for more information about the minimum
medical loss ratio and the Company’s rebate estimate
calculations. In addition, the Affordable Care Act imposes
limitations on the deductibility of compensation and certain
other payments.
In addition, some uncertainty remains surrounding the
mechanics of inclusion of pediatric dental coverage in the
package of essential health benefits; unfavorable resolution
of this uncertainty could decrease revenues in our Assurant
Employee Benefits business.
Part I
ItEm 1A Risk Factors
The insurance and related businesses in
which we operate may be subject to periodic
negative publicity, which may negatively affect
our financial results.
We communicate with and distribute our products and services
ultimately to individual consumers. there may be a perception
that some of these purchasers may be unsophisticated and
in need of consumer protection. Accordingly, from time to
time, consumer advocacy groups or the media may focus
attention on our products and services, thereby subjecting
us to negative publicity.
We may also be negatively affected if another company
in one of our industries or in a related industry engages
in practices resulting in increased public attention to our
businesses. Negative publicity may also result from judicial
inquiries, unfavorable outcomes in lawsuits, or regulatory or
governmental action with respect to our products, services
and industry commercial practices. Negative publicity may
cause increased regulation and legislative scrutiny of industry
practices as well as increased litigation or enforcement
action by civil and criminal authorities. Additionally, negative
publicity may increase our costs of doing business and adversely
affect our profitability by impeding our ability to market
our products and services, constraining our ability to price
our products appropriately for the risks we are assuming,
requiring us to change the products and services we offer, or
increasing the regulatory burdens under which we operate.
The insurance industry can be cyclical, which
may affect our results.
Certain lines of insurance that we write can be cyclical.
Although no two cycles are the same, insurance industry
cycles have typically lasted for periods ranging from two to
ten years. In addition, the upheaval in the global economy
in recent years has been much more widespread and has
affected all the businesses in which we operate. We expect
to see continued cyclicality in some or all of our businesses
in the future, which may have a material adverse effect on
our results of operations and financial condition.
Risks Related to Our Common Stock
Given the recent economic climate, our stock
may be subject to stock price and trading
volume volatility. The price of our common
stock could fluctuate or decline significantly and
you could lose all or part of your investment.
In recent years, the stock markets have experienced significant
price and trading volume volatility. Company-specific issues
and market developments generally in the insurance industry
and in the regulatory environment may have caused this
volatility. Our stock price could materially fluctuate or
decrease in response to a number of events and factors,
including but not limited to: quarterly variations in operating
results; operating and stock price performance of comparable
companies; changes in our financial strength ratings; limitations
on premium levels or the ability to maintain or raise premiums
on existing policies; regulatory developments and negative
publicity relating to us or our competitors. In addition, broad
market and industry fluctuations may materially and adversely
affect the trading price of our common stock, regardless of
our actual operating performance.
27
ASSURANT, INC. – 2015 Form 10-K Part I
ItEm 1A Risk Factors
Applicable laws, our certificate of
incorporation and by-laws, and contract
provisions may discourage takeovers and
business combinations that some stockholders
might consider to be in their best interests.
State laws and our certificate of incorporation and by-laws
may delay, defer, prevent or render more difficult a takeover
attempt that our stockholders might consider in their best
interests. For example, Section 203 of the General Corporation
Law of the State of Delaware may limit the ability of an
“interested stockholder” to engage in business combinations
with us. An interested stockholder is defined to include
persons owning 15% or more of our outstanding voting stock.
these provisions may also make it difficult for stockholders
to replace or remove our directors, facilitating director
enhancement that may delay, defer or prevent a change in
control. Such provisions may prevent our stockholders from
receiving the benefit from any premium to the market price of
our common stock offered by a bidder in a takeover context.
Even in the absence of a takeover attempt, the existence of
these provisions may adversely affect the prevailing market
price of our common stock if they are viewed as discouraging
future takeover attempts.
Our certificate of incorporation or by-laws also contain
provisions that permit our Board of Directors to issue one
or more series of preferred stock, prohibit stockholders
from filling vacancies on our Board of Directors, prohibit
stockholders from calling special meetings of stockholders
and from taking action by written consent, and impose
advance notice requirements for stockholder proposals and
nominations of directors to be considered at stockholder
meetings.
Additionally, applicable state insurance laws may require prior
approval of an application to acquire control of a domestic
insurer. State statutes generally provide that control over a
domestic insurer is presumed to exist when any person directly
or indirectly owns, controls, has voting power over, or holds
proxies representing, 10% or more of the domestic insurer’s
voting securities. However, the State of Florida, in which
some of our insurance subsidiaries are domiciled, sets this
threshold at 5%. Because a person acquiring 5% or more of our
common stock would indirectly control the same percentage
of the stock of our Florida subsidiaries, the insurance change
of control laws of Florida would apply to such transaction and
at 10% the laws of many other states would likely apply to
such a transaction. Prior to granting such approval, a state
insurance commissioner will typically consider such factors
as the financial strength of the applicant, the integrity of
the applicant’s board of directors and executive officers, the
applicant’s plans for the future operations of the domestic
insurer and any anti-competitive results that may arise from
the consummation of the acquisition of control.
We may also, under some circumstances involving a change of
control, be obligated to repay our outstanding indebtedness
under our revolving credit facility and other agreements.
We or any possible acquirer may not have available financial
resources necessary to repay such indebtedness in those
circumstances, which may constitute an event of default
resulting in acceleration of indebtedness and potential
cross-default under other agreements. the threat of this
could have the effect of delaying or preventing transactions
involving a change of control, including transactions in which
our stockholders would receive a substantial premium for
their shares over then-current market prices, or which they
otherwise may deem to be in their best interests.
28
ASSURANT, INC. – 2015 Form 10-K ItEm 1B Unresolved Staff Comments
None.
Part I
ItEm 4 Mine Safety Disclosures
ItEm 2 Properties
We own eight properties, including five buildings whose
locations serve as headquarters for our operating segments,
two buildings that serve as operation centers for Assurant
Specialty Property and one building that serves as a claims
training center for Assurant Specialty Property. Assurant
Solutions and Assurant Specialty Property share headquarters
buildings located in miami, Florida and Atlanta, Georgia.
Assurant Specialty Property has operations centers located
in Florence, South Carolina and Springfield, Ohio. Assurant
Solutions’ preneed business also has a headquarters building
in Rapid City, South Dakota. Assurant Employee Benefits has
a headquarters building in Kansas City, missouri. Assurant
Health has a headquarters building in milwaukee, Wisconsin.
We lease office space for various offices and service centers
located throughout the U.S. and internationally, including
our New York, New York corporate office and our data center
in Woodbury, minnesota. Our leases have terms ranging
from month-to-month to fifteen years. We believe that our
owned and leased properties are adequate for our current
business operations.
ItEm 3
Legal Proceedings
the Company is involved in litigation in the ordinary course
of business, both as a defendant and as a plaintiff and
may from time to time be subject to a variety of legal and
regulatory actions relating to our current and past business
operations. See Note 25 to the Notes to Consolidated Financial
Statements for a description of certain matters, which
description is incorporated herein by reference. Although
the Company cannot predict the outcome of any litigation,
regulatory examinations or investigations, it is possible that
the outcome of such matters could have a material adverse
effect on the Company’s consolidated results of operations
or cash flows for an individual reporting period. However,
based on currently available information, management
does not believe that any pending matter is likely to have
a material adverse effect, individually or in the aggregate,
on the Company’s financial condition.
ItEm 4 Mine Safety Disclosures
Not applicable.
29
ASSURANT, INC. – 2015 Form 10-K PART II
PART II
ITEM 5 Market for Registrant’s Common Equity,
Related Stockholder Matters and Issuer
Purchases of Equity Securities
Stock Performance Graph
The following chart compares the total stockholder returns
(stock price increase plus dividends paid) on our common stock
from December 31, 2010 through December 31, 2015 with
the total stockholder returns for the S&P 400 MidCap Index
and the S&P 500 Index, as the broad equity market indexes,
and the S&P 400 Multi-line Insurance Index and the S&P 500
Multi-line Insurance Index, as the published industry indexes.
The graph assumes that the value of the investment in the
common stock and each index was $100 on December 31,
2010 and that all dividends were reinvested.
Comparison of Cumulative Total Return
$300
$250
$200
$150
$100
$50
$0
12/31/10
12/31/11
12/31/12
12/31/13
12/31/14
12/31/15
Assurant, Inc.
S&P 500 Index
S&P 400 MidCap Index
S&P 500 Multi-line Insurance Index*
S&P 400 Multi-line Insurance Index*
TOTAL VALUES/RETURN TO STOCKHOLDERS (Includes reinvestment of dividends)
Company / Index
Assurant, Inc.
S&P 500 Index
S&P 400 MidCap Index
S&P 500 Multi-line Insurance Index*
S&P 400 Multi-line Insurance Index*
Base Period
12/31/10
100
100
100
100
100
12/31/11
108.58
102.11
98.27
72.91
108.58
Indexed Values
Years Ending
12/31/13
182.88
156.82
154.64
136.63
179.93
12/31/12
93.86
118.45
115.83
92.38
130.19
12/31/14
191.56
178.29
169.74
143.14
196.79
12/31/15
229.73
180.75
166.05
153.51
244.95
30
ASSURANT, INC. – 2015 Form 10-K PART II
ITEM 5 Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Annual Return Percentage
Years Ending
Company / Index
Assurant, Inc.
S&P 500 Index
S&P 400 MidCap Index
S&P 500 Multi-line Insurance Index*
S&P 400 Multi-line Insurance Index*
*
12/31/15
19.93
1.38
(2.18)
7.24
24.47
S&P 400 Multi-line Insurance Index is comprised of mid-cap companies, while the S&P 500 Multi-line Insurance Index is comprised of large-cap companies.
12/31/11
8.58
2.11
(1.73)
(27.09)
8.58
12/31/12
(13.56)
16.00
17.88
26.70
19.90
12/31/14
4.75
13.69
9.77
4.77
9.37
12/31/13
94.85
32.39
33.50
47.90
38.21
Common Stock Price
Our common stock is listed on the NYSE under the symbol “AIZ.” The following table sets forth the high and low intraday
sales prices per share of our common stock as reported by the NYSE for the periods indicated.
Year Ended December 31, 2015
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Year Ended December 31, 2014
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Holders
$
$
$
$
$
$
$
$
High
67.77 $
68.87 $
79.60 $
86.81 $
High
68.70 $
69.39 $
66.84 $
69.52 $
Low
60.22 $
59.86 $
68.14 $
78.25 $
Low
63.60 $
44.98 $
63.36 $
60.81 $
Dividends
0.27
0.30
0.30
0.50
Dividends
0.25
0.27
0.27
0.27
On February 10, 2016, there were approximately 204 registered holders of record of our common stock. The closing price
of our common stock on the NYSE on February 10, 2016 was $66.23.
Please see Item 12 of this report for information about securities authorized for issuance under our equity compensation plans.
Shares Repurchased
$
$
Approximate Dollar Value
of Shares that May
Yet be Repurchased Under
the Programs(1)
Period in 2015
452,018
$
January 1 – January 31
444,691
February 1 – February 28
405,035
March 1 – March 31
405,035
Total first quarter
365,878
April 1 – April 30
335,257
May 1 – May 31
302,841
June 1 – June 30
302,841
Total second quarter
281,284
July 1 – July 31
276,317
August 1 – August 31
1,026,317
September 1 – September 30
1,026,317
Total third quarter
952,103
October 1 – October 31
952,103
November 1 – November 30
952,103
December 1 – December 31
952,103
Total fourth quarter
952,103
TOTAL THROUGH DECEMBER 31
(1) Shares purchased pursuant to the November 15, 2013 publicly announced share repurchase authorization of up to $600,000 of outstanding common stock,
Total Number of
Shares Purchased as
Part of Publicly
Announced Programs(1)
529,100
120,000
645,000
1,294,100
640,000
472,000
482,586
1,594,586
303,807
67,436
—
371,243
924,960
—
—
924,960
4,184,889
Average Price
Paid Per Share
65.51
61.07
61.50
63.10
61.20
64.89
67.19
64.11
70.98
73.67
—
71.47
80.26
—
—
80.26
68.02
Total Number
of Shares
Purchased
529,100
120,000
645,000
1,294,100
640,000
472,000
482,586
1,594,586
303,807
67,436
—
371,243
924,960
—
—
924,960
4,184,889
$
$
$
$
$
$
$
which was increased by an authorization on September 9, 2015 for the repurchase of up to an additional $750,000 of outstanding common stock.
31
ASSURANT, INC. – 2015 Form 10-K
PART II
ITEM 6 Selected Financial Data
Dividend Policy
On January 15, 2016, our Board of Directors declared a quarterly
dividend of $0.50 per common share payable on March 14, 2016
to stockholders of record as of February 29, 2016. We paid
dividends of $0.50 per common share on December 14, 2015,
$0.30 on September 15, 2015 and June 9, 2015, and $0.27
on March 9, 2015. We paid dividends of $0.27 per common
share on December 15, 2014, September 9, 2014 and June 10,
2014, and $0.25 per common share on March 10, 2014. Any
determination to pay future dividends will be at the discretion
of our Board of Directors and will be dependent upon: our
subsidiaries’ payment of dividends and/or other statutorily
permissible payments to us; our results of operations and cash
flows; our financial position and capital requirements; general
business conditions; any legal, tax, regulatory and contractual
restrictions on the payment of dividends; and any other factors
our Board of Directors deems relevant.
Assurant, Inc. is a holding company and, therefore, its ability
to pay dividends, service its debt and meet its other obligations
depends primarily on the ability of its regulated U.S. domiciled
insurance subsidiaries to pay dividends and make other statutorily
permissible payments to the holding company. Our insurance
subsidiaries are subject to significant regulatory and contractual
restrictions limiting their ability to declare and pay dividends.
See “Item 1A—Risk Factors—Risks Relating to Our Company—The
inability of our subsidiaries to pay sufficient dividends to the
holding company could prevent us from meeting our obligations
and paying future stockholder dividends.” For the calendar year
2016, the maximum amount of dividends our regulated U.S.
domiciled insurance subsidiaries could pay us, under applicable
laws and regulations without prior regulatory approval, is
approximately $564,000. Dividends or returns of capital paid
by our subsidiaries, net of infusions and excluding amounts
received from dispositions and amounts used for acquisitions,
totaled $174,579 in 2015.
We may seek approval of regulators to pay dividends in excess
of any amounts that would be permitted without such approval.
However, there can be no assurance that we would obtain such
approval if sought.
Payments of dividends on shares of common stock are subject
to the preferential rights of preferred stock that our Board of
Directors may create from time to time. There is no preferred
stock issued and outstanding as of December 31, 2015. For more
information regarding restrictions on the payment of dividends
by us and our insurance subsidiaries, including those pursuant
to the terms of our revolving credit facilities, see “Item 7—
Management’s Discussion and Analysis of Financial Condition
and Results of Operations—Liquidity and Capital Resources.”
In addition, our $400,000 revolving credit facility restricts
payments of dividends if an event of default under the facility
has occurred or if a proposed dividend payment would cause
an event of default under the facility.
ITEM 6
Selected Financial Data
ASSURANT, INC.
FIVE-YEAR SUMMARY OF SELECTED FINANCIAL DATA
Consolidated Statement of Operations Data:
Revenues
Net earned premiums
Net investment income
Net realized gains on investments(1)
Amortization of deferred gain on disposal of
businesses
Fees and other income
As of and for the years ended December 31,
2015
2014
2013
2012
2011
$
8,350,997 $
626,217
31,826
8,632,142 $
656,429
60,783
7,759,796 $
650,296
34,525
7,236,984 $
713,128
64,353
7,125,368
689,532
32,580
12,988
1,303,466
(1,506)
1,033,805
16,310
586,730
18,413
475,392
20,461
404,863
Total revenues
10,325,494
10,381,653
9,047,657
8,508,270
8,272,804
Benefits, losses and expenses
Policyholder benefits(2)
Amortization of deferred acquisition costs and value
of businesses acquired
Underwriting, general and administrative expenses
Interest expense
Total benefits, losses and expenses
Income before provision for income taxes
Provision for income taxes(3)
NET INCOME
4,742,535
4,405,333
3,675,532
3,655,404
3,749,734
1,402,573
3,924,089
55,116
10,124,313
201,181
59,626
141,555 $
1,485,558
3,688,230
58,395
9,637,516
744,137
273,230
470,907 $
$
1,470,287
3,034,404
77,735
8,257,958
789,699
300,792
488,907 $
1,403,215
2,631,594
60,306
7,750,519
757,751
274,046
483,705 $
1,327,788
2,428,795
60,360
7,566,677
706,127
167,171
538,956
32
ASSURANT, INC. – 2015 Form 10-K
PART II
ITEM 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations
Earnings per share:
Basic
Diluted
As of and for the years ended December 31,
2015
2014
2013
2012
2011
$
$
2.08 $
2.05 $
6.52 $
6.44 $
6.38 $
6.30 $
5.74 $
5.67 $
5.58
5.51
$
0.70
1.37 $
0.96 $
0.81 $
1.06 $
68,163,825
853,384
72,181,447
970,563
DIVIDENDS PER SHARE
Share data:
Weighted average shares outstanding used in basic
per share calculations
Plus: Dilutive securities
WEIGHTED AVERAGE SHARES USED IN
DILUTED PER SHARE CALCULATIONS
Selected Consolidated Balance Sheet Data:
Cash and cash equivalents and investments
Total assets
Policy liabilities(4)
Debt
Total stockholders’ equity
Per share data:
Total book value per basic share(5)
54.31
67.92 $
(1) Included in net realized gains are other-than-temporary impairments of $5,024, $30, $4,387, $1,843 and $7,836 for 2015, 2014, 2013, 2012, and
$ 14,283,077 $ 15,450,108 $ 15,961,199 $ 15,885,722 $
$ 30,043,128 $ 31,562,466 $ 29,714,689 $ 28,946,607 $
$ 19,787,133 $ 19,711,953 $ 18,698,615 $ 18,666,355 $
972,399 $
$
5,185,366 $
$
15,192,878
27,019,862
17,278,342
972,278
4,873,950
76,648,688
1,006,076
84,276,427
1,030,638
1,171,079 $
5,181,307 $
1,638,118 $
4,833,479 $
1,171,382 $
4,523,967 $
96,626,306
1,169,003
73,152,010
69,017,209
85,307,065
77,654,764
97,795,309
73.73 $
64.93 $
66.23 $
$
2011, respectively.
(2) 2015 includes higher loss experience and adverse claim development on 2015 individual major medical policies. During 2012, we incurred losses
of $250,206, net of reinsurance, mainly associated with Superstorm Sandy. During 2011, we incurred losses of $157,645 associated with Hurricane
Irene, Tropical Storm Lee, wildfires in Texas and severe storms, including tornadoes in the southeast. Reportable catastrophe losses include only
individual catastrophic events that generated losses to the Company in excess of $5,000, pre-tax and net of reinsurance.
(3) During 2011, we had an $80,000 release of a capital loss valuation allowance related to deferred tax assets.
(4) Policy liabilities include future policy benefits and expenses, unearned premiums and claims and benefits payable.
(5) Total stockholders’ equity divided by the basic shares outstanding for book value per basic share calculation. At December 31, 2015, 2014, 2013,
2012, and 2011 there were 66,606,258, 70,276,896, 72,982,023, 79,866,858, and 89,743,761 shares, respectively, outstanding.
ITEM 7 Management’s Discussion and Analysis
of Financial Condition and Results
of Operations
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with
our consolidated financial statements and accompanying notes which appear elsewhere in this report. It contains forward-
looking statements that involve risks and uncertainties. Our actual results may differ materially from those anticipated in
these forward-looking statements as a result of various factors, including those discussed below and elsewhere in this report,
particularly under the headings “Item 1A—Risk Factors” and “Forward-Looking Statements.”
33
ASSURANT, INC. – 2015 Form 10-K
PART II
ITEM 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations
General
We report our results through five segments: Assurant Solutions,
Assurant Specialty Property, Assurant Health, Assurant Employee
Benefits, and Corporate and Other. The Corporate and Other
segment includes activities of the holding company, financing
and interest expenses, net realized gains (losses) on investments
and investment income earned from short-term investments
held. The Corporate and Other segment also includes the
amortization of deferred gains associated with the sales of FFG
and LTC, through reinsurance agreements as described below.
Executive Summary
The following discussion covers the twelve months ended
December 31, 2015 (“Twelve Months 2015”), twelve months
ended December 31, 2014 (“Twelve Months 2014”) and twelve
months ended December 31, 2013 (“Twelve Months 2013”).
Please see the discussion that follows, for each of these
segments, for a more detailed analysis of the fluctuations.
Consolidated net income decreased $329,352, or 70%, to
$141,555 for Twelve Months 2015 from $470,907 for Twelve
Months 2014. The decrease was primarily related to higher loss
experience and adverse claims development on 2015 individual
major medical policies, a reduction in the 2014 estimated
recoveries from the Affordable Care Act risk mitigation
programs and $106,389 (after-tax) of exit and disposal costs,
including premium deficiency reserve accruals, severance and
retention costs, long-lived asset impairments and other costs
associated with our exit from the health insurance market.
Total revenues decreased $365,948 to $2,543,105 for Twelve
Months 2015 from $2,909,053 for Twelve Months 2014. The
decrease was primarily due to the divestiture of ARIC, combined
with lower lender-placed homeowners insurance net earned
premiums. The decline in lender-placed homeowners insurance
net earned premiums is primarily due to a decline in placement
rates, lower premium rates and previously disclosed loss
of client business. These items were partially offset by an
increase in fees and other income reflecting contributions
from mortgage solutions businesses.
Assurant Solutions net income decreased $21,765, or 10%, to
$197,183 for Twelve Months 2015 from $218,948 for Twelve
Months 2014. The decrease was primarily due to the previously
disclosed loss of a domestic mobile tablet program and
declining service contract volumes at certain North American
retail clients.
The Twelve Months 2015 expense ratio increased 620 basis
points compared with Twelve Months 2014. The increase was
primarily due to lower net earned premiums and higher legal
costs related to outstanding matters. In addition, growth in
fee-based businesses, which have higher expense ratios than
our insurance products, contributed to the increase.
Total revenues were relatively flat at $4,178,140 for Twelve
Months 2015 compared with $4,179,360 for Twelve Months
2014. Net earned premiums decreased $113,022 primarily
due to foreign exchange volatility, the loss of a domestic
mobile tablet program and the continued run-off of our
credit insurance business. These items were partially offset
by growth from our auto warranty business and from a large
domestic service contract client.
Overall, we expect Assurant Solutions 2016 net income and
net earned premiums and fees to increase from Twelve
Months 2015 amounts. Results are expected to improve in the
second half of 2016 driven by new mobile programs, improved
international profitability and additional expense initiatives.
Foreign exchange volatility, lower service contract revenue
from legacy North American retail clients and continued run-
off in credit insurance will impact results.
Assurant Specialty Property net income decreased $34,052,
or 10%, to $307,705 for Twelve Months 2015 from $341,757
for Twelve Months 2014. The decrease is primarily due to
the previously disclosed loss of client business and ongoing
normalization in our lender-placed homeowners insurance
business, partially offset by more favorable non-catastrophe
loss experience and lower catastrophe reinsurance costs. The
divestiture of American Reliable Insurance Company (“ARIC”)
also contributed to the decrease in net income.
For 2016, we expect Assurant Specialty Property net income and
net earned premiums to decrease compared with Twelve Months
2015 reflecting the ongoing normalization of lender-placed
insurance business partially offset by increased efficiencies,
including the implementation of new technology, and other
expense savings initiatives. Contributions from multi-family
housing and mortgage solutions businesses are expected to
partially offset the decline. In addition, catastrophe losses
may affect overall results.
As previously announced, the Company concluded a
comprehensive review of strategic alternatives for its health
business and expects to substantially complete the process to
exit the health insurance market in 2016. During the remainder
of the exit process, we expect to incur up to $50,000 of
additional exit-related charges, as well as certain overhead
expenses that are excluded from the premium deficiency
reserve accrual.
In addition, the Company signed a definitive agreement to
sell its Assurant Employee Benefits segment to Sun Life. The
transaction is expected to close by the end of First Quarter
2016.
For more information, see Notes 3 and 4 of the Notes to the
Consolidated Financial Statements included elsewhere in
this report.
34
ASSURANT, INC. – 2015 Form 10-K PART II
ITEM 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations
Critical Factors Affecting Results
Our results depend on the appropriateness of our product
pricing, underwriting and the accuracy of our methodology
for the establishment of reserves for future policyholder
benefits and claims, returns on and values of invested assets
and our ability to manage our expenses. Factors affecting
these items, including unemployment, difficult conditions
in financial markets and the global economy, may have
a material adverse effect on our results of operations or
financial condition. For more information on these factors,
see “Item 1A—Risk Factors.”
Management believes the Company will have sufficient liquidity
to satisfy its needs over the next twelve months including
the ability to pay interest on our senior notes and dividends
on our common stock.
For Twelve Months 2015, net cash provided by operating
activities, including the effect of exchange rate changes and
the reclassification of assets held for sale on cash and cash
equivalents, totaled $192,483; net cash provided by investing
activities totaled $264,293 and net cash used in financing
activities totaled $487,127. We had $1,288,305 in cash and
cash equivalents as of December 31, 2015. Please see “—
Liquidity and Capital Resources,” below for further details.
Revenues
We generate revenues primarily from the sale of our insurance
policies and service contracts and from investment income
earned on our investments. Sales of insurance policies are
recognized in revenue as earned premiums while sales of
administrative services are recognized as fee income.
Under the universal life insurance guidance, income earned
on preneed life insurance policies sold after January 1, 2009
are presented within policy fee income net of policyholder
benefits. Under the limited pay insurance guidance, the
consideration received on preneed policies sold prior to
January 1, 2009 is presented separately as net earned
premiums, with policyholder benefits expense being shown
separately.
Our premium and fee income is supplemented by income
earned from our investment portfolio. We recognize revenue
from interest payments, dividends and sales of investments.
Currently, our investment portfolio is primarily invested
in fixed maturity securities. Both investment income
and realized capital gains on these investments can be
significantly affected by changes in interest rates.
Critical Accounting Estimates
Interest rate volatility can increase or reduce unrealized
gains or losses in our investment portfolios. Interest rates
are highly sensitive to many factors, including governmental
monetary policies, domestic and international economic and
political conditions and other factors beyond our control.
Fluctuations in interest rates affect our returns on, and the
market value of, fixed maturity and short-term investments.
The fair market value of the fixed maturity securities in
our investment portfolio and the investment income from
these securities fluctuate depending on general economic
and market conditions. The fair market value generally
increases or decreases in an inverse relationship with
fluctuations in interest rates, while net investment income
realized by us from future investments in fixed maturity
securities will generally increase or decrease with interest
rates. We also have investments that carry pre-payment
risk, such as mortgage-backed and asset-backed securities.
Interest rate fluctuations may cause actual net investment
income and/or cash flows from such investments to differ
from estimates made at the time of investment. In periods
of declining interest rates, mortgage prepayments generally
increase and mortgage-backed securities, commercial
mortgage obligations and bonds are more likely to be
prepaid or redeemed as borrowers seek to borrow at lower
interest rates. Therefore, in these circumstances we may be
required to reinvest those funds in lower-interest earning
investments.
Expenses
Our expenses are primarily policyholder benefits, underwriting,
general and administrative expenses and interest expense.
Policyholder benefits are affected by our claims management
programs, reinsurance coverage, contractual terms and
conditions, regulatory requirements, economic conditions, and
numerous other factors. Benefits paid or reserves required for
future benefits could substantially exceed our expectations,
causing a material adverse effect on our business, results of
operations and financial condition.
Underwriting, general and administrative expenses consist
primarily of commissions, premium taxes, licenses, fees,
amortization of deferred costs, general operating expenses
and income taxes.
We incur interest expense related to our debt.
Certain items in our consolidated financial statements are
based on estimates and judgment. Differences between
actual results and these estimates could in some cases have
material impacts on our consolidated financial statements.
The following critical accounting policies require significant
estimates. The actual amounts realized in these areas could
ultimately be materially different from the amounts currently
provided for in our consolidated financial statements.
35
ASSURANT, INC. – 2015 Form 10-K PART II
ITEM 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations
Health Insurance Premium Rebate Liability
The Affordable Care Act was signed into law in March 2010. One
provision of the Affordable Care Act, effective January 1, 2011,
established a minimum medical loss ratio (“MLR”) designed
to ensure that a minimum percentage of premiums is paid for
clinical services or health care quality improvement activities.
The Affordable Care Act established an MLR of 80% for individual
and small group business and 85% for large group business. If
the actual loss ratios, calculated in a manner prescribed by
the Department of Health and Human Services (“HHS”), are
less than the required MLR, premium rebates are payable to
the policyholders by August 1 of the subsequent year.
The Assurant Health loss ratio reported in “Results of Operations”
below (the “GAAP loss ratio”) differs from the loss ratio
calculated under the MLR rules. The most significant differences
include: the fact that the MLR is calculated separately by
state, legal entity and type of coverage (individual or group);
the MLR calculation includes credibility adjustments for
each state/entity/coverage cell, which are not applicable
to the GAAP loss ratio; the MLR calculation applies only to
some of our health insurance products, while the GAAP loss
ratio applies to the entire portfolio, including products not
governed by the Affordable Care Act; the MLR includes quality
improvement expenses, taxes and fees; changes in reserves
and Affordable Care Act risk mitigation program amounts are
treated differently in the MLR calculation; the MLR premium
rebate amounts are considered adjustments to premiums for
GAAP reporting whereas they are reported as additions to
incurred claims in the MLR rebate estimate calculations; and
the MLR is calculated using a rolling three years of experience
while the GAAP loss ratio represents the current year only.
Assurant Health has estimated the 2015 impact of this regulation
based on definitions and calculation methodologies outlined
in the HHS regulations and guidance. The estimate was based
on separate projection models for individual medical and
small group business using projections of expected premiums,
claims, and enrollment by state, legal entity and market for
medical businesses subject to MLR requirements for the MLR
reporting year. In addition, the projection models include
quality improvement expenses, state assessments, taxes, and
estimated impacts of the Affordable Care Act risk mitigation
programs (commonly referred to as the “3R’s”). The premium
rebate is presented as a reduction of net earned premiums
in the consolidated statement of operations and included in
unearned premiums in the consolidated balance sheet.
Affordable Care Act Risk Mitigation Programs
Beginning in 2014, the Affordable Care Act introduced new and
significant premium stabilization programs. These programs,
discussed in further detail below, are meant to mitigate the
potential adverse impact to individual health insurers as a
result of Affordable Care Act provisions that became effective
January 1, 2014. A three-year (2014-2016) reinsurance
program provides reimbursement to insurers for high cost
individual business sold on or off the public marketplaces.
The reinsurance entity established by HHS is funded by a
per-member reinsurance fee assessed on all commercial
medical plans, including self-insured group health plans. Only
Affordable Care Act individual plans are eligible for recoveries
if claims exceed a specified threshold, up to a reinsurance
cap. Reinsurance contributions associated with Affordable
Care Act individual plans are reported as a reduction in net
earned premiums in the consolidated statements of operations,
and estimated reinsurance recoveries are established as
reinsurance recoverables in the consolidated balance sheets
with an offsetting reduction in policyholder benefits in the
consolidated statement of operations. Reinsurance fee
contributions for non-Affordable Care Act business are reported
in underwriting, general and administrative expenses in the
consolidated statement of operations.
A permanent risk adjustment program transfers funds from
insurers with lower risk populations to insurers with higher risk
populations based on the relative risk scores of participants
in Affordable Care Act plans in the individual and small group
markets, both on and off the public marketplaces. Based
on the risk of its members compared to the total risk of all
members in the same state and market, considering data
obtained from industry studies, the Company estimates its
year-to-date risk adjustment transfer amount. The Company
records a risk adjustment transfer receivable (payable) in
premiums and accounts receivable (unearned premium) in the
consolidated balance sheets, with an offsetting adjustment
to net earned premiums in the consolidated statements of
operations when the amounts are reasonably estimable and
collection is reasonably assured.
A three-year (2014-2016) risk corridor program limits insurer
gains and losses by comparing allowable medical costs to
a target amount as defined by HHS. This program applies
to a subset of Affordable Care Act eligible individual and
small group products certified as Qualified Health Plans.
The public marketplace can only sell Qualified Health Plans.
In addition, carriers who sell Qualified Health Plans on
the public marketplace can also sell them off the public
marketplace. Variances from the target amount exceeding
certain thresholds may result in amounts due to or due
from HHS. During 2015, the Company participated in the
federal insurance public marketplaces so the risk corridor
program is applicable. However, as the current full funding
for this program is unclear at this time, no accruals were
established for any receivable amounts from this program
for 2015, so there was no impact on the Company’s 2015
operations. The Company does not anticipate any payables
into this program for 2015.
36
ASSURANT, INC. – 2015 Form 10-K PART II
ITEM 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations
Reserves
Reserves are established in accordance with GAAP using
generally accepted actuarial methods and reflect judgments
about expected future claim payments. Calculations
incorporate assumptions about inflation rates, the incidence
of incurred claims, the extent to which all claims have been
reported, future claims processing, lags and expenses and
future investment earnings, and numerous other factors.
While the methods of making such estimates and establishing
the related liabilities are periodically reviewed and updated,
the calculation of reserves is not an exact process.
Reserves do not represent precise calculations of expected
future claims, but instead represent our best estimates
at a point in time of the ultimate costs of settlement and
administration of a claim or group of claims, based upon
actuarial assumptions and projections using facts and
circumstances known at the time of calculation.
Many of the factors affecting reserve adequacy are not directly
quantifiable and not all future events can be anticipated when
reserves are established. Reserve estimates are refined as
experience develops. Adjustments to reserves, both positive
and negative, are reflected in the consolidated statement of
operations in the period in which such estimates are updated.
Because establishment of reserves is an inherently complex
process involving significant judgment and estimates, there
can be no certainty that ultimate losses will not exceed
existing claim reserves. Future loss development could require
reserves to be increased, which could have a material adverse
effect on our earnings in the periods in which such increases
are made. See “Item 1A—Risk Factors—Risks related to our
Company—Our actual claims losses may exceed our reserves
for claims, and this may require us to establish additional
reserves that may materially affect our results of operations,
profitability and capital” for more detail on this risk.
The following table provides reserve information for our major product lines for the years ended December 31, 2015 and 2014:
December 31, 2015
December 31, 2014
Future
Policy
Benefits
and
Expenses
Claims and Benefits
Payable
Unearned
Premiums
Case
Reserves
Incurred
But Not
Reported
Reserves
Future
Policy
Benefits
and
Expenses
Claims and Benefits
Payable
Unearned
Premiums
Case
Reserves
Incurred
But Not
Reported
Reserves
Long Duration Contracts:
Preneed funeral life
insurance policies and
investment-type annuity
contracts
Life insurance no longer
offered
Universal life and other
products no longer
offered
FFG, LTC and other
disposed businesses
Medical
All other
Short Duration Contracts:
Group term life
Group disability
Medical
Dental
Property and warranty
Credit life and disability
Extended service
contracts
All other
TOTAL
$ 4,670,977 $
134,534 $
13,644 $
6,324
$ 4,618,505 $
4,872 $
14,696 $
6,456
407,360
427
2,360
1,070
418,672
570
2,272
1,301
153,801
118
773
1,674
168,808
136
704
1,959
4,129,233
68,353
36,970
47,132
742
404
973,614
1,465
12,855
103,652
2,321
10,836
4,153,741
87,563
36,383
46,585
7,254
382
881,514
1,959
13,863
97,524
7,886
9,803
—
—
25,401
—
—
4,244
— 2,223,589
181,466
—
2,431
166,920
1,984 1,092,841
235,516
1,587
182,095
25,966
30,857
100,155
253,295
16,454
507,310
35,718
—
—
130,185
—
—
4,013
— 2,386,719
241,092
—
2,905
169,006
1,564 1,127,068
137,370
2,251
130,517
34,581
28,786
107,961
240,830
17,037
546,979
43,298
33,928
57,270
$9,466,694 $6,423,720 $2,735,855 $1,160,864
— 3,669,859
131,389
—
7,258
18,961
42,054
18,776
$9,483,672 $6,529,675 $2,527,956 $1,170,650
— 3,568,352
135,046
—
6,780
5,375
For a description of our reserving methodology, see Note 13 to the Notes to the Consolidated Financial Statements included
elsewhere in this report.
37
ASSURANT, INC. – 2015 Form 10-K
PART II
ITEM 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations
Long Duration Contracts
Short Duration Contracts
Reserves for future policy benefits represent the present
value of future benefits to policyholders and related expenses
less the present value of future net premiums. Reserve
assumptions reflect best estimates for expected investment
yield, inflation, mortality, morbidity, expenses and withdrawal
rates. These assumptions are based on our experience to
the extent it is credible, modified where appropriate to
reflect current trends, industry experience and provisions for
possible unfavorable deviation. We also record an unearned
revenue reserve which represents premiums received which
have not yet been recognized in our consolidated statements
of operations.
Historically, premium deficiency testing on continuing lines
of business has not resulted in material adjustments to
deferred acquisition costs or reserves. Such adjustments
could occur, however, if economic or mortality conditions
significantly deteriorated.
Risks related to the reserves recorded for certain discontinued
individual life, annuity, and long-term care insurance policies
have been 100% ceded via reinsurance. While the Company
has not been released from the contractual obligation to
the policyholders, changes in and deviations from economic,
mortality, morbidity, and withdrawal assumptions used in
the calculation of these reserves will not directly affect
our results of operations unless there is a default by the
assuming reinsurer.
Claims and benefits payable reserves for short duration
contracts include (1) case reserves for known claims which
are unpaid as of the balance sheet date; (2) IBNR reserves
for claims where the insured event has occurred but has
not been reported to us as of the balance sheet date; and
(3) loss adjustment expense reserves for the expected
handling costs of settling the claims. Periodically, we review
emerging experience and make adjustments to our reserves and
assumptions where necessary. Below are further discussions on
the reserving process for our major short duration products.
Group Disability and Group Term Life
Case or claim reserves are set for active individual claims on
group long term disability policies and for waiver of premium
benefits on group term life policies. Reserve factors used to
calculate these reserves reflect assumptions regarding disabled
life mortality and claim recovery rates, claim management
practices, awards for social security and other benefit offsets
and yield rates earned on assets supporting the reserves.
Group long term disability and group term life waiver of
premium reserves are discounted because the payment
pattern and ultimate cost are fixed and determinable on an
individual claim basis.
Factors considered when setting IBNR reserves include patterns
in elapsed time from claim incidence to claim reporting,
and elapsed time from claim reporting to claim payment.
Key sensitivities at December 31, 2015 for group long term disability claim reserves include the discount rate and claim
termination rates:
Claims and Benefits Payable
Claims and Benefits Payable
Group disability, discount rate
decreased by 100 basis points
Group disability, as reported
Group disability, discount rate
increased by 100 basis points
$
$
$
1,251,532
1,192,996
1,139,604
Group disability,
claim termination rate 10% lower
Group disability, as reported
Group disability,
claim termination rate 10% higher
$
$
$
1,224,925
1,192,996
1,165,045
The discount rate is also a key sensitivity for group term life waiver of premium reserves (included within group term life
reserves).
Group term life, discount rate decreased by 100 basis points
Group term life, as reported
Group term life, discount rate increased by 100 basis points
Medical
Claims and Benefits Payable
206,000
$
197,777
$
190,392
$
IBNR reserves calculated using generally accepted actuarial
methods represent the largest component of reserves for short
duration medical claims and benefits payable. The primary
methods we use in their estimation are the loss development
method and the projected claim method. Under the loss
development method, we estimate ultimate losses for each
incident period by multiplying the current cumulative losses
by the appropriate loss development factor. When there is
not sufficient data to reliably estimate reserves under the
loss development method, such as for recent claim periods,
the projected claim method is used. This method utilizes
expected ultimate loss ratios to estimate the required reserve.
Where appropriate, we also use variations on each method
or a blend of the two.
38
ASSURANT, INC. – 2015 Form 10-K PART II
ITEM 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations
Reserves for our various product lines are calculated using
experience data where credible. If sufficient experience
data is not available, data from other similar blocks may be
used. Industry data provides additional benchmarks when
historical experience is too limited. Reserve factors may
also be adjusted to reflect considerations not reflected in
historical experience, such as changes in claims inventory
levels, changes in provider negotiated rates or cost savings
initiatives, increasing or decreasing medical cost trends,
product changes and demographic changes in the underlying
insured population.
Key sensitivities as of December 31, 2015 for short duration medical reserves include claims processing levels, claims under
case management, medical inflation, seasonal effects, medical provider discounts and product mix. The effects of these
sensitivities can be summarized by adjusting loss development factors, as follows:
Short duration medical, loss development factors 1% lower*
Short duration medical, as reported
Short duration medical, loss development factors 1% higher*
*
Claims and Benefits Payable
508,811
$
488,811
$
470,811
$
This refers to loss development factors for the most recent four months. Our historical claims experience indicates that approximately 87.5% of
medical claims are paid within four months of the incurred date.
Changes in medical loss development may increase or decrease
the MLR rebate liability.
Property and Warranty
Our Property and Warranty lines of business include lender-
placed homeowners, manufactured housing homeowners,
multi-family housing, credit property, credit unemployment
and warranty insurance and some longer-tail coverages
(e.g. asbestos, environmental, other general liability
and personal accident). Claim reserves for these lines
are calculated on a product line basis using generally
accepted actuarial principles and methods. They consist
of case and IBNR reserves. The method we most often use
in setting our Property and Warranty reserves is the loss
development method. Under this method, we estimate
ultimate losses for each accident period by multiplying
the current cumulative losses by the appropriate loss
development factor. We then calculate the reserve as the
difference between the estimate of ultimate losses and
the current case-incurred losses (paid losses plus case
reserves). We select loss development factors based on a
review of historical averages, adjusted to reflect recent
trends and business-specific matters such as current claims
payment practices.
The loss development method involves aggregating loss
data (paid losses and case-incurred losses) by accident
quarter (or accident year) and accident age for each
product or product grouping. As the data ages, we compile
loss development factors that measure emerging claim
development patterns between reporting periods. By
selecting the most appropriate loss development factors,
we project the known losses to an ultimate incurred basis
for each accident period.
The data is typically analyzed using quarterly paid losses
and/or quarterly case-incurred losses. Some product
groupings may also use annual paid loss and/or annual
case-incurred losses, as well as other actuarially accepted
methods.
Each of these data groupings produces an indication of
the loss reserves for the product or product grouping.
The process to select the best estimate differs by line of
business. The single best estimate is determined based on
many factors, including but not limited to:
••the nature and extent of the underlying assumptions;
••the quality and applicability of historical data — whether
internal or industry data;
••current and future market conditions — the economic
environment will often impact the development of loss
triangles;
••the extent of data segmentation — data should be
homogeneous yet credible enough for loss development
methods to apply; and
••the past variability of loss estimates — the loss estimates
on some product lines will vary from actual loss experience
more than others.
Most of our credit property and credit unemployment insurance
business is either reinsured or written on a retrospective
commission basis. Business written on a retrospective
commission basis permits management to adjust commissions
based on claims experience. Thus, any adjustment to prior
years’ incurred claims is partially offset by a change in
commission expense, which is included in the underwriting,
general and administrative expenses line in our consolidated
statements of operations.
While management has used its best judgment in establishing
its estimate of required reserves, different assumptions and
variables could lead to significantly different reserve estimates.
Two key measures of loss activity are loss frequency, which
is a measure of the number of claims per unit of insured
exposure, and loss severity, which is a measure of the average
size of claims. Factors affecting loss frequency include the
effectiveness of loss controls and safety programs and changes
in economic activity or weather patterns. Factors affecting
loss severity include changes in policy limits, retentions,
rate of inflation and judicial interpretations.
39
ASSURANT, INC. – 2015 Form 10-K PART II
ITEM 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations
If the actual level of loss frequency and severity are higher or lower than expected, the ultimate reserves required will be
different than management’s estimate. The effect of higher and lower levels of loss frequency and severity levels on our
ultimate costs for claims occurring in 2015 would be as follows:
Change in both loss frequency and severity for all Property and Warranty
3% higher
2% higher
1% higher
Base scenario
1% lower
2% lower
3% lower
Ultimate cost of
claims occurring in
2015
731,390
717,257
703,262
689,405
675,548
661,553
647,420
$
$
$
$
$
$
$
Change in cost of
claims occurring in
2015
41,985
27,852
13,857
—
(13,857)
(27,852)
(41,985)
$
$
$
$
$
$
$
Reserving for Asbestos and Other Claims
Our property and warranty line of business includes exposure
to asbestos, environmental and other general liability claims
arising from our participation in various reinsurance pools
from 1971 through 1985. This exposure arose from a contract
that we discontinued writing many years ago. We carry case
reserves, as recommended by the various pool managers,
and IBNR reserves totaling $30,519 (before reinsurance)
and $27,721 (net of reinsurance) at December 31, 2015.
We believe the balance of case and IBNR reserves for these
liabilities are adequate. However, any estimation of these
liabilities is subject to greater than normal variation and
uncertainty due to the general lack of sufficiently detailed
data, reporting delays and absence of a generally accepted
actuarial methodology for those exposures. There are
significant unresolved industry legal issues, including such
items as whether coverage exists and what constitutes a
claim. In addition, the determination of ultimate damages
and the final allocation of losses to financially responsible
parties are highly uncertain. However, based on information
currently available, and after consideration of the reserves
reflected in the consolidated financial statements, we do not
believe that changes in reserve estimates for these claims
are likely to be material.
Deferred Acquisition Costs
Only direct incremental costs associated with the successful
acquisition of new or renewal insurance contracts are deferred,
to the extent that such costs are deemed recoverable from
future premiums or gross profits. Acquisition costs primarily
consist of commissions and premium taxes. Certain direct
response advertising expenses are deferred when the primary
purpose of the advertising is to elicit sales to customers
who can be shown to have specifically responded to the
advertising and the direct response advertising results in
probable future benefits.
The deferred acquisition costs (“DAC”) asset is tested annually
to ensure that future premiums or gross profits are sufficient to
support the amortization of the asset. Such testing involves the
use of best estimate assumptions to determine if anticipated
future policy premiums and investment income are adequate
to cover all DAC and related claims, benefits and expenses. To
the extent a deficiency exists, it is recognized immediately
by a charge to the consolidated statements of operations and
a corresponding reduction in the DAC asset. If the deficiency
is greater than unamortized DAC, a liability will be accrued
for the excess deficiency.
Long Duration Contracts
Acquisition costs for preneed life insurance policies issued
prior to January 1, 2009 and certain discontinued life insurance
policies have been deferred and amortized in proportion to
anticipated premiums over the premium-paying period. These
acquisition costs consist primarily of first year commissions
paid to agents.
For preneed investment-type annuities, preneed life insurance
policies with discretionary death benefit growth issued
after January 1, 2009, universal life insurance policies
and investment-type annuity contracts that are no longer
offered, DAC is amortized in proportion to the present
value of estimated gross profits from investment, mortality,
expense margins and surrender charges over the estimated
life of the policy or contract. Estimated gross profits include
the impact of unrealized gains or losses on investments as if
these gains or losses had been realized, with corresponding
credits or charges included in AOCI. The assumptions used for
the estimates are consistent with those used in computing
the policy or contract liabilities.
Acquisition costs relating to group worksite products, which
typically have high front-end costs and are expected to remain
in force for an extended period of time, consist primarily
of first year commissions to brokers, costs of issuing new
certificates and compensation to sales representatives.
These acquisition costs are front-end loaded, thus they are
deferred and amortized over the estimated terms of the
underlying contracts.
Short Duration Contracts
Acquisition costs relating to property contracts, warranty
and extended service contracts and single premium credit
insurance contracts are amortized over the term of the
contracts in relation to premiums earned.
40
ASSURANT, INC. – 2015 Form 10-K PART II
ITEM 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations
Acquisition costs relating to monthly pay credit insurance
business consist mainly of direct response advertising costs
and are deferred and amortized over the estimated average
terms and balances of the underlying contracts.
Acquisition costs relating to group term life, group disability,
group dental and group vision consist primarily of compensation
to sales representatives. These acquisition costs are front-
end loaded; thus, they are deferred and amortized over the
estimated terms of the underlying contracts.
Investments
We regularly monitor our investment portfolio to ensure
investments that may be other-than-temporarily impaired are
identified in a timely fashion, properly valued, and charged
against earnings in the proper period. The determination
that a security has incurred an other-than-temporary decline
in value requires the judgment of management. Assessment
factors include, but are not limited to, the length of time
and the extent to which the market value has been less than
cost, the financial condition and rating of the issuer, whether
any collateral is held, the intent and ability of the Company
to retain the investment for a period of time sufficient to
allow for recovery for equity securities, and the intent to
sell or whether it is more likely than not that the Company
will be required to sell for fixed maturity securities.
Any equity security whose price decline is deemed other-than-
temporary is written down to its then current market value
with the amount of the impairment reported as a realized loss
in that period. The impairment of a fixed maturity security
that the Company has the intent to sell or that it is more
likely than not that the Company will be required to sell is
deemed other-than-temporary and is written down to its
market value at the balance sheet date, with the amount of
the impairment reported as a realized loss in that period. For
all other-than-temporarily impaired fixed maturity securities
that do not meet either of these two criteria, the Company
analyzes its ability to recover the amortized cost of the
security by calculating the net present value of projected
future cash flows. For these other-than-temporarily impaired
fixed maturity securities, the net amount recognized in
earnings is equal to the difference between its amortized
cost and its net present value.
Inherently, there are risks and uncertainties involved in making
these judgments. Changes in circumstances and critical
assumptions such as a continued weak economy, or unforeseen
events which affect one or more companies, industry sectors
or countries could result in additional impairments in future
periods for other-than-temporary declines in value. See also
Note 5 to the Consolidated Financial Statements included
elsewhere in this report and “Item 1A—Risk Factors—Risks
Related to our Company—The value of our investments could
decline, affecting our profitability and financial strength”
and “Investments” contained later in this item.
Reinsurance
Reinsurance recoverables include amounts we are owed
by reinsurers. Reinsurance costs are expensed over the
terms of the underlying reinsured policies using assumptions
consistent with those used to account for the policies.
Amounts recoverable from reinsurers are estimated in a
manner consistent with claim and claim adjustment expense
reserves or future policy benefits reserves and are reported
in our consolidated balance sheets. An estimated allowance
for doubtful accounts is recorded on the basis of periodic
evaluations of balances due from reinsurers (net of collateral),
reinsurer solvency, management’s experience and current
economic conditions. The ceding of insurance does not
discharge our primary liability to our insureds.
The following table sets forth our reinsurance recoverables as of the dates indicated:
Reinsurance recoverables
December 31, 2015 December 31, 2014
7,254,585
$
7,470,403 $
We have used reinsurance to exit certain businesses, including blocks of individual life, annuity, and long-term care business.
The reinsurance recoverables relating to these dispositions amounted to $4,607,056 and $4,549,699 at December 31, 2015
and 2014, respectively.
In the ordinary course of business, we are involved in both the assumption and cession of reinsurance with non-affiliated
companies. The following table provides details of the reinsurance recoverables balance for the years ended December 31:
Ceded future policyholder benefits and expense
Ceded unearned premium
Ceded claims and benefits payable
Ceded paid losses
TOTAL
2015
4,037,682 $
1,667,228
1,429,128
336,365
7,470,403 $
2014
4,052,976
1,587,583
1,283,510
330,516
7,254,585
$
$
We utilize reinsurance for loss protection and capital management, business dispositions and, in Assurant Solutions and Assurant
Specialty Property, client risk and profit sharing. See also “Item 1A—Risk Factors—Reinsurance may not be available or adequate
to protect us against losses and we are subject to the credit risk of reinsurers,” and “Item 7A—Quantitative and Qualitative
Disclosures About Market Risk—Credit Risk.”
41
ASSURANT, INC. – 2015 Form 10-K
PART II
ITEM 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations
Retirement and Other Employee Benefits
We sponsor a qualified pension plan, (the “Assurant Pension
Plan”) and various non-qualified pension plans (including
an Executive Pension Plan), along with a retirement health
benefits plan covering our employees who meet specified
eligibility requirements. Effective March 1, 2016, benefit
accruals for the Assurant Pension Plan, the various non-
qualified pension plans and the retirement health benefits
plan were frozen. The reported expense and liability
associated with these plans requires an extensive use of
assumptions which include, but are not limited to, the
discount rate, expected return on plan assets and rate
of future compensation increases. We determine these
assumptions based upon currently available market and
industry data, and historical performance of the plan and its
assets. The actuarial assumptions used in the calculation of
our aggregate projected benefit obligation vary and include
an expectation of long-term appreciation in equity markets
which is not changed by minor short-term market fluctuations,
but does change when large interim deviations occur. The
assumptions we use may differ materially from actual results
due to changing market and economic conditions, higher
or lower withdrawal rates or longer or shorter life spans of
the participants.
Contingencies
We account for contingencies by evaluating each contingent
matter separately. A loss is accrued if reasonably estimable
and probable. We establish reserves for these contingencies at
the best estimate, or, if no one estimated amount within the
range of possible losses is more probable than any other, we
report an estimated reserve at the low end of the estimated
range. Contingencies affecting the Company include litigation
matters which are inherently difficult to evaluate and are
subject to significant changes.
Deferred Taxes
Deferred income taxes are recorded for temporary differences
between the financial reporting and income tax bases of
assets and liabilities, based on enacted tax laws and statutory
tax rates applicable to the periods in which the Company
expects the temporary differences to reverse. A valuation
allowance is established for deferred tax assets if, based on
the weight of all available evidence, it is more likely than
not that some portion of the asset will not be realized. The
valuation allowance is sufficient to reduce the asset to the
amount that is more likely than not to be realized. The
Company has deferred tax assets resulting from temporary
differences that may reduce taxable income in future periods.
The detailed components of our deferred tax assets, liabilities
and valuation allowance are included in Note 8 to the Notes
to the Consolidated Financial Statements included elsewhere
in this report.
As of December 31, 2014, the Company had a cumulative
valuation allowance of $18,164 against deferred tax assets
of international subsidiaries. During Twelve Months 2015, the
Company recognized a cumulative income tax benefit of $4,946
primarily related to the release of a valuation allowance of
certain international subsidiaries. As of December 31, 2015,
the Company has a cumulative valuation allowance of $13,218
against deferred tax assets, as it is management’s assessment
that it is more likely than not that this amount of deferred tax
assets will not be realized. The realization of deferred tax assets
related to net operating loss carryforwards of international
subsidiaries depends upon the existence of sufficient taxable
income of the same character in the same jurisdiction.
In determining whether the deferred tax asset is realizable,
the Company weighed all available evidence, both positive
and negative. We considered all sources of taxable income
available to realize the asset, including the future reversal
of existing temporary differences, future taxable income
exclusive of reversing temporary differences, carry forwards
and tax-planning strategies.
The Company believes it is more likely than not that the
remainder of its deferred tax assets will be realized in the
foreseeable future. Accordingly, other than noted herein for
certain international subsidiaries, a valuation allowance has
not been established.
Future reversal of the valuation allowance will be recognized
either when the benefit is realized or when we determine that
it is more likely than not that the benefit will be realized.
Depending on the nature of the taxable income that results in
a reversal of the valuation allowance, and on management’s
judgment, the reversal will be recognized either through other
comprehensive income (loss) or through continuing operations
in the consolidated statements of operations. Likewise, if the
Company determines that it is not more likely than not that
it would be able to realize all or part of the deferred tax
asset in the future, an adjustment to the deferred tax asset
valuation allowance would be recorded through a charge
to continuing operations in the consolidated statements of
operations in the period such determination is made.
In determining the appropriate valuation allowance,
management makes judgments about recoverability of deferred
tax assets, use of tax loss and tax credit carryforwards, levels
of expected future taxable income and available tax planning
strategies. The assumptions used in making these judgments
are updated periodically by management based on current
business conditions that affect the Company and overall
economic conditions. These management judgments are
therefore subject to change based on factors that include, but
are not limited to, changes in expected capital gain income
in the foreseeable future and the ability of the Company
to successfully execute its tax planning strategies. Please
see “Item 1A—Risk Factors-Risks Related to Our Company-
Unanticipated changes in tax provisions, changes in tax laws or
exposure to additional income tax liabilities could materially
and adversely affect our results” for more information.
42
ASSURANT, INC. – 2015 Form 10-K PART II
ITEM 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations
Valuation and Recoverability of Goodwill
Goodwill represented $833,512 and $841,239 of our
$30,043,128 and $31,562,466 of total assets as of December 31,
2015 and 2014, respectively. We review our goodwill annually
in the fourth quarter for impairment, or more frequently if
indicators of impairment exist. Such indicators include, but
are not limited to, significant adverse change in legal factors,
adverse action or assessment by a regulator, unanticipated
competition, loss of key personnel or a significant decline in
our expected future cash flows due to changes in company-
specific factors or the broader business climate. The evaluation
of such factors requires considerable judgment. Any adverse
change in these factors could have a significant impact on
the recoverability of goodwill and could have a material
impact on our consolidated financial statements.
We have concluded that our reporting units for goodwill
testing are equivalent to our operating segments. Therefore,
we test goodwill for impairment at the reporting unit level.
The following table illustrates the amount of goodwill carried at each reporting unit:
Assurant Solutions
Assurant Specialty Property
Assurant Health
Assurant Employee Benefits
TOTAL
In 2015, the Company chose the option to perform qualitative
assessments for our Assurant Solutions and Assurant Specialty
Property reporting units. This option allows us to first assess
qualitative factors to determine whether the existence of
events or circumstances leads to a determination that it is
more likely than not that the fair value of a reporting unit is
less than its carrying amount. If, after assessing the totality
of events or circumstances, an entity determines it is not
more likely than not that the fair value of a reporting unit
is less than its carrying amount, then performing the two-
step impairment test is unnecessary. However, if an entity
concludes otherwise, then it is required to perform the first
step of the two-step impairment test.
We initially considered the 2014 quantitative analysis performed
by the Company whereby it compared the estimated fair value
of the Assurant Solutions and Assurant Specialty Property
reporting units with their respective net book values (“Step 1”).
Based on the 2014 Step 1 tests, Assurant Solutions had an
estimated fair value that exceeded its net book value by
25.4%, and Assurant Specialty Property had an estimated fair
value that exceeded its net book value by 33.3%.
Based on our qualitative assessments, having considered the
factors in totality we determined that it was not necessary to
perform a Step 1 quantitative goodwill impairment test for the
December 31,
2015
529,093 $
304,419
—
—
833,512 $
2014
539,653
301,586
—
—
841,239
$
$
Assurant Solutions and Assurant Specialty Property reporting
units and that it is more-likely-than-not that the fair value
of each reporting unit continues to exceed its net book value
in 2015. Significant changes in the external environment or
substantial declines in the operating performance of Assurant
Solutions and Assurant Specialty Property could cause us to
reevaluate this conclusion in the future.
In undertaking our qualitative assessments for the Assurant
Solutions and Assurant Specialty Property reporting units,
we considered macro-economic, industry and reporting unit-
specific factors. These included (i.) the effect of the current
interest rate environment on our cost of capital; (ii.) each
reporting unit’s ability to sustain market share over the year;
(iii.) lack of turnover in key management; (iv.) 2015 actual
performance as compared to expected 2015 performance
from our 2014 Step 1 assessment; and, (v.) the overall market
position and share price of Assurant, Inc.
Recent Accounting Pronouncements
Please see Note 2 of the Notes to the Consolidated Financial
Statements.
43
ASSURANT, INC. – 2015 Form 10-K
PART II
ITEM 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations
Results of Operations
Assurant Consolidated
Overview
The table below presents information regarding our consolidated results of operations:
For the Years Ended December 31,
2015
2014
2013
Revenues:
Net earned premiums
Net investment income
Net realized gains on investments
Amortization of deferred gains on disposal of businesses
Fees and other income
Total revenues
Benefits, losses and expenses:
Policyholder benefits
Selling, underwriting and general expenses(1)
Interest expense
Total benefits, losses and expenses
Income before provision for income taxes
Provision for income taxes
$ 8,350,997
626,217
31,826
12,988
1,303,466
10,325,494
4,742,535
5,326,662
55,116
10,124,313
201,181
59,626
141,555
$
$
8,632,142 $
656,429
60,783
(1,506)
1,033,805
10,381,653
4,405,333
5,173,788
58,395
9,637,516
744,137
273,230
470,907 $
7,759,796
650,296
34,525
16,310
586,730
9,047,657
3,675,532
4,504,691
77,735
8,257,958
789,699
300,792
488,907
$
NET INCOME
(1) Includes amortization of DAC and VOBA and underwriting, general and administrative expenses.
Year Ended December 31, 2015 Compared
to the Year Ended December 31, 2014
Net income decreased $329,352, or 70%, to $141,555 for
Twelve Months 2015 from $470,907 for Twelve Months 2014.
The decrease was primarily related to higher loss experience
and adverse claims development on 2015 individual major
medical policies, a reduction in the 2014 estimated recoveries
from the Affordable Care Act risk mitigation program and
$106,389 (after-tax) of exit and disposal costs, including
premium deficiency reserves, severance and retention costs,
long-lived asset impairments and other costs associated
with our exit from the health insurance market. For more
information see Note 3 of the Notes to the Consolidated
Financial Statements included elsewhere in this report.
Year Ended December 31, 2014 Compared
to the Year Ended December 31, 2013
Net income decreased $18,000, or 4%, to $470,907 for Twelve
Months 2014 from $488,907 for Twelve Months 2013. The
decrease was primarily related to lower net income at
Assurant Specialty Property, a net loss at Assurant Health and
a $19,400 (after-tax) loss associated with a divested business.
Please see Note 4 to the Consolidated Financial Statements
for further information. These items were partially offset
by improved results in our Assurant Solutions and Assurant
Employee Benefits segments, lower expenses in the Corporate
and Other segment, an increase in net realized gains on
investments and a favorable change in tax liabilities, including
a $20,753 one-time tax benefit related to the conversion of
the Canadian branch operations of certain U.S. subsidiaries
to foreign corporate entities. Please see Note 8 to the
Consolidated Financial Statements for further information.
44
ASSURANT, INC. – 2015 Form 10-K
PART II
ITEM 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations
Assurant Solutions
Overview
The table below presents information regarding Assurant Solutions’ segment results of operations:
Revenues:
Net earned premiums
Net investment income
Fees and other income
Total revenues
Benefits, losses and expenses:
Policyholder benefits
Selling, underwriting and general expenses
Total benefits, losses and expenses
Segment income before provision for income taxes
Provision for income taxes
SEGMENT NET INCOME
Net earned premiums:
Domestic:
Credit
Service contracts
Other(1)
Total Domestic
International:
Credit
Service contracts
Other(1)
Total International
Preneed
TOTAL
Fees and other income:
Domestic:
Debt protection
Service contracts
Other(1)
Total Domestic
International
Preneed
TOTAL
Gross written premiums(2):
Domestic:
Credit
Service contracts
Other(1)
Total Domestic
International:
Credit
Service contracts
Other(1)
Total International
TOTAL
Preneed (face sales)
Combined ratio(3):
Domestic
International
$
$
$
$
$
$
$
$
$
For the Years Ended December 31,
2015
2014
2013
3,015,846
376,683
785,611
4,178,140
919,403
2,982,263
3,901,666
276,474
79,291
197,183
132,130
1,644,352
88,228
1,864,710
254,211
802,477
34,045
1,090,733
60,403
3,015,846
15,239
519,142
10,212
544,593
133,980
107,038
785,611
233,968
3,910,726
86,600
4,231,294
737,777
714,103
76,693
1,528,573
5,759,867
936,434
$
$
$
$
$
$
$
$
$
3,128,868
382,640
667,852
4,179,360
1,027,469
2,830,058
3,857,527
321,833
102,885
218,948
160,794
1,631,339
73,254
1,865,387
318,104
850,454
33,830
1,202,388
61,093
3,128,868
30,938
424,259
8,344
463,541
97,265
107,046
667,852
316,815
3,112,526
88,298
3,517,639
879,526
826,046
63,211
1,768,783
5,286,422
969,784
$
$
$
$
$
$
$
$
$
2,783,758
376,245
400,370
3,560,373
895,504
2,474,259
3,369,763
190,610
65,458
125,152
166,417
1,372,314
82,864
1,621,595
380,683
685,039
29,918
1,095,640
66,523
2,783,758
29,100
206,130
6,920
242,150
51,873
106,347
400,370
387,038
2,090,160
106,256
2,583,454
964,236
780,393
47,932
1,792,561
4,376,015
1,007,915
95.1%
102.8%
93.5%
101.5%
97.9%
102.8%
(1) This includes emerging products and run-off products lines.
(2) Gross written premiums does not necessarily translate to an equal amount of subsequent net earned premiums since Assurant Solutions reinsures
a portion of its premiums to insurance subsidiaries of its clients.
(3) The combined ratio is equal to total benefits, losses and expenses divided by net earned premiums and fees and other income excluding the
preneed business.
45
ASSURANT, INC. – 2015 Form 10-K
PART II
ITEM 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations
Year Ended December 31, 2015 Compared
to the Year Ended December 31, 2014
Year Ended December 31, 2014 Compared
to the Year Ended December 31, 2013
Net Income
Segment net income decreased $21,765, or 10%, to $197,183
for Twelve Months 2015 from $218,948 for Twelve Months 2014.
The decrease was primarily due to the previously disclosed
loss of a domestic mobile tablet program and declining
service contract volumes from North American retail clients.
Total Revenues
Total revenues were relatively flat at $4,178,140 for Twelve
Months 2015 compared with $4,179,360 for Twelve Months
2014. Net earned premiums decreased $113,022 primarily
due to foreign exchange volatility, the loss of a domestic
mobile tablet program, lower service contract volumes from
North American retail clients and the continued run-off of
our credit insurance business. These items were partially
offset by growth from our auto warranty business and from
a large domestic service contract client. Fees and other
income increased $117,759 primarily driven by contributions
from global mobile programs and related services. A few
significant clients continued to account for a substantial
portion of segment revenues.
Gross written premiums increased $473,445, or 9%, to
$5,759,867 for Twelve Months 2015 from $5,286,422 for
Twelve Months 2014. Gross written premiums from our
domestic service contract business increased $798,200,
primarily driven by growth in the number of covered mobile
devices and increased activity from existing clients in our
auto warranty and extended service contract business. This
increase was partially offset by the continued runoff of our
credit insurance business and foreign exchange volatility.
Preneed face sales decreased $33,350, or 3%, to $936,434 for
Twelve Months 2015 from $969,784 for Twelve Months 2014.
This decrease was mostly attributable to a change in product
offerings, a client’s temporary operational change, and foreign
exchange volatility. On June 25, 2014, we extended our
exclusive distribution partnership with Services Corporation
International (“SCI”), for an additional 10 years, through
September 29, 2024.
Total Benefits, Losses and Expenses
Total benefits, losses and expenses increased $44,139, or
1%, to $3,901,666 for Twelve Months 2015 from $3,857,527
for Twelve Months 2014. Policyholder benefits decreased
$108,066 driven by favorable loss experience in our domestic
service contract business and from our mobile business in
Europe. Selling, underwriting and general expenses increased
$152,205. Commissions, taxes, licenses and fees, of which
amortization of DAC is a component, decreased $12,666 due
to the loss of a domestic mobile tablet program. General
expenses increased $164,871 primarily due to growth in our
domestic mobile business and the 2014 CWI acquisition.
Net Income
Segment net income increased $93,796, or 75%, to $218,948
for Twelve Months 2014 from $125,152 for Twelve Months
2013. The increase was primarily driven by improved results
in our domestic mobile business, reflecting growth in mobile
subscribers, contributions from ongoing client marketing
programs, continued favorable loss experience and expense
savings in our domestic credit and domestic service contract
businesses.
Total Revenues
Total revenues increased $618,987, or 17%, to $4,179,360
for Twelve Months 2014 from $3,560,373 for Twelve Months
2013. The increase was primarily driven by higher net earned
premiums in our domestic and international service contract
businesses. The increase in domestic service contract business
reflects continued growth in mobile subscribers, growth at a
large client due to increased subscribers and price increases
as well as higher contributions from vehicle service contracts
due to increased sales from new and existing dealers. The
increase in international service contracts is due to growth
in mobile subscribers. Fees and other income increased
$267,482 primarily driven by mobile client marketing programs
and from the Lifestyle Service Group (“LSG”) acquisition in
October 2013.
Gross written premiums increased $910,407, or 21%, to
$5,286,422 for Twelve Months 2014 from $4,376,015 for Twelve
Months 2013. Gross written premiums from our domestic
service contract business increased $1,022,366 primarily driven
by growth in mobile subscribers. Gross written premiums
from our international service contract business increased
$45,653 primarily due to growth in the number of global
mobile subscribers, the LSG acquisition and new and existing
clients in Latin America. This increase was partially offset
by the unfavorable impact of changes in foreign exchange
rates, primarily in Latin America and Canada.
Preneed face sales decreased $38,131 or 4%, to $969,784
for Twelve Months 2014 from $1,007,915 for Twelve Months
2013. This decrease was mostly attributable to a change in
product offerings and a client’s temporary operational change.
Total Benefits, Losses and Expenses
Total benefits, losses and expenses increased $487,764, or
14%, to $3,857,527 for Twelve Months 2014 from $3,369,763
for Twelve Months 2013. Policyholder benefits increased
$131,965 primarily related to the LSG acquisition partially
offset by favorable loss experience in our domestic mobile
business. Selling, underwriting and general expenses increased
$355,799. Commissions, taxes, licenses and fees, of which
amortization of DAC is a component, increased $82,828
due to higher net earned premiums in our domestic service
46
ASSURANT, INC. – 2015 Form 10-K PART II
ITEM 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations
contract and domestic mobile business. General expenses
increased $272,971 primarily due to increased administration
expenses directly related to growth in our domestic mobile
business and expenses related to the LSG acquisition. These
items were partially offset by expense savings in our domestic
credit and domestic service contract businesses.
Assurant Specialty Property
Overview
The table below presents information regarding Assurant Specialty Property’s segment results of operations:
Revenues:
Net earned premiums
Net investment income
Fees and other income
Total revenues
Benefits, losses and expenses:
Policyholder benefits
Selling, underwriting and general expenses
Total benefits, losses and expenses
Segment income before provision for income taxes
Provision for income taxes
SEGMENT NET INCOME
Net earned premiums:
Homeowners (lender-placed and voluntary)
Manufactured housing (lender-placed and voluntary)
Other(1)
TOTAL
Ratios:
Loss ratio(2)
For the Years Ended December 31,
2015
2014
2013
$
$
$
$
2,044,701
92,859
405,545
2,543,105
788,549
1,290,937
2,079,486
463,619
155,914
307,705
1,425,799
165,657
453,245
2,044,701
$
$
$
$
2,506,097
101,908
301,048
2,909,053
1,085,339
1,305,286
2,390,625
518,428
176,671
341,757
1,743,965
237,576
524,556
2,506,097
$
$
$
$
2,380,044
98,935
133,135
2,612,114
890,409
1,068,273
1,958,682
653,432
229,846
423,586
1,678,172
226,058
475,814
2,380,044
Expense ratio(3)
Combined ratio(4)
46.5%
85.2%
(1) This primarily includes lender-placed flood, miscellaneous specialty property and multi-family housing insurance products.
(2) The loss ratio is equal to policyholder benefits divided by net earned premiums.
(3) The expense ratio is equal to selling, underwriting and general expenses divided by net earned premiums and fees and other income.
(4) The combined ratio is equal to total benefits, losses and expenses divided by net earned premiums and fees and other income.
52.7%
84.9%
38.6%
43.3%
37.4%
42.5%
77.9%
Regulatory Matters
In January 2015, NYDFS issued regulations regarding tracking
costs associated with lender placed insurance rates. The
Company reached an agreement with the NYDFS to file
for a 6.2% reduction in lender-placed hazard insurance
rates in New York. The rates have been filed and approved,
and were effective for new and renewing policies starting
February 1, 2016.
Lender-placed insurance products accounted for 73% and 71%
of net earned premiums for Twelve Months 2015 and Twelve
Months 2014, respectively. The approximate corresponding
contributions to the segment net income in these periods
were 78% and 73%, respectively. The portion of total segment
net income attributable to lender-placed products may vary
substantially over time depending on the frequency, severity
and location of catastrophic losses, the cost of catastrophe
reinsurance and reinstatement coverage, the variability of
claim processing costs and client acquisition costs, and other
factors. In addition, we expect placement rates for these
products to decline.
Year Ended December 31, 2015 Compared
to the Year Ended December 31, 2014
Net Income
Segment net income decreased $34,052, or 10%, to $307,705
for Twelve Months 2015 from $341,757 for Twelve Months 2014.
The decrease is primarily due to the ongoing normalization in
our lender-placed homeowners insurance business, previously
disclosed loss of client business, and increased legal expenses,
partially offset by more favorable non-catastrophe loss
experience and lower catastrophe reinsurance costs. The
divestiture of American Reliable Insurance Company (“ARIC”)
also contributed to the decrease in net income.
47
ASSURANT, INC. – 2015 Form 10-K
PART II
ITEM 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations
and premium rates and higher non-catastrophe losses in
our lender-placed insurance business. Twelve Months 2013
results included a $14,000 (non-tax deductible) regulatory
settlement with the NYDFS.
Total Revenues
Total revenues increased $296,939, or 11%, to $2,909,053
for Twelve Months 2014 from $2,612,114 for Twelve Months
2013. The increase was primarily due to growth in lender-
placed homeowners insurance net earned premiums, as
well as fee income from the acquisitions of Field Asset
Services (“FAS”) and StreetLinks. Growth in lender-placed
homeowners insurance was primarily due to the previously
disclosed discontinuation of a client quota share reinsurance
agreement and loan portfolios added in 2013 and was partially
offset by the impact of lower placement and premium rates.
Total Benefits, Losses and Expenses
Total benefits, losses and expenses increased $431,943 or
22%, to $2,390,625 for Twelve Months 2014 from $1,958,682
for Twelve Months 2013. The loss ratio increased to 43.3% for
Twelve Months 2014 from 37.4% for Twelve Months 2013 due
to higher non-catastrophe losses from severe weather, high
severity fire claims and lower premium rates from the new
lender-placed homeowners insurance product. Reportable
catastrophe losses for Twelve Months 2014 were $28,410
compared to reportable catastrophe losses for Twelve Months
2013 of $29,503. Reportable catastrophe losses include only
individual catastrophic events that generated losses to the
Company in excess of $5,000, pre-tax and net of reinsurance.
The expense ratio increased to 46.5% for Twelve Months 2014
from 42.5% for Twelve Months 2013 primarily due to growth in
fee-based businesses. Twelve Months 2013 included a $14,000
(non-tax deductible) regulatory settlement with the NYDFS.
Total Revenues
Total revenues decreased $365,948, or 13%, to $2,543,105
for Twelve Months 2015 from $2,909,053 for Twelve Months
2014. The decrease was primarily due to the divestiture
of ARIC, combined with lower lender-placed homeowners
insurance net earned premiums. The decline in lender-placed
homeowners insurance net earned premiums is primarily
due to a decline in placement rates, lower premium rates
and previously disclosed loss of client business. These items
were partially offset by an increase in fees and other income
reflecting contributions from mortgage solutions businesses. A
few significant clients continued to account for a substantial
portion of segment revenues.
Total Benefits, Losses and Expenses
Total benefits, losses and expenses decreased $311,139 or 13%,
to $2,079,486 for Twelve Months 2015 from $2,390,625 for
Twelve Months 2014. The loss ratio decreased 470 basis points
due to fewer non-catastrophe losses primarily attributable
to lower frequency and severity of theft and fire claims and
the impact of the ARIC divestiture, partially offset by lower
premium rates from the implementation of a new lender-
placed insurance product. Reportable catastrophe losses for
Twelve Months 2015 were $29,652 compared to $28,410 for
Twelve Months 2014. Reportable catastrophe losses include
only individual catastrophic events that generated losses
to the Company in excess of $5,000, pre-tax and net of
reinsurance. The expense ratio increased 620 basis points
for Twelve Months 2015 compared with Twelve Months 2014
mainly due to lower lender-placed homeowners insurance
net earned premiums and a higher mix of fee-based business.
Year Ended December 31, 2014 Compared
to the Year Ended December 31, 2013
Net Income
Segment net income decreased $81,829, or 19%, to $341,757
for Twelve Months 2014 from $423,586 for Twelve Months
2013. The decrease is primarily due to lower placement
Assurant Health
As previously announced, the Company concluded a
comprehensive review of its portfolio and decided to sharpen
its focus on specialty housing and lifestyle protection products
and services. As a result, the Company will exit the health
insurance market. For more information, see Notes 3 and 4 of
the Notes to the Consolidated Financial Statements included
elsewhere in this report. The Company expects to substantially
complete its exit of the health insurance market by the end
of 2016.
48
ASSURANT, INC. – 2015 Form 10-K PART II
ITEM 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations
Overview
The table below presents information regarding Assurant Health’s segment results of operations:
Revenues:
Net earned premiums
Net investment income
Fees and other income
Total revenues
Benefits, losses and expenses:
Policyholder benefits
Selling, underwriting and general expenses
Total benefits, losses and expenses
Segment income before provision for income taxes
Provision for income taxes
SEGMENT NET (LOSS) INCOME
Net earned premiums:
Individual
Small employer group
TOTAL
Insured lives by product line:
Individual
Small employer group
TOTAL
Ratios:
Loss ratio(1)
Expense ratio(2)
Combined ratio(3)
For the Years Ended December 31,
2015
2014
2013
$
$
$
$
$
2,223,696
24,487
54,622
2,302,805
$
1,945,452
35,369
40,016
2,020,837
2,301,241
527,420
2,828,661
(525,856)
(157,949)
1,575,633
495,818
2,071,451
(50,614)
13,134
1,581,407
36,664
29,132
1,647,203
1,169,075
435,550
1,604,625
42,578
36,721
(367,907) $
(63,748) $
5,857
1,895,970
327,726
2,223,696
$
$
1,544,968
400,484
1,945,452
$
$
1,174,141
407,266
1,581,407
344
45
389
103.5%
23.2%
124.2%
829
138
967
81.0%
25.0%
104.3%
780
127
907
73.9%
27.0%
99.6%
(1) The loss ratio is equal to policyholder benefits divided by net earned premiums.
(2) The expense ratio is equal to selling, underwriting and general expenses divided by net earned premiums and fees and other income.
(3) The combined ratio is equal to total benefits, losses and expenses divided by net earned premiums and fees and other income.
The Affordable Care Act
Most provisions of the Affordable Care Act have now taken
effect. Given the sweeping nature of the changes represented
by the Affordable Care Act, our results of operations and
financial position have been, and could in the future be,
materially adversely affected. For more information, see
Item 1A, “Risk Factors—Risk related to our industry—Reform
of the health insurance industry could materially reduce
the profitability of certain of our businesses or render them
unprofitable” in this report.
Because all individuals now have a guaranteed right to purchase
health insurance policies, the Affordable Care Act introduced
new and significant premium stabilization programs in 2014:
reinsurance, risk adjustment, and risk corridor (together,
the “3 Rs”). These programs, discussed in further detail
below, are meant to mitigate the potential adverse impact
to individual health insurers as a result of Affordable Care
Act provisions that became effective January 1, 2014.
Reinsurance
This is a transitional program for 2014-2016, with decreasing
benefit over the three years. All commercial individual and
group medical health plans are required to contribute to the
funding of the program. Only individual health plans that are
compliant with the essential health benefits of the Affordable
Care Act are eligible to receive benefits from the program.
We are required to make contributions, which are recorded
quarterly, based on both our Affordable Care Act and non-
Affordable Care Act business. Contributions based on our
non-Affordable Care Act business are included in selling,
underwriting and general expenses and contributions based
on our Affordable Care Act business are included as ceded
premiums. Recoveries are recorded quarterly as ceded
policyholder benefits and reflect the anticipated experience
of our Affordable Care Act plans based on our analysis of
current and historical claim data.
For the Twelve Months 2015, we recorded reinsurance
contributions of $10,387 and reinsurance recoveries of
$274,977 in our consolidated statements of operations. As of
December 31, 2015, we recorded reinsurance contributions
payable of $2,597 and reinsurance recoverables of $296,421
on our consolidated balance sheets. During 2015 we collected
$255,536 under the 2014 program. Both contributions payable
and recoveries for the 2015 program are scheduled to be
settled in 2016. Included in the $274,977 is a $(21,444)
change in our December 31, 2014 estimate pertaining to
49
ASSURANT, INC. – 2015 Form 10-K
PART II
ITEM 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations
the 2014 program and $296,421 associated with the 2015
program. Reinsurance recovery amounts are based on final
notification from the Centers for Medicare and Medicaid
Services (“CMS”).
Risk adjustment
This is a permanent program to transfer funds between
health insurers based on the average health risk scores of
their Affordable Care Act insured populations. Insurers with
below-average risk scores will contribute into the pool.
Insurers with above-average risk scores will receive payments
out of the pool.
Risk scores are evaluated at the state, market, and legal
entity level for Affordable Care Act-compliant policies. Risk
adjustment amounts payable and receivable are reflected
as adjustments to net earned premiums, and are recorded
quarterly based on our current estimated loss experience
of our Affordable Care Act business.
Based on the demographics of our Affordable Care Act
population, extensive analytical evaluations, current and
historical claim data as well as other internal and external data
sources, external market studies and other published data,
we believe that our average risk scores will be significantly
higher than the industry averages.
For the Twelve Months 2015, we recorded net risk adjustment
premiums of $199,554 in our consolidated statements of
operations, and we carried net risk adjustment receivables
of $225,195 on our consolidated balance sheets. During
2015 we collected $96,247 under the 2014 program. Risk
transfer payments and receipts for the 2015 program are
scheduled to be settled in 2016. Included in the $199,554
of net risk adjustment premiums is a $(25,641) change in
our December 31, 2014 estimate pertaining to the 2014
program and $225,195 associated with the 2015 program.
Risk adjustment recoverable amounts are based on final
notifications from CMS.
Risk corridor
This is a temporary risk-sharing program for 2014-2016. Based
on ratios of allowable costs to target costs as defined by the
Affordable Care Act, health insurers will make payments
to the Department of Health and Human Services (“HHS”)
or receive funds from HHS. Because Assurant Health did
not participate in any public insurance marketplaces for
2014, risk corridors have no impact on our 2014 operations.
Assurant Health began participating in the public insurance
marketplaces for 2015, however no net recoverable has been
recorded for 2015 because payments from HHS under this
program are uncertain.
Estimates of amounts receivable from these programs are
subject to considerable uncertainty and actual amounts
received may vary substantially from our estimates.
Year Ended December 31, 2015 Compared
to the Year Ended December 31, 2014
Net Loss
Segment net loss increased $304,159, or 477%, to a net loss of
$367,907 for Twelve Months 2015 from a net loss of $63,748 for
Twelve Months 2014. The increase was primarily attributable
to higher loss experience and adverse claims development
on 2015 individual major medical policies, a reduction in
the 2014 estimated recoveries from the Affordable Care Act
risk mitigation programs and $106,389 (after-tax) of exit
and disposal costs, including premium deficiency reserves,
severance and retention costs, long-lived asset impairments
and similar exit and disposal costs related to the decision to
exit the health business mentioned above.
Total Revenues
Total revenues increased $281,968, or 14%, to $2,302,805 for
Twelve Months 2015 from $2,020,837 for Twelve Months 2014.
Net earned premiums from our individual medical business
increased $351,002, or 23%, due to growth in the major
medical product line. Net earned premiums from our small
employer group business decreased $72,758, or 18%, due to
policy lapses and the sale of supplemental and small-group
self-funded lines of business and certain assets to National
General on October 1, 2015. For more information see Note 4
of the Notes to the Consolidated Financial Statements included
elsewhere in this report. Fees and other income increased
$14,606, or 37%, due to growth of our self funded product
until its sale on October 1, 2015, noted above.
Total Benefits, Losses and Expenses
Total benefits, losses and expenses increased $757,210, or
37%, to $2,828,661 for Twelve Months 2015 from $2,071,451
for Twelve Months 2014. Policyholder benefits increased
$725,608, or 46%, and the loss ratio increased to 103.5%
from 81.0%. The increase is primarily attributable to higher
loss experience and adverse claims development on 2015
individual major medical policies as well as the establishment
of premium deficiency reserves. At December 31, 2015, a
$78,047 premium deficiency reserve remains on the Company’s
consolidated balance sheet. Selling, underwriting and general
expenses increased $31,602, or 6.4%, due to severance and
retention costs, long-lived asset impairments and other
exit and disposal costs, as well as a net $10,643 loss on
the sale of our supplemental and small-group self-funded
lines of business and certain assets to National General on
October 1, 2015.
Year Ended December 31, 2014 Compared
to the Year Ended December 31, 2013
Net (Loss) Income
Segment results decreased $69,605, or 1,188%, to a net
loss of $63,748 for Twelve Months 2014 from net income of
50
ASSURANT, INC. – 2015 Form 10-K PART II
ITEM 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations
$5,857 for Twelve Months 2013. The decrease was primarily
attributable to increased claims from the new Affordable
Care Act qualified policies, reflecting the guaranteed issue
requirements and the health profiles of many first-time
buyers, as well as a higher non-deductible expenses and
reform fees related to the Affordable Care Act. These items
were partially offset by estimated recoveries from Affordable
Care Act risk mitigation programs.
Total Revenues
Total revenues increased $373,634, or 23%, to $2,020,837 for
Twelve Months 2014 from $1,647,203 for Twelve Months 2013.
Net earned premiums from our individual medical business
increased $370,827, or 32%, due to growth in individual major
medical product sales, and estimated recoveries from the
Affordable Care Act’s risk adjustment program.
Assurant Employee Benefits
Total Benefits, Losses and Expenses
Total benefits, losses and expenses increased $466,826, or
29%, to $2,071,451 for Twelve Months 2014 from $1,604,625
for Twelve Months 2013. Policyholder benefits increased
$406,558, or 35%, and the loss ratio increased to 81.0%
from 73.9%. The increases in policyholder benefits and the
loss ratio were primarily attributable to higher volumes of
individual business and higher loss experience on individual
Affordable Care Act medical policies. Selling, underwriting
and general expenses increased $60,268, or 14%, due to
higher commissions on new sales and health reform fees.
Fourth quarter 2013 included $4,589 of severance expense.
As previously announced, the Company concluded a comprehensive review of its portfolio and decided to sharpen its focus
on specialty housing and lifestyle protection products and services. As a result, on September 9, 2015, the Company entered
into a Master Transaction Agreement with Sun Life to sell its Assurant Employee Benefits segment, which is expected to
close in the first quarter of 2016.
Overview
The table below presents information regarding Assurant Employee Benefits’ segment results of operations:
Revenues:
Net earned premiums
Net investment income
Fees and other income
Total revenues
Benefits, losses and expenses:
Policyholder benefits
Selling, underwriting and general expenses
Total benefits, losses and expenses
Segment income before provision for income taxes
Provision for income taxes
SEGMENT NET INCOME
Net earned premiums:
Group disability
Group dental
Group life
Group supplemental and vision products
TOTAL
Voluntary
Employer-paid and other
TOTAL
Ratios:
Loss ratio(1)
Expense ratio(2)
For the Years Ended December 31,
2015
2014
2013
$
$
$
$
$
$
1,066,754
110,998
25,006
1,202,758
730,192
398,757
1,128,949
73,809
26,487
47,322
398,172
396,925
204,526
67,131
1,066,754
478,588
588,166
1,066,754
$
$
$
$
$
$
1,051,725
117,192
24,204
1,193,121
716,892
399,548
1,116,440
76,681
28,000
48,681
409,028
392,502
200,285
49,910
1,051,725
441,479
610,246
1,051,725
$
$
$
$
$
$
1,014,587
117,853
23,434
1,155,874
715,656
388,159
1,103,815
52,059
17,506
34,553
403,286
383,223
192,392
35,686
1,014,587
393,969
620,618
1,014,587
68.4%
36.5%
68.2%
37.1%
70.5%
37.4%
(1) The loss ratio is equal to policyholder benefits divided by net earned premiums.
(2) The expense ratio is equal to selling, underwriting and general expenses divided by net earned premiums and fees and other income.
51
ASSURANT, INC. – 2015 Form 10-K
PART II
ITEM 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations
Year Ended December 31, 2015 Compared
to the Year Ended December 31, 2014
Year Ended December 31, 2014 Compared
to the Year Ended December 31, 2013
Net Income
Segment net income decreased $1,359, or 3%, to $47,322 for
Twelve Months 2015 from $48,681 for Twelve Months 2014.
The decrease is primarily attributable to less favorable
life loss experience and lower net investment income.
Net Income
Segment net income increased $14,128 or 41%, to $48,681
for Twelve Months 2014 from $34,553 for Twelve Months
2013. The increase was primarily attributable to favorable
loss experience in all major product lines.
Total Revenues
Total revenues increased $9,637, or 1%, to $1,202,758
for Twelve Months 2015 from $1,193,121 for Twelve
Months 2014. Twelve Months 2015 net earned premiums
increased 1% or $15,029, primarily driven by voluntary
products which increased $37,109, or 8%, partially offset
by declines in employer paid products Net investment
income decreased 5% or $6,194 driven by lower investment
income from real estate joint venture partnerships as
well as lower investment yields.
Total Benefits, Losses and Expenses
Total benefits, losses and expenses increased $12,509, or
1%, to $1,128,949 for Twelve Months 2015 from $1,116,440
for Twelve Months 2014. The loss ratio increased slightly
to 68.4% from 68.2%, primarily due to less favorable life
loss experience. The expense ratio decreased to 36.5% for
Twelve Months 2015 compared with 37.1% for Twelve Months
2014, primarily due to ongoing expense savings initiatives.
Corporate and Other
Total Revenues
Total revenues increased $37,247 or 3%, to $1,193,121
for Twelve Months 2014 from $1,155,874 for Twelve
Months 2013. Net earned premiums growth was driven
by voluntary products which increased $47,510, or 12%,
partially offset by declines in employer paid products.
Total Benefits, Losses and Expenses
Total benefits, losses and expenses increased $12,625, or
1%, to $1,116,440 for Twelve Months 2014 from $1,103,815
for Twelve Months 2013. The loss ratio decreased to 68.2%
from 70.5% driven by favorable experience in all major
product lines. The expense ratio remained relatively
consistent at 37.1% for Twelve Months 2014 compared
with 37.4% for Twelve Months 2013.
The table below presents information regarding the Corporate and Other segment’s results of operations:
Revenues:
Net investment income
Net realized gains on investments
Amortization of deferred gain on disposal of businesses
Fees and other income
Total revenues
Benefits, losses and expenses:
Policyholder benefits
Selling, underwriting and general expenses
Interest expense
Total benefits, losses and expenses
Segment loss before benefit for income taxes
Benefit for income taxes
SEGMENT NET LOSS
$
For the Years Ended December 31,
2015
2014
2013
$
21,190
31,826
12,988
32,682
98,686
3,150
127,285
55,116
185,551
(86,865)
(44,117)
$
19,320
60,783
(1,506)
685
79,282
—
143,078
58,395
201,473
(122,191)
(47,460)
20,599
34,525
16,310
659
72,093
4,888
138,450
77,735
221,073
(148,980)
(48,739)
$
(42,748) $
(74,731) $
(100,241)
52
ASSURANT, INC. – 2015 Form 10-K
PART II
ITEM 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations
Year Ended December 31, 2015 Compared
to the Year Ended December 31, 2014
Net Loss
Segment net loss decreased $31,983 or 43%, to $42,748 for
Twelve Months 2015 compared with a net loss of $74,731
for Twelve Months 2014. The decrease is primarily due to
a $10,016 (after-tax) gain on the sale of our vehicle title
administration business in Twelve Months 2015, while Twelve
Months 2014 includes a $19,400 (after-tax) loss on the sale
of ARIC.
Total Revenues
Total revenues increased $19,404 or 24%, to $98,686 for
Twelve Months 2015 compared with $79,282 for Twelve Months
2014. The increase in revenues is mainly due to a $16,773
gain on sale of our vehicle title administration business,
mentioned above.
Total Benefits, Losses and Expenses
Total benefits, losses and expenses decreased $15,922 or 8%,
to $185,551 in Twelve Months 2015 compared with $201,473
in Twelve Months 2014. This decrease is primarily attributable
to a $21,526 loss on sale of ARIC included in Twelve Months
2014, mentioned above.
Year Ended December 31, 2014 Compared
to the Year Ended December 31, 2013
Net Loss
Segment net loss decreased $25,510 or 25%, to $74,731 for
Twelve Months 2014 compared with a net loss of $100,241
for Twelve Months 2013. The decrease is primarily due to a
Investments
$20,753 one-time tax benefit related to the conversion of
the Canadian branch operations of certain U.S. subsidiaries
to foreign corporate entities, a $17,068 (after-tax) change in
net realized gains on investments, lower employee-related
costs and impact of expense reduction initiatives. These
items were partially offset by a $19,400 (after-tax) loss on
an asset held for sale.
Total Revenues
Total revenues increased $7,189 or 10%, to $79,282 for
Twelve Months 2014 compared with $72,093 for Twelve
Months 2013. The increase in revenues is mainly due to an
$26,258 increase in net realized gains on investments partially
offset by a decrease of $17,816 in amortization of deferred
gain on disposal of businesses (“amortization of deferred
gain”). The reduction in the amortization of deferred gain
is related to a change in estimate for the recognition of a
deferred gain associated with FFG that we previously sold
through reinsurance.
Total Benefits, Losses and Expenses
Total benefits, losses and expenses decreased $19,600 or 9%,
to $201,473 in Twelve Months 2014 compared with $221,073
in Twelve Months 2013. Interest expense declined $19,340
primarily due to repayment of the 2004 Senior Notes with
an aggregate principal amount of $500,000 on February 18,
2014. Included in selling, underwriting and general expenses
is a $21,526 loss on an asset held for sale. Excluding this
item, Twelve Months 2014 had lower selling, underwriting
and general expenses compared with Twelve Months 2013
primarily due to lower employee-related costs and impact
of expense reduction initiatives.
The Company had total investments of $12,994,772 and
$14,131,452 as of December 31, 2015 and 2014, respectively.
Net unrealized gains on the Company’s fixed maturity
portfolio decreased $470,541 during 2015, from $1,215,074
at December 31, 2014 to $744,533 at December 31, 2015. This
decrease was primarily due to an increase in Treasury yields
and an increase in credit spreads. For more information on
the Company’s investments see Note 5 to the Consolidated
Financial Statements included elsewhere in this report.
The following table shows the credit quality of the Company’s fixed maturity securities portfolio as of the dates indicated:
Fixed Maturity Securities by Credit Quality (Fair Value)
Aaa / Aa / A
Baa
Ba
B and lower
TOTAL
December 31, 2015
As of
$
6,326,800
3,309,719
389,349
189,460
$ 10,215,328
61.9% $
32.4%
3.8%
1.9%
7,314,208
3,255,505
432,203
261,258
100.0% $ 11,263,174
December 31, 2014
65.0%
28.9%
3.8%
2.3%
100.0%
53
ASSURANT, INC. – 2015 Form 10-K PART II
ITEM 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations
Major categories of net investment income were as follows:
Fixed maturity securities
Equity securities
Commercial mortgage loans on real estate
Policy loans
Short-term investments
Other investments
Cash and cash equivalents
Total investment income
Investment expenses
NET INVESTMENT INCOME
Net investment income decreased $30,212, or 5%, to $626,217
for Twelve Months 2015 from $656,429 for Twelve Months
2014. The decrease is primarily due to a decrease in invested
assets as well as lower investment yields, partially offset by
an increase of $5,747 in investment income from real estate
joint venture partnerships.
Net investment income increased $6,133, or 1%, to $656,429
for Twelve Months 2014 from $650,296 for Twelve Months
2013. The increase for the period was primarily related to
$12,353 in additional investment income from real estate
joint venture partnerships and $3,195 in additional investment
income related to the loss recovery on certain mortgage-
backed securities as a result of a trust settlement agreement.
Excluding the investment income from the real estate joint
venture partnerships and the trust settlement agreement,
net investment income decreased $9,415, primarily reflecting
lower investment yields.
As of December 31, 2015, the Company owned $170,552
of securities guaranteed by financial guarantee insurance
companies. Included in this amount was $158,274 of municipal
securities, whose credit rating was A+ with the guarantee,
but would have had a rating of A without the guarantee.
The Company’s states, municipalities and political subdivisions
holdings are highly diversified across the U.S. and Puerto
Rico, with no individual state’s exposure (including both
general obligation and revenue securities) exceeding 0.5%
of the overall investment portfolio as of December 31, 2015
and 2014. At December 31, 2015 and 2014, the securities
include general obligation and revenue bonds issued by
states, cities, counties, school districts and similar issuers,
including $319,654 and $270,107, respectively, of advance
refunded or escrowed-to-maturity bonds (collectively referred
to as “pre-refunded bonds”), which are bonds for which an
irrevocable trust has been established to fund the remaining
payments of principal and interest. As of December 31,
2015 and 2014, revenue bonds account for 50% and 51% of
the holdings, respectively. Excluding pre-refunded revenue
bonds, the activities supporting the income streams of
the Company’s revenue bonds are across a broad range
of sectors, primarily highway, water, airport and marina,
higher education, specifically pledged tax revenues, and
other miscellaneous sources such as bond banks, finance
authorities and appropriations.
$
Years Ended December 31,
$
2015
486,165
29,957
72,658
2,478
2,033
37,759
18,416
649,466
(23,249)
$
2014
522,309
28,014
73,959
2,939
1,950
34,527
18,556
682,254
(25,825)
2013
530,144
27,013
76,665
3,426
2,156
20,573
14,679
674,656
(24,360)
$
626,217 $
656,429 $
650,296
The Company’s investments in foreign government fixed
maturity securities are held mainly in countries and currencies
where the Company has policyholder liabilities, which allow
the assets and liabilities to be more appropriately matched.
At December 31, 2015, approximately 79%, 8%, and 5% of
the foreign government securities were held in the Canadian
government/provincials and the governments of Brazil and
Germany, respectively. At December 31, 2014, approximately
76%, 10% and 5% of the foreign government securities were
held in the Canadian government/provincials and the
governments of Brazil and Germany, respectively. No other
country represented more than 3% of the Company’s foreign
government securities as of December 31, 2015 and 2014.
The Company has European investment exposure in its
corporate fixed maturity and equity securities of $888,923
with a net unrealized gain of $67,957 at December 31, 2015
and $1,060,655 with a net unrealized gain of $116,975 at
December 31, 2014. Approximately 25% and 22% of the
corporate European exposure is held in the financial industry
at December 31, 2015 and 2014, respectively. The Company’s
largest European country exposure represented approximately
5% of the fair value of the Company’s corporate securities
as of December 31, 2015 and 2014. Approximately 6% of the
fair value of the corporate European securities are pound
and euro-denominated and are not hedged to U.S. dollars,
but held to support those foreign-denominated liabilities.
The Company’s international investments are managed as
part of the overall portfolio with the same approach to risk
management and focus on diversification.
The Company has exposure to the energy sector in its
corporate fixed maturity securities of $779,720 with a net
unrealized loss of $6,985 at December 31, 2015 and $992,012
with a net unrealized gain of $89,590 at December 31,
2014. Approximately 89% of the energy exposure is rated as
investment grade as of December 31, 2015 and 2014.
The Company has exposure to sub-prime and related mortgages
within the Company’s fixed maturity security portfolio. At
December 31, 2015, approximately 2% of the residential
mortgage-backed holdings had exposure to sub-prime mortgage
collateral. This represented less than 1% of the total fixed
income portfolio and approximately 2% of the total unrealized
gain position. Of the securities with sub-prime exposure,
approximately 9% are rated as investment grade. All residential
54
ASSURANT, INC. – 2015 Form 10-K
PART II
ITEM 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations
mortgage-backed securities, including those with sub-prime
exposure, are reviewed as part of the ongoing other-than-
temporary impairment monitoring process.
the Company cannot corroborate the non-binding broker
quotes with Level 2 inputs, these securities are categorized
as Level 3.
As required by the fair value measurements and disclosures
guidance, the Company has identified and disclosed its
financial assets in a fair value hierarchy, which consists of
the following three levels:
••Level 1 inputs utilize quoted prices (unadjusted) in active
markets for identical assets or liabilities that the Company
can access.
••Level 2 inputs utilize other than quoted prices included in
Level 1 that are observable for the asset, either directly
or indirectly, for substantially the full term of the asset.
Level 2 inputs include quoted prices for similar assets in
active markets, quoted prices for identical or similar assets
in markets that are not active and inputs other than quoted
prices that are observable in the marketplace for the
asset. The observable inputs are used in valuation models
to calculate the fair value for the asset.
••Level 3 inputs are unobservable but are significant to the
fair value measurement for the asset, and include situations
where there is little, if any, market activity for the asset.
These inputs reflect management’s own assumptions about
the assumptions a market participant would use in pricing
the asset.
The Company reviews fair value hierarchy classifications on
a quarterly basis. Changes in the observability of valuation
inputs may result in a reclassification of levels for certain
securities within the fair value hierarchy.
The Company values Level 2 securities using various observable
market inputs obtained from a pricing service. The pricing
service prepares estimates of fair value measurements for
the Company’s Level 2 securities using proprietary valuation
models based on techniques such as matrix pricing which
include observable market inputs. The fair value measurements
and disclosures guidance defines observable market inputs
as the assumptions market participants would use in pricing
the asset or liability developed on market data obtained from
sources independent of the Company. The extent of the use
of each observable market input for a security depends on
the type of security and the market conditions at the balance
sheet date. Depending on the security, the priority of the use
of observable market inputs may change as some observable
market inputs may not be relevant or additional inputs may
be necessary. The Company uses the following observable
market inputs (“standard inputs”), listed in the approximate
order of priority, in the pricing evaluation of Level 2 securities:
benchmark yields, reported trades, broker/dealer quotes,
issuer spreads, two-sided markets, benchmark securities, bids,
offers and reference data including market research data.
When market observable inputs are unavailable to the
pricing service, the remaining unpriced securities are
submitted to independent brokers who provide non-binding
broker quotes or are priced by other qualified sources. If
A non-pricing service source prices certain privately placed
corporate bonds using a model with observable inputs
including, but not limited to, the credit rating, credit spreads,
sector add-ons, and issuer specific add-ons. A non-pricing
service source prices certain derivatives using a model with
inputs including, but not limited to, the time to expiration,
the notional amount, the strike price, the forward rate,
implied volatility and the discount rate.
Management evaluates the following factors in order to
determine whether the market for a financial asset is inactive.
The factors include, but are not limited to:
••There are few recent transactions,
••Little information is released publicly,
••The available prices vary significantly over time or among
market participants,
••The prices are stale (i.e., not current), and
••The magnitude of the bid-ask spread.
Illiquidity did not have a material impact in the fair value
determination of the Company’s financial assets.
The Company generally obtains one price for each financial
asset. The Company performs a monthly analysis to assess if the
evaluated prices represent a reasonable estimate of their fair
value. This process involves quantitative and qualitative analysis
and is overseen by investment and accounting professionals.
Examples of procedures performed include, but are not limited
to, initial and on-going review of pricing service methodologies,
review of the prices received from the pricing service, review
of pricing statistics and trends, and comparison of prices for
certain securities with two different appropriate price sources
for reasonableness. Following this analysis, the Company
generally uses the best estimate of fair value based upon
all available inputs. On infrequent occasions, a non-pricing
service source may be more familiar with the market activity
for a particular security than the pricing service. In these
cases the price used is taken from the non-pricing service
source. The pricing service provides information to indicate
which securities were priced using market observable inputs
so that the Company can properly categorize the Company’s
financial assets in the fair value hierarchy.
Collateralized Transactions
As of December 31, 2015, the Company has terminated its
securities lending program and there are no outstanding
transactions or balances.
In the past, the Company lent fixed maturity securities,
primarily bonds issued by the U.S. government and government
agencies and authorities, and U.S. corporations, to selected
broker/dealers. All such loans were negotiated on an overnight
55
ASSURANT, INC. – 2015 Form 10-K PART II
ITEM 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations
basis; term loans were not permitted. The Company received
collateral, greater than or equal to 102% of the fair value
of the securities lent, plus accrued interest, in the form
of cash and cash equivalents held by a custodian bank for
the benefit of the Company. The use of cash collateral
received was unrestricted. The Company reinvested the
cash collateral received, generally in investments of high
credit quality that are designated as available-for-sale. The
Company monitored the fair value of securities loaned and
the collateral received, with additional collateral obtained,
as necessary. The Company was subject to the risk of loss
on the re-investment of cash collateral.
As of December 31, 2014, the Company’s collateral held
under securities lending agreements, of which its use was
unrestricted, was $95,985, and is included in the consolidated
balance sheets under the collateral held/pledged under
securities agreements. The Company’s liability to the borrower
for collateral received was $95,986, and is included in the
consolidated balance sheets under the obligation under
securities agreements. The difference between the collateral
held and obligations under securities lending was recorded
as an unrealized gain (loss) and included as part of AOCI.
The Company included the available-for-sale investments
purchased with the cash collateral in its evaluation of other-
than-temporary impairments.
Cash proceeds that the Company received as collateral for
the securities it lent and subsequent repayment of the cash
were regarded by the Company as cash flows from financing
activities, since the cash received was considered a borrowing.
Since the Company reinvested the cash collateral generally
in investments that were designated as available-for-sale,
the reinvestment is presented as cash flows from investing
activities.
Liquidity and Capital Resources
Regulatory Requirements
Assurant, Inc. is a holding company and, as such, has limited
direct operations of its own. Our holding company’s assets consist
primarily of the capital stock of our subsidiaries. Accordingly,
our holding company’s future cash flows depend upon the
availability of dividends and other statutorily permissible
payments from our subsidiaries, such as payments under our
tax allocation agreement and under management agreements
with our subsidiaries. The ability to pay such dividends and to
make such other payments will be limited by applicable laws
and regulations of the states in which our subsidiaries are
domiciled, which subject our subsidiaries to significant regulatory
restrictions. The dividend requirements and regulations vary
from state to state and by type of insurance provided by the
applicable subsidiary. These laws and regulations require,
among other things, our insurance subsidiaries to maintain
minimum solvency requirements and limit the amount of
dividends they can pay to the holding company. For further
information on pending amendments to state insurance holding
company laws, including the NAIC’s “Solvency Modernization
Initiative,” see “Item 1A—Risk Factors—Risks Related to Our
Industry—Changes in regulation may reduce our profitability
and limit our growth.” Along with solvency regulations, the
primary driver in determining the amount of capital used for
dividends is the level of capital needed to maintain desired
financial strength ratings from A.M. Best.
Regulators or rating agencies could become more conservative in
their methodology and criteria, increasing capital requirements
for our insurance subsidiaries. This in turn, could negatively
affect our capital resources. During 2015, the Company
announced that it will exit the health insurance market and
has signed a definitive agreement to sell its Assurant Employee
Benefits segment. As a result of these announcements, the
following actions were taken by the rating agencies:
A.M. Best
••Ratings of Union Security Insurance Company and Union
Security Life Insurance Company of New York were placed
under review with negative implications.
••Ratings of Assurant’s rated dental HMOs were placed under
review with positive implications.
••Ratings of John Alden Insurance Company and Time Insurance
Company were downgraded from A- to B+.
••Ratings of Assurant’s senior debt were upgraded from bbb
to bbb+.
••Ratings of Assurant’s commercial paper were upgraded
from AMB-2 to AMB-1.
••Ratings of all other rated entities were affirmed with a
stable outlook.
Moody’s Investor Services (“Moody’s”)
••Rating of Union Security Insurance Company was affirmed
and the outlook revised from developing to stable.
••Ratings of John Alden Life Insurance Company and Time
Insurance Company were downgraded from Baa2 to Ba1,
and the outlook revised to negative.
••Ratings of Assurant’s Senior Debt (Baa2), American Security
Insurance Company (A2), American Bankers Insurance
Company of Florida (A2) and American Bankers Life Assurance
Company of Florida (A3) were affirmed with a stable outlook.
56
ASSURANT, INC. – 2015 Form 10-K PART II
ITEM 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations
Standard and Poor’s (“S&P”)
••Union Security Insurance Company (A-) was placed on
CreditWatch positive.
••Ratings of John Alden Life Insurance Company and Time
Insurance Company were downgraded from BBB to BB+,
and the outlook revised to stable.
••Ratings of Assurant’s Senior Debt (BBB+), American Bankers
Insurance Company of Florida (A), American Bankers Life
Assurance Company of Florida (A), American Memorial Life
Insurance Company (A) and American Security Insurance
Company (A) were affirmed with a stable outlook.
No actions were taken on Assurant’s debt rating and other
financial strength ratings by any of the agencies and these ratings
remain unchanged. For further information on our ratings and
the risks of ratings downgrades, see “Item 1—Business” and “Item
1A—Risk Factors—Risks Related to Our Company—A.M. Best,
Moody’s and S&P rate the financial strength of our insurance
company subsidiaries, and a decline in these ratings could
affect our standing in the insurance industry and cause our
sales and earnings to decrease.”
For 2016, the maximum amount of dividends our U.S. domiciled
insurance subsidiaries could pay, under applicable laws and
regulations without prior regulatory approval, is approximately
$564,000.
Liquidity
As of December 31, 2015, we had $462,248 in holding company
capital. We use the term “holding company capital” to
represent cash and other liquid marketable securities held
at Assurant, Inc., out of a total of $601,819, that we are not
otherwise holding for a specific purpose as of the balance
sheet date, but can be used for stock repurchases, stockholder
dividends, acquisitions, and other corporate purposes.
$250,000 of the $462,248 of holding company capital is
intended to serve as a buffer against remote risks (such as
large-scale hurricanes). Dividends or returns of capital paid
by our subsidiaries, net of infusions and excluding amounts
received from dispositions and amounts used for acquisitions,
totaled $174,579, $453,485, and $607,295 for the years
ended December 31, 2015, 2014, and 2013, respectively.
We use these cash inflows primarily to pay expenses, to
make interest payments on indebtedness, to make dividend
payments to our stockholders, to make subsidiary capital
contributions, to fund acquisitions and to repurchase our
outstanding shares.
In addition to paying expenses and making interest payments
on indebtedness, our capital management strategy provides for
several uses of the cash generated by our subsidiaries,
including without limitation, returning capital to shareholders
through share repurchases and dividends, investing in our
businesses to support growth in targeted areas, and making
prudent and opportunistic acquisitions. During 2015, 2014 and
2013 we made share repurchases and paid dividends to our
stockholders of $378,819, $295,765 and $472,308, respectively.
We expect 2016 dividends from Assurant Solutions and Assurant
Specialty Property to approximate their earnings, subject to
the growth of the businesses, rating agency and regulatory
capital requirements as well as investment performance. In
addition, we expect the sale of Assurant Employee Benefits
to generate approximately $1,000,000 in net cash proceeds
including capital releases and Assurant Health to contribute
approximately $475,000, subject to ultimate development
of claims, actual expenses needed to wind down operations,
recoveries from Affordable Care Act risk mitigation payments
and regulatory approval.
The primary sources of funds for our subsidiaries consist of
premiums and fees collected, proceeds from the sales and
maturity of investments and net investment income. Cash is
primarily used to pay insurance claims, agent commissions,
operating expenses and taxes. We generally invest our
subsidiaries’ excess funds in order to generate investment
income.
We conduct periodic asset liability studies to measure the
duration of our insurance liabilities, to develop optimal
asset portfolio maturity structures for our significant lines
of business and ultimately to assess that cash flows are
sufficient to meet the timing of cash needs. These studies
are conducted in accordance with formal company-wide
Asset Liability Management (“ALM”) guidelines.
To complete a study for a particular line of business, models
are developed to project asset and liability cash flows and
balance sheet items under a large, varied set of plausible
economic scenarios. These models consider many factors
including the current investment portfolio, the required
capital for the related assets and liabilities, our tax position
and projected cash flows from both existing and projected
new business.
Alternative asset portfolio structures are analyzed for
significant lines of business. An investment portfolio maturity
structure is then selected from these profiles given our return
hurdle and risk preference. Sensitivity testing of significant
liability assumptions and new business projections is also
performed.
Our liabilities generally have limited policyholder optionality,
which means that the timing of payments is relatively
insensitive to the interest rate environment. In addition,
our investment portfolio is largely comprised of highly liquid
fixed maturity securities with a sufficient component of such
securities invested that are near maturity which may be sold
with minimal risk of loss to meet cash needs. Therefore, we
believe we have limited exposure to disintermediation risk.
Generally, our subsidiaries’ premiums, fees and investment
income, along with planned asset sales and maturities,
provide sufficient cash to pay claims and expenses. However,
there may be instances when unexpected cash needs arise in
excess of that available from usual operating sources. In such
instances, we have several options to raise needed funds,
including selling assets from the subsidiaries’ investment
portfolios, using holding company cash (if available), issuing
commercial paper, or drawing funds from our revolving credit
facility. In addition, we have filed an automatically effective
shelf registration statement on Form S-3 with the SEC. This
registration statement allows us to issue equity, debt or
57
ASSURANT, INC. – 2015 Form 10-K PART II
ITEM 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations
other types of securities through one or more methods of
distribution. The terms of any offering would be established
at the time of the offering, subject to market conditions. If
we decide to make an offering of securities, we will consider
the nature of the cash requirement as well as the cost of
capital in determining what type of securities we may offer.
term appreciation in equity markets which is not changed by
minor short-term market fluctuations, but does change when
large interim deviations occur. The assumptions we use may
differ materially from actual results due to changing market
and economic conditions, higher or lower withdrawal rates
or longer or shorter life spans of the participants.
On January 15, 2016, our Board of Directors declared a
quarterly dividend of $0.50 per common share payable on
March 14, 2016 to stockholders of record as of February 29,
2016. We paid dividends of $0.50 per common share
on December 14, 2015 to stockholders of record as of
November 30, 2015. This represents a 67 percent increase
above the quarterly dividend of $0.30 per common share
paid on September 15, 2015 to stockholders of record as of
August 31, 2015. We paid dividends of $0.30 per common
share on June 9, 2015 to stockholders of record as of May 26,
2015. This represents an 11 percent increase above the
quarterly dividend of $0.27 per common share paid on March 9,
2015 to stockholders of record as of February 23, 2015. Any
determination to pay future dividends will be at the discretion
of our Board of Directors and will be dependent upon: our
subsidiaries’ payments of dividends and/or other statutorily
permissible payments to us; our results of operations and cash
flows; our financial position and capital requirements; general
business conditions; legal, tax, regulatory and contractual
restrictions on the payment of dividends; and other factors
our Board of Directors deems relevant.
On September 9, 2015, our Board of Directors authorized
the Company to repurchase up to an additional $750,000
of its outstanding common stock. During the year ended
December 31, 2015, we repurchased 4,184,889 shares of our
outstanding common stock at a cost of $284,567, exclusive of
commissions. As of December 31, 2015, $952,103 remained
under the total repurchase authorization. The timing and
the amount of future repurchases will depend on market
conditions, our financial condition, results of operations,
liquidity and other factors.
Management believes the Company will have sufficient
liquidity to satisfy its needs over the next twelve months,
including the ability to pay interest on our senior notes and
dividends on our common shares.
Retirement and Other Employee Benefits
We sponsor a qualified pension plan, (the “Assurant Pension
Plan”) and various non-qualified pension plans (including
an Executive Pension Plan), along with a retirement health
benefits plan covering our employees who meet specified
eligibility requirements. The reported expense and liability
associated with these plans requires an extensive use of
assumptions which include, but are not limited to, the discount
rate, expected return on plan assets and rate of future
compensation increases. We determine these assumptions
based upon currently available market and industry data, and
historical performance of the plan and its assets. The actuarial
assumptions used in the calculation of our aggregate projected
benefit obligation vary and include an expectation of long-
As of January 1, 2014, the Assurant Pension Plan and Executive
Pension Plans are no longer offered to new hires. Subsequently,
effective January 1, 2016, the Assurant Pension Plan was
amended and split into two separate plans (Plan No. 1 and
Plan No. 2). The new Plan No. 2 will include a subset of
the terminated vested population and the total in-payment
population as of January 1, 2016. Assets for both plans will
remain in the Assurant, Inc. Pension Plan Trust, however
separate accounting entities will be maintained for Plan
No. 1 and Plan No. 2.
Effective March 1, 2016, the Assurant Pension Plan and
various non-qualified pension plans (including an Executive
Pension Plan) were frozen. No additional benefits will be
earned after February 29, 2016.
The Pension Protection Act of 2006 (“PPA”) requires certain
qualified plans, like the Assurant Pension Plan, to meet specified
funding thresholds. If these funding thresholds are not met,
there are negative consequences to the Assurant Pension Plan
and participants. If the funded percentage falls below 80%,
full payment of lump sum benefits as well as implementation
of amendments improving benefits are restricted.
As of January 1, 2015, the Assurant Pension Plan’s funded
percentage was 136% on a PPA calculated basis (based on an
actuarial average value of assets compared to the funding
target). Therefore, benefit and payment restrictions did not
occur during 2015. The 2015 funded measure will also be
used to determine restrictions, if any, that can occur during
the first nine months of 2016. Due to the funding status of
the Assurant Pension Plan in 2015, no restrictions will exist
before October 2016 (the time that the January 1, 2016
actuarial valuation needs to be completed). Also, based on
the estimated funded status as of January 1, 2016, we do
not anticipate any restrictions on benefits for the remainder
of 2016.
The Assurant Pension Plan was under-funded by $51,973 and
$28,956 (based on the fair value of the assets compared to the
projected benefit obligation) on a GAAP basis at December 31,
2015 and 2014, respectively. This equates to an 94% and 97%
funded status at December 31, 2015 and 2014, respectively.
The change in funded status is mainly due to a decrease in
the discount rate and a change in the mortality rates used
to determine the projected benefit obligation.
The Company’s funding policy is to contribute amounts to the
plan sufficient to meet the minimum funding requirements
in ERISA, plus such additional amounts as the Company may
determine to be appropriate from time to time up to the
maximum permitted. The funding policy considers several
factors to determine such additional amounts including items
such as the amount of service cost plus 15% of the Assurant
Pension Plan deficit and the capital position of the Company.
58
ASSURANT, INC. – 2015 Form 10-K PART II
ITEM 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations
During 2015, we contributed $10,750 in cash to the Assurant
Pension Plan. Due to the Plan’s current funding status, no
cash is expected to be contributed to the Assurant Pension
Plan over the course of 2016. See Note 21 to the Consolidated
Financial Statements included elsewhere in this report for
the components of the net periodic benefit cost.
The impact of a 25 basis point decrease in the discount rate
assumption on the 2016 projected benefit expense would
result in a reduction of $600 for the Assurant Pension Plan
and the various non-qualified pension plans and a reduction
of $100 on the retirement health benefit plan. The impact
of a 25 basis point change in the expected return on assets
assumption on the 2016 projected benefit expense would
result in a change of $2,100 for the Assurant Pension Plan
and the various non-qualified pension plans and $100 for the
retirement health benefits plan.
Commercial Paper Program
Our commercial paper program requires us to maintain
liquidity facilities either in an available amount equal to
any outstanding notes from the program or in an amount
sufficient to maintain the ratings assigned to the notes issued
from the program. Our commercial paper is rated AMB-1 by
A.M. Best, P-2 by Moody’s and A-2 by S&P. Our subsidiaries do
not maintain commercial paper or other borrowing facilities.
This program is currently backed up by a $400,000 senior
revolving credit facility, of which $395,960 was available at
December 31, 2015, due to $4,040 of outstanding letters of
credit related to this program.
On September 16, 2014, we entered into a five-year unsecured
$400,000 revolving credit agreement, as amended by
Amendment No. 1, dated as of March 5, 2015 (“2014 Credit
Facility”) with a syndicate of banks arranged by JP Morgan
Chase Bank, N.A. and Wells Fargo, N.A. The 2014 Credit
Facility replaces our prior four-year $350,000 revolving
credit facility (“2011 Credit Facility”), which was entered
into on September 21, 2011 and was scheduled to expire
in September 2015. The 2011 Credit Facility terminated
upon the effectiveness of the 2014 Credit Facility. The 2014
Credit Facility provides for revolving loans and the issuance
of multi-bank, syndicated letters of credit and/or letters of
credit from a sole issuing bank in an aggregate amount of
$400,000 and is available until September 2019, provided
we are in compliance with all covenants. The 2014 Credit
Facility has a sublimit for letters of credit issued thereunder
of $50,000. The proceeds of these loans may be used for our
commercial paper program or for general corporate purposes.
The Company may increase the total amount available under
the 2014 Credit Facility to $525,000 subject to certain
conditions. No bank is obligated to provide commitments
above their current share of the $400,000 facility.
We did not use the commercial paper program during the
twelve months ended December 31, 2015 and 2014 and there
were no amounts relating to the commercial paper program
outstanding at December 31, 2015 and December 31, 2014.
The Company made no borrowings using the 2014 Credit
Facility and no loans were outstanding at December 31, 2015.
The 2014 Credit Facility contains restrictive covenants, all of
which were met as of December 31, 2015. These covenants
include (but are not limited to):
(i) Maintenance of a maximum debt to total capitalization
ratio on the last day of any fiscal quarter of not greater
than 35%, and
(ii) Maintenance of a consolidated adjusted net worth in
an amount not less than the “Minimum Amount”. For
the purpose of this calculation the “Minimum Amount”
is an amount equal to the sum of (a) the base amount
$3,317,000 plus (b) 25% of consolidated net income for
each fiscal quarter (if positive) ending after June 30,
2014, plus (c) 25% of the net proceeds received by the
Company from any capital contribution to, or issuance
of any Capital Stock or Hybrid Securities received after
June 30, 2014.
At December 31, 2015, our ratio of debt to total capitalization
as calculated under the covenant was 21%, the consolidated
Minimum Amount described in (ii) above was $3,404,584 and
our actual consolidated adjusted net worth as calculated
under the covenant was $4,558,404.
In the event of the breach of certain covenants all obligations
under the 2014 Credit Facility, including unpaid principal
and accrued interest and outstanding letters of credit, may
become immediately due and payable.
Senior Notes
On March 28, 2013, we issued two series of senior notes with
an aggregate principal amount of $700,000 (the “2013 Senior
Notes”). The first series is $350,000 in principal amount,
bears interest at 2.50% per year and is payable in a single
installment due March 15, 2018. The second series is $350,000
in principal amount, bears interest at 4.00% per year and is
payable in a single installment due March 15, 2023.
The net proceeds from the sale of the 2013 Senior Notes were
$698,093, which represents the principal amount less the
discount before offering expenses. The Company used the
net proceeds of the 2013 Senior Notes for general corporate
purposes, including to repay $500,000 of debt that matured
in February 2014.
Interest on our 2013 Senior Notes is payable semi-annually
on March 15 and September 15 of each year. The interest
expense incurred related to the 2013 Senior Notes was
$22,988, $22,981 and $17,357 for the twelve months ended
December 31, 2015, 2014 and 2013, respectively. There was
$6,635 of accrued interest at both December 31, 2015 and
2014. The 2013 Senior Notes are unsecured obligations and
rank equally with all of the Company’s other senior unsecured
indebtedness. The Company may redeem each series of the
2013 Senior Notes in whole or in part at any time and from
time to time before their maturity at the redemption price
set forth in the Indenture.
59
ASSURANT, INC. – 2015 Form 10-K PART II
ITEM 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations
In addition, during 2014, we had two series of senior notes
outstanding in an aggregate principal amount of $975,000
(the “2004 Senior Notes”). The first series was $500,000 in
principal amount, bore interest at 5.63% per year and was
repaid on February 18, 2014. The second series is $475,000
in principal amount, bears interest at 6.75% per year and is
due February 15, 2034.
Interest on our 2004 Senior Notes is payable semi-annually on
February 15 and August 15 of each year. The interest expense
incurred related to the 2004 Senior Notes was $32,127, $35,414
and $59,414 for the years ended December 31, 2015, 2014,
and 2013, respectively. There was $12,023 of accrued interest
at both December 31, 2015 and 2014. The 2004 Senior Notes
The table below shows our recent net cash flows:
are unsecured obligations and rank equally with all of our
other senior unsecured indebtedness. The 2004 Senior Notes
are not redeemable prior to maturity.
In management’s opinion, dividends from our subsidiaries
together with our income and gains from our investment
portfolio will provide sufficient liquidity to meet our needs
in the ordinary course of business.
Cash Flows
We monitor cash flows at the consolidated, holding company
and subsidiary levels. Cash flow forecasts at the consolidated
and subsidiary levels are provided on a monthly basis, and
we use trend and variance analyses to project future cash
needs making adjustments to the forecasts when needed.
For the Years Ended December 31,
2015
2014
2013
Net cash provided by (used in):
Operating activities(1)
Investing activities
Financing activities
$
$
192,483
264,293
(487,127)
$
313,782
63,889
(776,199)
NET CHANGE IN CASH
(1) Includes effect of exchange rates changes and the reclassification of assets held for sale on cash and cash equivalents.
(30,351) $
$
(398,528) $
1,003,819
(392,738)
196,699
807,780
Cash Flows for the Years Ended December 31,
2015, 2014 and 2013
Operating Activities:
We typically generate operating cash inflows from premiums
collected from our insurance products and income received
from our investments while outflows consist of policy
acquisition costs, benefits paid, and operating expenses. These
net cash flows are then invested to support the obligations
of our insurance products and required capital supporting
these products. Our cash flows from operating activities are
affected by the timing of premiums, fees, and investment
income received and expenses paid.
Net cash provided by operating activities was $192,483 and
$313,782 for the years ended December 31, 2015 and 2014,
respectively. The decrease in cash provided by operating
activities was primarily due to changes in the timing of
payments and higher payments made on 2015 individual
major medical policies.
Net cash provided by operating activities was $313,782 and
$1,003,819 for the years ended December 31, 2014 and 2013,
respectively. The decrease in cash provided by operating
activities was primarily due to changes in the timing of
payments and by amounts yet to be recovered under the 3R’s
program, partially offset by increased net written premiums
in Assurant Solutions, Assurant Health and Assurant Employee
Benefits. For more information on the 3R’s, please refer to
Assurant Health’s Results of Operations section in this Item 7.
Investing Activities:
Net cash provided by investing activities was $264,293 and
$63,889 for the years ended December 31, 2015 and 2014,
respectively. The change in investing activities is primarily
due to higher sales of fixed maturity securities, less cash
spent on acquisitions and equity interests and the sale of
ARIC to Global Indemnity Group Inc. during 2015. For more
information on the ARIC sale, please see Note 4 to the
Consolidated Financial Statements contained elsewhere in
this report. These increases are partially offset by changes
in our short-term investments and an increase of purchases
of fixed maturity securities.
Net cash provided by (used in) investing activities was $63,889
and $(392,738) for the years ended December 31, 2014
and 2013, respectively. The change in investing activities
is primarily due to decreased purchases of fixed maturity
securities and less cash spent on acquisitions and equity
interests, partially offset by a decrease in sales of fixed
maturity securities. For more information on acquisitions,
please see Note 4 to the Consolidated Financial Statements
contained elsewhere in this report.
Financing Activities:
Net cash used in financing activities was $487,127 and $776,199
for the years ended December 31, 2015 and 2014, respectively.
The change in cash used in financing activities was primarily
due to the First Quarter 2014 repayment of $467,330 of senior
debt, which represents $500,000 in principal less amounts
repurchased in 2013, and the payment of a contingent liability
related to the acquisition of LSG during First Quarter 2014.
60
ASSURANT, INC. – 2015 Form 10-K
PART II
ITEM 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations
Net cash (used in) provided by financing activities was
$(776,199) and $196,699 for the years ended December 31,
2014 and 2013, respectively. The cash used in financing
activities during Twelve Months 2014 was primarily due to
repayment of $467,330 of 2004 Senior Notes, which represents
$500,000 in principal less amounts repurchased in 2013,
and the payment of a contingent liability related to the
acquisition of LSG. The cash provided by activities during
Twelve Months 2013 was due to the issuance of two series
of senior notes during Twelve Months 2013. The company
received proceeds of $698,093 from this transaction, which
represents the principal amount less the discount before
offering expenses.
The table below shows our cash outflows for taxes, interest and dividends for the periods indicated:
Income taxes paid
Interest paid on debt
Common stock dividends
TOTAL
Commitments and Contingencies
For the Years Ended December 31,
2015
80,140 $
54,813
94,168
229,121 $
2014
247,771 $
68,875
77,495
394,141 $
2013
132,487
70,741
74,128
277,356
$
$
We have obligations and commitments to third parties as a result of our operations. These obligations and commitments,
as of December 31, 2015, are detailed in the table below by maturity date as of the dates indicated:
Total Less than 1 Year
1-3 Years
3-5 Years More than 5 Years
As of December 31, 2015
15,875,047
1,292,844
14,944
427,498
—
—
3,418
17,613,751
Contractual obligations:
Insurance liabilities(1)
Debt and related interest
Operating leases
Pension obligations and postretirement benefit
Commitments:
Investment purchases outstanding:
Commercial mortgage loans on real estate
Capital contributions to real estate joint ventures
$ 21,510,851 $
1,895,031
95,638
762,960
2,075,128 $ 1,842,377 $ 1,718,299 $
455,250
36,526
125,195
92,125
19,578
145,712
54,812
24,590
64,555
Liability for unrecognized tax benefit
TOTAL OBLIGATIONS AND COMMITMENTS
(1) Insurance liabilities reflect estimated cash payments to be made to policyholders.
$ 24,335,055 $
6,350
28,607
35,618
6,350
28,607
903
—
—
30,090
2,254,945 $ 2,489,438 $ 1,976,921 $
—
—
1,207
Liabilities for future policy benefits and expenses of $9,466,694
and claims and benefits payable of $3,896,719 have been
included in the commitments and contingencies table.
Significant uncertainties relating to these liabilities include
mortality, morbidity, expenses, persistency, investment
returns, inflation, contract terms and the timing of payments.
Letters of Credit
In the normal course of business, letters of credit are issued
primarily to support reinsurance arrangements. These letters
of credit are supported by commitments with financial
institutions. We had $19,809 and $17,871 of letters of credit
outstanding as of December 31, 2015 and December 31,
2014, respectively.
Off-Balance Sheet Arrangements
The Company does not have any off-balance sheet
arrangements that are reasonably likely to have a material
effect on the financial condition, results of operations,
liquidity, or capital resources of the Company.
61
ASSURANT, INC. – 2015 Form 10-K
PART II
ITEM 7A Quantitative and Qualitative Disclosures About Market Risk
ITEM 7A Quantitative and Qualitative Disclosures
About Market Risk
As a provider of insurance products, effective risk management
is fundamental to our ability to protect both our customers’
and stockholders’ interests. We are exposed to potential loss
from various market risks, in particular interest rate risk and
credit risk. Additionally, we are exposed to inflation risk and
to a lesser extent foreign currency risk.
Interest rate risk is the possibility that the fair value of
liabilities will change more or less than the market value of
investments in response to changes in interest rates, including
changes in investment yields and changes in spreads due to
credit risks and other factors.
Credit risk is the possibility that counterparties may not
be able to meet payment obligations when they become
due. We assume counterparty credit risk in many forms.
A counterparty is any person or entity from which cash or
other forms of consideration are expected to extinguish a
liability or obligation to us. Primarily, our credit risk exposure
is concentrated in our fixed maturity investment portfolio
and, to a lesser extent, in our reinsurance recoverables.
Inflation risk is the possibility that a change in domestic price
levels produces an adverse effect on earnings. This typically
happens when either invested assets or liabilities, but not
both is indexed to inflation.
Foreign exchange risk is the possibility that changes in
exchange rates produce an adverse effect on earnings and
equity when measured in domestic currency. This risk is
largest when assets backing liabilities payable in one currency
are invested in financial instruments of another currency.
Our general principle is to invest in assets that match the
currency in which we expect the liabilities to be paid.
Interest Rate Risk
Interest rate risk arises as we invest substantial funds in
interest-sensitive fixed income assets, such as fixed maturity
securities, mortgage-backed and asset-backed securities
and commercial mortgage loans, primarily in the U.S. and
Canada. There are two forms of interest rate risk—price risk
and reinvestment risk. Price risk occurs when fluctuations in
interest rates have a direct impact on the market valuation of
these investments. As interest rates rise, the market value of
these investments falls, and conversely, as interest rates fall,
the market value of these investments rise. Reinvestment risk
is primarily associated with the need to reinvest cash flows
(primarily coupons and maturities) in an unfavorable lower
interest rate environment. In addition, for securities with
embedded options such as callable bonds, mortgage-backed
securities, and certain asset-backed securities, reinvestment
risk occurs when fluctuations in interest rates have a direct
impact on expected cash flows. As interest rates fall, an
increase in prepayments on these assets results in earlier
than expected receipt of cash flows forcing us to reinvest the
proceeds in an unfavorable lower interest rate environment.
Conversely, as interest rates rise, a decrease in prepayments
on these assets results in later than expected receipt of cash
flows forcing us to forgo reinvesting in a favorable higher
interest rate environment.
We manage interest rate risk by selecting investments with
characteristics such as duration, yield, currency and liquidity
tailored to the anticipated cash outflow characteristics of
our insurance and reinsurance liabilities.
Our group long-term disability and group term life waiver of
premium reserves are also sensitive to interest rates. These
reserves are discounted to the valuation date at the valuation
interest rate. The valuation interest rate is determined by
taking into consideration actual and expected earned rates
on our asset portfolio.
The interest rate sensitivity relating to price risk of our fixed
maturity securities is assessed using hypothetical scenarios
that assume several positive and negative parallel shifts of
the yield curves. We have assumed that the U.S. and Canadian
yield curve shifts are of equal direction and magnitude.
The individual securities are repriced under each scenario
using a valuation model. For investments such as callable
bonds and mortgage-backed and asset-backed securities, a
prepayment model is used in conjunction with a valuation
model. Our actual experience may differ from the results
noted below particularly due to assumptions utilized or if
events occur that were not included in the methodology.
The following tables summarize the results of this analysis
for bonds, mortgage-backed and asset-backed securities
held in our investment portfolio as of the dates indicated:
62
ASSURANT, INC. – 2015 Form 10-K PART II
ITEM 7A Quantitative and Qualitative Disclosures About Market Risk
INTEREST RATE MOVEMENT ANALYSIS OF MARKET VALUE OF FIXED MATURITY SECURITIES INVESTMENT PORTFOLIO
Total market value
% Change in market value from base case
$ Change in market value from base case
Total market value
% Change in market value from base case
$ Change in market value from base case
As of December 31, 2015
-100
-50
$ 11,022,546
$ 10,612,411
7.90%
3.89%
$
807,218
$
397,083
$
0
$ 10,215,328
50
$ 9,837,247
—%
— $
(3.70)%
(378,081)
100
9,479,005
(7.21)%
(736,323)
$
$
As of December 31, 2014
-100
-50
$ 12,135,439
$ 11,692,341
7.74%
3.81%
$
872,265
$
429,167
$
0
$ 11,263,174
50
$ 10,853,281
100
$ 10,464,375
—%
— $
(3.64)%
(7.09)%
(409,893)
$
(798,799)
The interest rate sensitivity relating to reinvestment risk of
our fixed maturity securities is assessed using hypothetical
scenarios that assume purchases in the primary market and
considers the effects of interest rates on sales. The effects
of embedded options including call or put features are not
considered. Our actual results may differ from the results
noted below particularly due to assumptions utilized or if
events occur that were not included in the methodology.
The following tables summarize the results of this analysis on our reported portfolio yield as of the dates indicated:
INTEREST RATE MOVEMENT ANALYSIS OF PORTFOLIO YIELD OF FIXED MATURITY SECURITIES INVESTMENT PORTFOLIO
Portfolio yield*
Basis point change in portfolio yield
As of December 31, 2015
-50
4.97%
(0.06)%
-100
4.91%
(0.12)%
Portfolio yield*
Basis point change in portfolio yield
*Includes investment income from real estate joint venture partnerships.
As of December 31, 2014
-50
4.94%
(0.06)%
-100
4.89%
(0.11)%
0
5.03%
—%
0
5.00%
—%
50
5.09%
0.06%
50
5.06%
0.06%
100
5.15%
0.12%
100
5.11%
0.11%
Credit Risk
We have exposure to credit risk primarily from customers,
as a holder of fixed maturity securities and by entering into
reinsurance cessions.
Our risk management strategy and investment policy is to
invest in debt instruments of high credit quality issuers and to
limit the amount of credit exposure with respect to any one
issuer. We attempt to limit our credit exposure by imposing
fixed maturity portfolio limits on individual issuers based
upon credit quality. Currently our portfolio limits are 1.5%
for issuers rated AA- and above, 1% for issuers rated A- to A+,
0.75% for issuers rated BBB- to BBB+ and 0.38% for issuers
rated BB- to BB+. These portfolio limits are further reduced
for certain issuers with whom we have credit exposure on
reinsurance agreements. We use the lower of Moody’s or
S&P’s ratings to determine an issuer’s rating.
The following table presents our fixed maturity investment portfolio by ratings of the nationally recognized securities rating
organizations as of the dates indicated:
December 31, 2015
December 31, 2014
Rating
Aaa/Aa/A
Baa
Ba
B and lower
TOTAL
$
Fair Value Percentage of Total
6,326,800
3,309,719
389,349
189,460
$ 10,215,328
62%
32%
4%
2%
100%
$
Fair Value
7,314,208
3,255,505
432,203
261,258
$ 11,263,174
Percentage of Total
65%
29%
4%
2%
100%
63
ASSURANT, INC. – 2015 Form 10-K
PART II
ITEM 7A Quantitative and Qualitative Disclosures About Market Risk
We are also exposed to the credit risk of our reinsurers. When
we reinsure, we are still liable to our insureds regardless
of whether we get reimbursed by our reinsurer. As part
of our overall risk and capacity management strategy, we
purchase reinsurance for certain risks underwritten by our
various business segments as described above under “Item
7—Management’s Discussion and Analysis of Financial Condition
and Results of Operations—Reinsurance.”
We had $7,470,403 and $7,254,585 of reinsurance recoverables
as of December 31, 2015 and 2014, respectively, the majority
of which are protected from credit risk by various types of risk
mitigation mechanisms such as trusts, letters of credit or by
withholding the assets in a modified coinsurance or co-funds-
withheld arrangement. For example, reserves of $1,053,496
and $3,553,560 as of December 31, 2015 and $1,077,791 and
$3,471,908 as of December 31, 2014, relating to two large
coinsurance arrangements with The Hartford and John Hancock
(a subsidiary of Manulife Financial Corporation), respectively,
related to sales of businesses are backed by trusts. If the
Inflation Risk
Inflation risk arises as we invest in assets, which are not
indexed to the level of inflation, whereas the corresponding
liabilities are indexed to the level of inflation. Approximately
5% of Assurant preneed insurance policies, with reserves of
$254,083 and $268,161 as of December 31, 2015 and 2014,
respectively, have death benefits that are guaranteed to
grow with the CPI. In times of rapidly rising inflation, the
credited death benefit growth on these liabilities increases
relative to the investment income earned on the nominal
Foreign Exchange Risk
We are exposed to foreign exchange risk arising from our
international operations, mainly in Canada. We also have
foreign exchange risk exposure to the British pound, Brazilian
Real, Euro, Mexican Peso and Argentine Peso. Total invested
assets denominated in currencies other than the Canadian
dollar were approximately 2% of our total invested assets
at December 31, 2015 and 2014, respectively.
value of the assets in these trusts falls below the value of
the associated liabilities, The Hartford and John Hancock,
as the case may be, will be required to put more assets in
the trusts. We may be dependent on the financial condition
of The Hartford and John Hancock, whose A.M. Best ratings
are currently A- and A+, respectively. A.M. Best currently
maintains a stable outlook on the financial strength ratings of
both The Hartford and John Hancock. For recoverables that
are not protected by these mechanisms, we are dependent
solely on the credit of the reinsurer. See “Item 1A—Risk
Factors—Risks Related to Our Company—Reinsurance may not
be available or adequate to protect us against losses, and
we are subject to the credit risk of reinsurers” and “– We
have sold businesses through reinsurance that could again
become our direct financial and administrative responsibility
if the purchasing companies were to become insolvent.”
A majority of our reinsurance exposure has been ceded to
companies rated A- or better by A.M. Best.
assets resulting in an adverse impact on earnings. We have
partially mitigated this risk by purchasing derivative contracts
with payments tied to the CPI. See “—Derivatives.”
In addition, we have inflation risk in our individual and small
employer group health insurance businesses to the extent
that medical costs increase with inflation, and we have not
been able to increase premiums to keep pace with inflation.
Foreign exchange risk is mitigated by matching our liabilities
under insurance policies that are payable in foreign currencies
with investments that are denominated in such currency.
We have entered into forward exchange contracts to hedge
exposures denominated in the Euro.
The foreign exchange risk sensitivity of our fixed maturity securities denominated in Canadian dollars, whose balance was
$1,413,580 and $1,590,224 of the total as of December 31, 2015 and 2014, respectively, on our entire fixed maturity portfolio
is summarized in the following tables:
FOREIGN EXCHANGE MOVEMENT ANALYSIS OF MARKET VALUE OF FIXED MATURITY SECURITIES ASSETS
As of December 31, 2015
Foreign exchange spot rate at December 31,
2015, US Dollar to Canadian Dollar
Total market value
% change of market value from base case
$ change of market value from base case
-10%
-5%
0
5%
10%
$ 10,073,975
$ 10,144,651
$ 10,215,328 $ 10,286,005
$ 10,356,681
(1.38)%
(0.69)%
$
(141,353)
$
(70,677)
$
—%
— $
0.69%
1.38%
70,677
$
141,353
64
ASSURANT, INC. – 2015 Form 10-K PART II
ITEM 7A Quantitative and Qualitative Disclosures About Market Risk
Foreign exchange spot rate at December 31,
2014, US Dollar to Canadian Dollar
Total market value
% change of market value from base case
$ change of market value from base case
As of December 31, 2014
-10%
-5%
$ 11,104,148
$ 11,183,661
(1.41)%
(0.71)%
$
(159,026)
$
(79,513)
$
0
$ 11,263,174
5%
10%
$ 11,342,687
$ 11,422,200
—%
— $
0.71%
1.41%
79,513
$
159,026
The foreign exchange risk sensitivity of our consolidated net
income is assessed using hypothetical test scenarios that
assume earnings in Canadian dollars are recognized evenly
throughout a period. Our actual results may differ from the
results noted below particularly due to assumptions utilized
or if events occur that were not included in the methodology.
For more information on this risk, please see “Item 1A—Risk
Factors—Risk Related to Our Company.” Fluctuations in the
exchange rate of the U.S. dollar and other foreign currencies
may materially and adversely affect our results of operations.
The following tables summarize the results of this analysis
on our reported net income as of the dates indicated:
FOREIGN EXCHANGE MOVEMENT ANALYSIS OF NET INCOME
As of December 31, 2015
Foreign exchange daily average rate for the year
ended December 31, 2015, US Dollar to Canadian Dollar
Net Income
% change of net income from base case
$ change of net income from base case
-10%
-5%
$ 138,360
$ 139,957
(2.26)%
(1.13)%
$
(3,195)
$
(1,598)
$
0
$ 141,555
5%
10%
$ 143,153
$ 144,750
—%
—
1.13%
2.26%
$
1,598
$
3,195
As of December 31, 2014
Foreign exchange daily average rate for the year
ended December 31, 2014, US Dollar to Canadian Dollar
Net income
% change of net income from base case
$ change of net income from base case
-10%
$ 466,706
-5%
$ 468,807
0
$ 470,907
5%
$ 473,007
10%
$ 475,108
(0.89)%
(0.45)%
$
(4,201)
$
(2,100)
$
—%
—
0.45%
0.89%
$
2,100
$
4,201
Derivatives
Derivatives are financial instruments whose values are derived
from interest rates, foreign exchange rates, financial indices
or the prices of securities or commodities. Derivative financial
instruments may be exchange-traded or contracted in the
over-the-counter market and include swaps, futures, options
and forward contracts.
Under insurance statutes, our insurance companies may use
derivative financial instruments to hedge actual or anticipated
changes in their assets or liabilities, to replicate cash market
instruments or for certain income-generating activities.
These statutes generally prohibit the use of derivatives for
speculative purposes. We generally do not use derivative
financial instruments.
We have purchased contracts to cap the inflation risk exposure
inherent in some of our preneed insurance policies.
In accordance with the guidance on embedded derivatives,
we have bifurcated the modified coinsurance agreement with
The Hartford into its debt host and embedded derivative (total
return swap) and recorded the embedded derivative at fair
value in the consolidated balance sheets. The invested assets
related to this modified coinsurance agreement are included
in other investments in the consolidated balance sheets.
65
ASSURANT, INC. – 2015 Form 10-K PART II
ITEM 8 Financial Statements and Supplementary Data
ITEM 8
Financial Statements and Supplementary Data
The consolidated financial statements and financial statement schedules in Part IV, Item 15(a) 1 and 2 of this report are
incorporated by reference into this Item 8.
ITEM 9 Changes in and Disagreements with
Accountants on Accounting and Financial
Disclosure
There have been no disagreements with accountants on accounting and financial disclosure.
ITEM 9A Controls and Procedures
Evaluation of Disclosure Controls and Procedures
The Company’s Chief Executive Officer and Chief Financial
Officer have evaluated the effectiveness of the Company’s
disclosure controls and procedures pursuant to Rule 13a-15(e)
or 15d-15(e) under the Securities Exchange Act of 1934, as
amended (the “Exchange Act”) as of December 31, 2015. They
have concluded that the Company’s disclosure controls and
procedures are effective, and provide reasonable assurance
that information the Company is required to disclose in its
reports under the Exchange Act is recorded, processed,
summarized and reported accurately. They also have concluded
that information that the Company is required to disclose is
accumulated and communicated to the Company’s management
as appropriate to allow timely decisions regarding required
disclosure.
Management’s Annual Report on Internal Control Over Financial Reporting
The management of the Company is responsible for establishing
and maintaining adequate internal control over financial
reporting for the Company as defined in Rule 13a-15(f) or
15d-15(f) under the Exchange Act.
A company’s internal control over financial reporting is a
process designed to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance
with accounting principles generally accepted in the U.S. A
company’s internal control over financial reporting includes
policies and procedures that (1) pertain to the maintenance
of records that in reasonable detail accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with accounting principles generally
accepted in the U.S., and that receipts and expenditures
of the company are being made only in accordance with
authorizations of management and directors of the company;
and (3) provide reasonable assurance regarding prevention
or timely detection of unauthorized acquisition, use or
disposition of the company’s assets that could have a material
effect on the financial statements. Because of its inherent
limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any
evaluation of effectiveness to future periods are subject to
the risk that controls may become inadequate because of
changes in conditions, or that the degree of compliance with
the policies or procedures may deteriorate.
The Company’s management assessed its internal control over
financial reporting as of December 31, 2015 using criteria
established in Internal Control—Integrated Framework (2013)
issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO).
66
ASSURANT, INC. – 2015 Form 10-K PART II
ITEM 9B Other Information
Management, including the Company’s Chief Executive Officer and its Chief Financial Officer, based on their evaluation of the
Company’s internal control over financial reporting (as defined in Exchange Act Rule 13a-15(f) or 15d-15(f)), have concluded
that the Company’s internal control over financial reporting was effective as of December 31, 2015.
The effectiveness of the Company’s internal control over financial reporting as of December 31, 2015 has been audited by
PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which appears herein.
Changes in Internal Control Over Financial Reporting
There have been no changes in the Company’s internal control over financial reporting that occurred during the Company’s
fourth fiscal quarter in 2015 that have materially affected, or are reasonably likely to materially affect, the Company’s
internal control over financial reporting.
ITEM 9B Other Information
None.
67
ASSURANT, INC. – 2015 Form 10-K Part III
Item 10 Directors, Executive Officers and Corporate Governance
Part III
Item 10 Directors, Executive Officers and Corporate
Governance
The information regarding executive officers in our upcoming
2016 Proxy Statement (“2016 Proxy Statement”) under
the caption “Executive Officers” is incorporated herein by
reference. The information regarding directors in the 2016
Proxy Statement, under the caption “Election of Directors”
in “Proposal One” is incorporated herein by reference. The
information regarding compliance with Section 16(a) of the
Exchange Act in the 2016 Proxy Statement, under the caption
“Section 16(a) Beneficial Ownership Reporting Compliance” is
incorporated herein by reference. The information regarding
the Nominating and Corporate Governance Committee and
the Audit Committee in the 2016 Proxy Statement under the
captions “Nominating and Corporate Governance Committee”
and “Audit Committee” in “Corporate Governance” is
incorporated herein by reference.
Code of Ethics
The Assurant Code of Ethics applies to all directors, officers
and employees of Assurant, including the principal executive
officer, principal financial officer and principal accounting
officer. The Code of Ethics and our Corporate Governance
Guidelines are posted in the “Corporate Governance”
subsection of the “Investor Relations” section of our website
at www.assurant.com which is not incorporated by reference
herein. We intend to post any amendments to or waivers
from the Code of Ethics that apply to our executive officers
or directors on our website.
Item 11 Executive Compensation
The information in the 2016 Proxy Statement under the captions
“Compensation Discussion and Analysis,” “Compensation of
Named Executive Officers” and “Compensation of Directors”
is incorporated herein by reference. The information in
the 2016 Proxy Statement regarding the Compensation
Committee under the captions “Compensation Committee,”
“Compensation Committee Interlocks and Insider Participation”
and “Compensation Committee Report” in “Corporate
Governance” is incorporated herein by reference.
68
ASSURANT, INC. – 2015 Form 10-K Part III
Item 14 Principal Accounting Fees and Services
Item 12 Security Ownership of Certain Beneficial
Owners and Management and Related
Stockholder Matters
The information in the 2016 Proxy Statement under the captions “Equity Compensation Plan Information,” “Security Ownership
of Certain Beneficial Owners” and “Security Ownership of Directors and Executive Officers” is incorporated herein by reference.
Item 13 Certain Relationships and Related
Transactions, and Director Independence
The information in the 2016 Proxy Statement under the captions “Transactions with Related Persons” and “Director
Independence” in “Corporate Governance” is incorporated herein by reference.
Item 14 Principal Accounting Fees and Services
The information in the 2016 Proxy Statement under the caption “Fees of Principal Accountants” in “Audit Committee Matters”
is incorporated herein by reference.
69
ASSURANT, INC. – 2015 Form 10-K Part IV
Part IV
ITEM 15 Exhibits and Financial Statement Schedules
(a)1. Consolidated Financial Statements
The following consolidated financial statements of Assurant, Inc., incorporated by reference into Item 8, are attached hereto:
Page(s)
Consolidated Financial Statements of Assurant, Inc.
Report of Independent Registered Public Accounting Firm
Assurant, Inc. Consolidated Balance Sheets at December 31, 2015 and 2014
Assurant, Inc. Consolidated Statements of Operations For Years Ended December 31, 2015, 2014 and 2013
Assurant, Inc. Consolidated Statements of Comprehensive Income For Years Ended
December 31, 2015, 2014 and 2013
Assurant, Inc. Consolidated Statements of Changes in Stockholders’ Equity At December 31, 2015,
2014 and 2013
Assurant, Inc. Consolidated Statements of Cash Flows For Years Ended December 31, 2015, 2014 and 2013
Assurant, Inc. Notes to Consolidated Financial Statements-December 31, 2015, 2014 and 2013
F-1
F-2
F-3
F-4
F-5
F-6
F-8
(a)2. Consolidated Financial Statement Schedules
The following consolidated financial statement schedules of Assurant, Inc. are attached hereto:
Schedule I—Summary of Investments other than Investments in Related Parties
Schedule II—Parent Only Condensed Financial Statements
Schedule III—Supplementary Insurance Information
Schedule IV—Reinsurance
Schedule V—Valuation and Qualifying Accounts
* All other schedules are omitted because they are not applicable, not required, or the information is included in the financial
statements or the notes thereto.
(a)3. Exhibits
Pursuant to the rules and regulations of the SEC, the Company
has filed or incorporated by reference certain agreements as
exhibits to this Annual Report on Form 10-K. These agreements
may contain representations and warranties by the parties.
These representations and warranties have been made solely
for the benefit of the other party or parties to such agreements
and (i) may have been qualified by disclosures made to such
other party or parties, (ii) were made only as of the date of
such agreements or such other date(s) as may be specified in
such agreements and are subject to more recent developments,
which may not be fully reflected in the Company’s public
disclosure, (iii) may reflect the allocation of risk among the
parties to such agreements and (iv) may apply materiality
standards different from what may be viewed as material to
investors. Accordingly, these representations and warranties
may not describe the Company’s actual state of affairs at the
date hereof and should not be relied upon.
The following exhibits either (a) are filed with this report or
(b) have previously been filed with the SEC and are
incorporated herein by reference to those prior filings.
Exhibits are available upon request at the investor relations
section of our website, located at www.assurant.com.
70
ASSURANT, INC. – 2015 Form 10-K Part IV
ITEM 15 Exhibits and Financial Statement Schedules
Exhibit
Number
2.1
3.1
3.2
4.1
4.2
4.3
4.4
10.1
10.2
10.3
10.4
10.5
10.6
10.7
10.8
10.9
10.10
10.11
10.12
10.13
10.14
10.15
10.16
10.17
10.18
10.19
Exhibit Description
Master Transaction Agreement, dated as of September 9, 2015, by and between Assurant, Inc. and Sun Life Assurance
Company of Canada (incorporated by reference to Exhibit 2.1 to the Registrant’s Current Report on Form 8-K, originally
filed on September 10, 2015).
Restated Certificate of Incorporation of the Registrant (incorporated by reference from Exhibit 3.1 to the Registrant’s
Form 10-Q, originally filed on August 5, 2010).
Amended and Restated By-Laws of the Registrant (incorporated by reference from Exhibit 3.1 to the Registrant’s
Form 10-Q, originally filed on August 3, 2011).
Specimen Common Stock Certificate (incorporated by reference from Exhibit 4.1 to the Registrant’s Registration
Statement on Form S-1/A (File No. 333-109984) and amendments thereto, originally filed on January 13, 2004).
Indenture, dated as of March 28, 2013, between Assurant, Inc. and U.S. Bank National Association, as trustee
(incorporated by reference from Exhibit 4.1 to the Registrant’s Form 8-K, originally filed on March 28, 2013).
Senior Debt Indenture, dated as of February 18, 2004, between Assurant, Inc. and U.S. Bank National Association,
successor to SunTrust Bank, as trustee (incorporated by reference from Exhibit 10.27 to the Registrant’s Form 10-K,
originally filed on March 30, 2004).
Pursuant to Item 601(b)(4)(iii) of Regulation S-K, the Registrant hereby agrees to furnish to the SEC, upon request, a copy
of any other instrument defining the rights of holders of long-term debt of the Registrant and its subsidiaries.
Assurant, Inc. Amended and Restated Directors Compensation Plan, effective as of January 1, 2013 (incorporated by
reference from Exhibit 10.1 to the Registrants Form 10-K, originally filed on February 20, 2013).*
Form of Assurant, Inc. Restricted Stock Unit Award Agreement for Time-based Awards for Directors, effective as of January 1,
2013 (incorporated by reference from Exhibit 10.2 to the Registrants Form 10-K, originally filed on February 20, 2013).*
Form of Assurant, Inc. Restricted Stock Unit Award Agreement for Time-based Awards for Directors, effective as
of January 1, 2013 (incorporated by reference from Exhibit 10.3 to the Registrants Form 10-K, originally filed on
February 20, 2013).*
Form of Assurant, Inc. Restricted Stock Unit Award Agreement for Time-based Awards for Directors (incorporated by
reference from Exhibit 10.1 to the Registrant’s Form 8-K, originally filed on July 1, 2009).*
Form of Assurant, Inc. Restricted Stock Unit Award Agreement for Time-based Awards to Directors (incorporated by
reference from Exhibit 10.3 to the Registrant’s Form 10-Q, originally filed on May 5, 2010).*
Form of Assurant, Inc. Restricted Stock Unit Award Agreement for Time-based Awards for Directors (incorporated by
reference from Exhibit 10.1 to the Registrant’s Form 8-K, originally filed on June 14, 2011).*
Form of Assurant, Inc. Restricted Stock Unit Award Agreement for Time-based Awards for Directors (incorporated by
reference from Exhibit 10.2 to the Registrant’s Form 10-Q, originally filed on August 3, 2011).*
Form of Amendment, dated April 4, 2011, to Assurant, Inc. Restricted Stock Unit Award Agreement for Time-Based
Awards for Directors (incorporated by reference from Exhibit 10.3 to the Registrant’s Form 10-Q, originally filed on
August 3, 2011).*
Form of Directors Stock Agreement under Directors Compensation Plan (incorporated by reference from Exhibit 10.23 to
the Registrant’s Form 10-K, originally filed on March 10, 2006).*
Form of Directors Stock Appreciation Rights Agreement under the Directors Compensation Plan (incorporated by reference
from Exhibit 10.24 to the Registrant’s Form 10-K, originally filed on March 10, 2006).*
Form of Directors Stock Agreement under the Assurant, Inc. Long Term Equity Incentive Plan (incorporated by reference
from Exhibit 10.4 to the Registrant’s Form 10-Q, originally filed on August 4, 2008).*
Form of Directors Stock Appreciation Rights Agreement under the Assurant, Inc. Long Term Equity Incentive Plan
(incorporated by reference from Exhibit 10.5 to the Registrant’s Form 10-Q, originally filed on August 4, 2008).*
Assurant, Inc. 2004 Long-Term Incentive Plan (incorporated by reference from Exhibit 10.3 to the Registrant’s Registration
Statement on Form S-1/A (File No. 333-109984) and amendments thereto, originally filed on January 13, 2004).*
Amendment No. 1 to the Assurant, Inc. 2004 Long-Term Incentive Plan (incorporated by reference from Exhibit 10.3 to the
Registrant’s Form 10-Q, originally filed on November 14, 2005).*
Amendment No. 2 to the Assurant, Inc. 2004 Long-Term Incentive Plan (incorporated by reference from Exhibit 10.4 to the
Registrant’s Form 10-K, originally filed on March 1, 2007).*
Amended Form of CEO/Director Delegated Authority Restricted Stock Agreement under the Assurant, Inc. 2004 Long Term
Incentive Plan, effective January 11, 2007 (incorporated by reference from Exhibit 10.6 to the Registrant’s Form 10-K,
originally filed on March 1, 2007).*
Amended and Restated Assurant, Inc. Long Term Equity Incentive Plan, effective as of January 1, 2012 (incorporated by
reference from Exhibit 10.15 to the Registrant’s Form 10-K, originally filed on February 23, 2012).*
Form of Assurant, Inc. Restricted Stock Unit Award Agreement for Time-based Awards under the Assurant, Inc. Long Term
Equity Incentive Plan (incorporated by reference from Exhibit 10.8 to the Registrant’s Form 10-K, originally filed on
February 27, 2009).*
Form of Assurant, Inc. Restricted Stock Unit Award Agreement for Time-based Awards under the Assurant, Inc. Long Term
Equity Incentive Plan (incorporated by reference from Exhibit 10.1 to the Registrant’s Form 8-K, originally filed on
March 16, 2009).*
71
ASSURANT, INC. – 2015 Form 10-K Part IV
ITEM 15 Exhibits and Financial Statement Schedules
Exhibit
Number
10.20
10.21
10.22
10.23
10.24
10.25
10.26
10.27
10.28
10.29
10.30
10.31
10.32
10.33
10.34
10.35
10.36
10.37
10.38
10.39
10.40
10.41
10.42
10.43
10.44
10.45
10.46
10.47
Exhibit Description
Form of Assurant, Inc. Restricted Stock Unit Award Agreement for Performance-based Awards under the Assurant, Inc.
Long Term Equity Incentive Plan (incorporated by reference from Exhibit 10.9 to the Registrant’s Form 10-K, originally
filed on February 27, 2009).*
Form of Assurant, Inc. Restricted Stock Unit Award Agreement for Performance-based Awards under the Assurant, Inc.
Long Term Equity Incentive Plan (incorporated by reference from Exhibit 10.1 to the Registrant’s Form 8-K, originally filed
on March 16, 2010).*
Form of Assurant, Inc. Restricted Stock Unit Award Agreement for Performance-based Awards under the Assurant, Inc.
Long Term Equity Incentive Plan (incorporated by reference from Exhibit 10.20 to the Registrant’s Form 10-K, originally
filed on February 23, 2012).*
Form of Restricted Stock Agreement for Executive Officers under the Assurant, Inc. Long Term Equity Incentive Plan
(incorporated by reference from Exhibit 10.6 to the Registrant’s Form 10-Q, originally filed on August 4, 2008).*
Form of CEO Award Restricted Stock Agreement under the Assurant, Inc. Long Term Equity Incentive Plan (incorporated by
reference from Exhibit 10.7 to the Registrant’s Form 10-Q, originally filed on August 4, 2008).*
Amended and Restated Assurant, Inc. Executive Short Term Incentive Plan, effective as of January 1, 2012 (incorporated
by reference from Exhibit 10.23 to the Registrant’s Form 10-K, originally filed on February 23, 2012).*
Amended and Restated Assurant Long Term Incentive Plan (incorporated by reference from Exhibit 10.29 to the
Registrant’s Form 10-K, originally filed on March 1, 2007).*
Amended Form of Restricted Stock Agreement under the Assurant Long Term Incentive Plan, effective January 11, 2007
(incorporated by reference from Exhibit 10.31 to the Registrant’s Form 10-K, originally filed on March 1, 2007).*
Amended Form of Stock Appreciation Rights Agreement under the Assurant Long Term Incentive Plan, effective January 11,
2007 (incorporated by reference from Exhibit 10.33 to the Registrant’s Form 10-K, originally filed on March 1, 2007).*
Amended and Restated Assurant Deferred Compensation Plan (incorporated by reference from Exhibit 10.33 to the
Registrant’s Form 10-K, originally filed on March 3, 2008).*
Amendment No. 1 to the Amended and Restated Assurant Deferred Compensation Plan, effective as of January 1, 2012
(incorporated by reference from Exhibit 10.28 to the Registrant’s Form 10-K, originally filed on February 23, 2012).*
Amendment No. 2 to the Amended and Restated Assurant Deferred Compensation Plan, effective as of December 3, 2013
(incorporated by reference from Exhibit 10.31 to the Registrant's Form 10-K, originally filed on February 18, 2014).*
Amended and Restated Supplemental Executive Retirement Plan (incorporated by reference from Exhibit 10.5 to the
Registrant’s Form 10-K, originally filed on March 3, 2008).*
Amendment No. 1 to the Amended and Restated Supplemental Executive Retirement Plan, effective as of January 1, 2009
(incorporated by reference from Exhibit 10.6 to the Registrant’s Form 10-K, originally filed on February 27, 2009).*
Amendment No. 2 to the Amended and Restated Supplemental Executive Retirement Plan, effective as of January 1, 2010
(incorporated by reference from Exhibit 10.7 to the Registrant’s Form 10-K, originally filed on February 23, 2011).*
Assurant Executive Pension Plan, amended and restated effective as of January 1, 2009 (incorporated by reference
from Exhibit 10.15 to the Registrant’s Form 10-K, originally filed on February 27, 2009).*
Amendment No. 1 to the Assurant Executive Pension Plan, effective as of January 1, 2009 (incorporated by reference
from Exhibit 10.33 to the Registrant’s Form 10-K, originally filed on February 23, 2012).*
Amendment No. 2 to the Assurant Executive Pension Plan, effective as of January 1, 2010 (incorporated by reference
from Exhibit 10.34 to the Registrant’s Form 10-K, originally filed on February 23, 2012).*
Amendment No. 3 to the Assurant Executive Pension Plan, effective as of December 31, 2013 (incorporated by reference
from Exhibit 10.38 to the Registrant's Form 10-K, originally filed on February 18, 2014).*
Assurant Executive 401(k) Plan, amended and restated effective as of January 1, 2009 (incorporated by reference from
Exhibit 10.16 to the Registrant’s Form 10-K, originally filed on February 27, 2009).*
Amendment No. 1 to the Assurant Executive 401(k) Plan, effective as of January 1, 2009 (incorporated by reference from
Exhibit 10.36 to the Registrant’s Form 10-K, originally filed on February 23, 2012).*
Amendment No. 2 to the Assurant Executive 401(k) Plan, effective as of January 1, 2010 (incorporated by reference from
Exhibit 10.37 to the Registrant’s Form 10-K, originally filed on February 23, 2012).*
Amendment No. 3 to the Assurant Executive 401(k) Plan, effective as of January 1, 2012 (incorporated by reference from
Exhibit 10.38 to the Registrant’s Form 10-K, originally filed on February 23, 2012).*
Assurant Executive 401(k) Plan, Amended and Restated Effective as of January 1, 2014 (incorporated by reference from
Exhibit 10.1 to the Registrant’s Form 10-Q, originally filed on April 29, 2014).*
Form of Assurant, Inc. Change of Control Employment Agreement, dated as of January 1, 2009 (incorporated by reference
from Exhibit 10.17 to the Registrant’s Form 10-K, originally filed on February 27, 2009).*
Form of Assurant, Inc. Change of Control Employment Agreement, dated as of January 1, 2009 (incorporated by reference
from Exhibit 10.18 to the Registrant’s Form 10-K, originally filed on February 27, 2009).*
Form of Assurant, Inc. Change of Control Employment Agreement for Divisional Officers, dated as of January 1, 2009
(incorporated by reference from Exhibit 10.19 to the Registrant’s Form 10-K, originally filed on February 27, 2009).*
Form of Amendment to Assurant, Inc. Change of Control Employment Agreement, effective as of February 1, 2010
(incorporated by reference from Exhibit 10.1 to the Registrant’s Form 8-K, originally filed on February 1, 2010).*
72
ASSURANT, INC. – 2015 Form 10-K Part IV
ITEM 15 Exhibits and Financial Statement Schedules
Exhibit
Number
10.48
10.50
10.51
10.49
10.55
10.52
10.53
10.54
Exhibit Description
American Security Insurance Company Investment Plan Document (incorporated by reference from Exhibit 10.34 to the
Registrant’s Form 10-K, originally filed on March 3, 2008).
Letter Agreement, dated October 11, 2010, by and between Assurant, Inc. and Alan Colberg (incorporated by reference
from Exhibit 10.38 to the Registrant’s Form 10-K, originally filed on February 23, 2011).*
Consulting Agreement, dated October 1, 2014, by and between Assurant, Inc. and Michael J. Peninger. (incorporated by
reference from Exhibit 10.1 to the Registrant’s Form 8-K, originally filed on October 2, 2014).*
Credit Agreement, dated as of September 16, 2014, among Assurant, Inc., the lenders party thereto, JP Morgan Chase
Bank, N.A., as administrative agent, and Wells Fargo Bank, National Association, as syndication agent (incorporated by
reference from Exhibit 10.1 to the Registrant’s Form 10-Q, originally filed on November 4, 2014).
Consulting Agreement, dated October 1, 2014, by and between Assurant, Inc. and Sylvia R. Wagner.*
Consulting Agreement, dated January 6, 2015, by and between Assurant, Inc. and John S. Roberts.*
Amendment No. 1, dated March 5, 2015, to the Credit Agreement, dated as of September 16, 2014, among Assurant,
Inc., the lenders party thereto, JP Morgan Chase Bank, N.A., as administrative agent, and Wells Fargo Bank, National
Association, as syndication agent (incorporated by reference from Exhibit 10.1 to the Registrant’s Form 10-Q, originally
filed on May 6, 2015).
Employment Letter Agreement, dated April 21, 2008, by and between Assurant, Inc. and Bart Schwartz (incorporated by
reference from Exhibit 10.38 to the Registrant’s Form 10-K, originally filed on February 25, 2010).*
Computation of Ratio of Consolidated Earnings to Fixed Charges as of December 31, 2015.
Computation of Other Ratios as of December 31, 2015.
Subsidiaries of the Registrant.
Consent of PricewaterhouseCoopers LLP.
Power of Attorney.
Rule 13a-14(a)/15d-14(a) Certification of Principal Executive Officer.
Rule 13a-14(a)/15d-14(a) Certification of Principal Financial Officer.
Certification of Chief Executive Officer of Assurant, Inc. pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
Certification of Chief Financial Officer of Assurant, Inc. pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
The following materials from the Company’s Annual Report on Form 10-K for the year ended December 31, 2015,
formatted in XBRL (Extensible Business Reporting Language): (i) the Consolidated Balance Sheets, (ii) the Consolidated
Statements of Operations, (iii) the Consolidated Statements of Comprehensive Income, (iv) the Consolidated Statements
of Changes in Stockholders’ Equity, (v) the Consolidated Statements of Cash Flows, and (vi) Notes to Consolidated
Financial Statements.
* Management contract or compensatory plan
12.1
12.2
21.1
23.1
24.1
31.1
31.2
32.1
32.2
101
73
ASSURANT, INC. – 2015 Form 10-K Part IV
Signatures
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the registrant
has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on February 16, 2016.
/s/ALAN B. COLBERG
aSSUraNt, INC.
By:
Name: alan B. Colberg
Title:
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the
following persons on behalf of the registrant in the capacities indicated on February 16, 2016.
title
President, Chief Executive Officer and Director (Principal Executive Officer)
Executive Vice President, Chief Financial Officer and Treasurer (Principal Financial Officer)
Senior Vice President and Controller (Principal Accounting Officer)
Non-Executive Board Chair
Director
Director
Director
Director
Director
Director
Director
Director
Signature
/s/ALAN B. COLBERG
alan B. Colberg
/s/CHRISTOPHER J. PAGANO
Christopher J. Pagano
/s/JOHN A. SONDEJ
John a. Sondej
*
Elaine D. rosen
*
Howard L. Carver
*
Juan N. Cento
*
Elyse Douglas
*
Lawrence V. Jackson
*
Charles J. Koch
*
Jean-Paul L. Montupet
*
Paul J. reilly
*
robert W. Stein
/s/CHRISTOPHER J. PAGANO
*By:
Name: Christopher J. Pagano
Attorney-in-Fact
74
ASSURANT, INC. – 2015 Form 10-K
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of Assurant, Inc.:
In our opinion, the consolidated financial statements listed
in the index appearing under Item 15(a)1 present fairly, in all
material respects, the financial position of Assurant, Inc. and
its subsidiaries (the “Company”) at December 31, 2015 and
2014, and the results of its operations and its cash flows for
each of the three years in the period ended December 31, 2015
in conformity with accounting principles generally accepted in
the United States of America. In addition, in our opinion, the
financial statement schedules listed in the index appearing
under Item 15(a)2 present fairly, in all material respects, the
information set forth therein when read in conjunction with
the related consolidated financial statements. Also in our
opinion, the Company maintained, in all material respects,
effective internal control over financial reporting as of
December 31, 2015, based on criteria established in Internal
Control — Integrated Framework (2013) issued by the
Committee of Sponsoring Organizations of the Treadway
Commission (COSO). The Company’s management is responsible
for these financial statements and financial statement
schedules, for maintaining effective internal control over
financial reporting and for its assessment of the effectiveness
of internal control over financial reporting, included in
Management’s Annual Report on Internal Control Over Financial
Reporting, appearing under Item 9A. Our responsibility is to
express opinions on these financial statements, on the financial
statement schedules, and on the Company’s internal control
over financial reporting based on our integrated audits. We
conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the
audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement and
whether effective internal control over financial reporting
was maintained in all material respects. Our audits of the
financial statements included examining, on a test basis,
evidence supporting the amounts and disclosures in the
financial statements, assessing the accounting principles used
and significant estimates made by management, and evaluating
the overall financial statement presentation. Our audit of
internal control over financial reporting included obtaining
an understanding of internal control over financial reporting,
assessing the risk that a material weakness exists, and testing
and evaluating the design and operating effectiveness of
internal control based on the assessed risk. Our audits also
included performing such other procedures as we considered
necessary in the circumstances. We believe that our audits
provide a reasonable basis for our opinions.
A company’s internal control over financial reporting is a
process designed to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance
with generally accepted accounting principles. A company’s
internal control over financial reporting includes those
policies and procedures that (i) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (ii) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations
of management and directors of the company; and (iii)
provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of
the company’s assets that could have a material effect on
the financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the
degree of compliance with the policies or procedures may
deteriorate.
/s/PricewaterhouseCoopers LLP
New York, New York
February 16, 2016
F-1
ASSURANT, INC. – 2015 Form 10-K Consolidated Balance Sheets
at DECEMBEr 31, 2015 aND 2014
(in thousands except number of shares and per share amounts)
aSSEtS
Investments:
Fixed maturity securities available for sale, at fair value (amortized cost—$9,470,795 in 2015
and $10,048,100 in 2014)
Equity securities available for sale, at fair value (cost—$450,563 in 2015 and $434,875 in 2014)
Commercial mortgage loans on real estate, at amortized cost
Policy loans
Short-term investments
Collateral held/pledged under securities agreements
Other investments
tOtaL INVEStMENtS
Cash and cash equivalents
Premiums and accounts receivable, net
Reinsurance recoverables
Accrued investment income
Deferred acquisition costs
Property and equipment, at cost less accumulated depreciation
Tax receivable
Goodwill
Value of business acquired
Other intangible assets, net
Other assets
Assets held in separate accounts
tOtaL aSSEtS
LIaBILItIES
Future policy benefits and expenses
Unearned premiums
Claims and benefits payable
Commissions payable
Reinsurance balances payable
Funds held under reinsurance
Deferred gain on disposal of businesses
Obligation under securities agreements
Accounts payable and other liabilities
Debt
Liabilities related to separate accounts
tOtaL LIaBILItIES
Commitments and contingencies (Note 25)
StOCKHOLDErS’ EQUItY
Common stock, par value $0.01 per share, 800,000,000 shares authorized, 65,850,386 and
69,299,559 shares outstanding at December 31, 2015 and December 31, 2014, respectively
Additional paid-in capital
Retained earnings
Accumulated other comprehensive income
Treasury stock, at cost; 83,523,031 and 79,338,142 shares at December 31, 2015 and December 31,
2014, respectively
Total stockholders’ equity
tOtaL LIaBILItIES aND StOCKHOLDErS’ EQUItY
See the accompanying notes to the consolidated financial statements
F-2
December 31,
2015
2014
$
$
11,263,174
499,407
1,272,616
48,272
345,246
95,985
606,752
10,215,328
500,057
1,151,256
43,858
508,950
—
575,323
12,994,772
1,288,305
1,260,717
7,470,403
129,743
3,150,934
298,414
24,176
833,512
41,154
277,163
475,731
1,798,104
14,131,452
1,318,656
1,445,630
7,254,585
138,868
2,957,740
277,645
15,132
841,239
45,462
381,960
847,860
1,906,237
$ 30,043,128 $ 31,562,466
$
9,466,694
6,423,720
3,896,719
393,260
132,728
94,417
92,327
—
2,049,810
1,171,382
1,798,104
25,519,161
$
9,483,672
6,529,675
3,698,606
487,322
157,089
75,161
100,817
95,986
2,675,515
1,171,079
1,906,237
26,381,159
1,497
3,148,409
4,856,674
118,549
1,490
3,131,274
4,809,287
555,767
(3,601,162)
4,523,967
(3,316,511)
5,181,307
$ 30,043,128 $ 31,562,466
ASSURANT, INC. – 2015 Form 10-K
Consolidated Statements of Operations
YEarS ENDED DECEMBEr 31, 2015, 2014 aND 2013
(in thousands except number of shares and per share amounts)
revenues
Net earned premiums
Net investment income
Net realized gains on investments, excluding other-than-temporary
impairment losses
Total other-than-temporary impairment losses
Portion of net loss recognized in other comprehensive income, before taxes
Net other-than-temporary impairment losses recognized in earnings
Amortization of deferred gain on disposal of businesses
Fees and other income
tOtaL rEVENUES
Benefits, losses and expenses
Policyholder benefits
Amortization of deferred acquisition costs and value of business acquired
Underwriting, general and administrative expenses
Interest expense
tOtaL BENEFItS, LOSSES aND EXPENSES
Income before provision for income taxes
Provision for income taxes
NEt INCOME
Earnings Per Share
Basic
Diluted
Dividends per share
Share Data
Weighted average shares outstanding used in basic per share calculations
Plus: Dilutive securities
WEIGHtED aVEraGE SHarES USED IN DILUtED
PEr SHarE CaLCULatIONS
See the accompanying notes to the consolidated financial statements
Years Ended December 31,
2015
2014
2013
$
8,350,997
626,217
$
8,632,142
656,429
$
7,759,796
650,296
36,850
(7,212)
2,188
(5,024)
12,988
1,303,466
10,325,494
60,813
(69)
39
(30)
(1,506)
1,033,805
10,381,653
4,742,535
1,402,573
3,924,089
55,116
10,124,313
201,181
59,626
141,555 $
4,405,333
1,485,558
3,688,230
58,395
9,637,516
744,137
273,230
470,907 $
38,912
(4,516)
129
(4,387)
16,310
586,730
9,047,657
3,675,532
1,470,287
3,034,404
77,735
8,257,958
789,699
300,792
488,907
2.08
2.05
1.37
$
$
$
6.52
6.44
1.06
$
$
$
6.38
6.30
0.96
68,163,825
853,384
72,181,447
970,563
76,648,688
1,006,076
69,017,209
73,152,010
77,654,764
$
$
$
$
F-3
ASSURANT, INC. – 2015 Form 10-K Consolidated Statements of Comprehensive Income
YEarS ENDED DECEMBEr 31, 2015, 2014 aND 2013
(in thousands)
Net income
Other comprehensive (loss) income:
Change in unrealized gains on securities, net of taxes of $158,653,
$(135,743), and $231,472, respectively
Change in other-than-temporary impairment gains, net of taxes of $2,240,
$(90), and $(1,382), respectively
Change in foreign currency translation, net of taxes of $5,100, $2,745, and
$8,162, respectively
Amortization of pension and postretirement unrecognized net periodic
benefit cost and change in funded status, net of taxes of $(4,091),
$26,534, and $(51,302), respectively
Total other comprehensive (loss) income
tOtaL COMPrEHENSIVE (LOSS) INCOME
See the accompanying notes to the consolidated financial statements
Years Ended December 31,
2015
141,555 $
2014
470,907 $
2013
488,907
$
(297,639)
267,011
(455,808)
(4,160)
167
2,566
(143,023)
(88,944)
(45,649)
7,604
(437,218)
(295,663) $
(49,297)
128,937
599,844 $
95,318
(403,573)
85,334
$
F-4
ASSURANT, INC. – 2015 Form 10-K
Consolidated Statements of Changes in
Stockholders’ Equity
at DECEMBEr 31, 2015, 2014 aND 2013
(in thousands)
Balance, January 1, 2013
Stock plan exercises
Stock plan compensation expense
Change in tax benefit from share-
based payment arrangements
Dividends
Acquisition of common stock
Net income
Other comprehensive loss
Balance, December 31, 2013
Stock plan exercises
Stock plan compensation expense
Change in tax benefit from share-
based payment arrangements
Dividends
Acquisition of common stock
Net income
Other comprehensive income
Balance, December 31, 2014
Stock plan exercises
Stock plan compensation expense
Change in tax benefit from share-
based payment arrangements
Dividends
Acquisition of common stock
Common
Stock
$ 1,474
8
—
—
—
—
—
—
$ 1,482
8
—
—
—
—
—
—
$ 1,490
7
—
additional
Paid-in
Capital
retained
Earnings
$ 3,052,454 $ 4,001,096
—
—
(13,814)
50,004
(1,111)
—
—
—
—
—
(74,128)
—
488,907
—
$ 3,087,533 $ 4,415,875
—
—
(20,513)
49,354
14,900
—
—
—
—
—
(77,495)
—
470,907
—
$ 3,131,274 $ 4,809,287
—
—
(17,571)
38,773
—
—
—
—
—
$ 1,497
(4,067)
—
—
—
—
—
(94,168)
—
141,555
—
$ 3,148,409 $ 4,856,674
Net income
Other comprehensive loss
BaLaNCE, DECEMBEr 31, 2015
See the accompanying notes to the consolidated financial statements
accumulated
Other
Comprehensive
Income
830,403
—
—
$
treasury
Stock
total
$ (2,700,061) $ 5,185,366
(13,806)
50,004
—
—
$
$
$
—
—
—
—
(403,573)
426,830
—
—
—
—
—
—
128,937
555,767
—
—
—
—
(398,180)
—
—
(1,111)
(74,128)
(398,180)
488,907
(403,573)
$ (3,098,241) $ 4,833,479
(20,505)
49,354
—
—
—
—
(218,270)
—
—
14,900
(77,495)
(218,270)
470,907
128,937
$ (3,316,511) $ 5,181,307
(17,564)
38,773
—
—
—
—
—
—
(437,218)
118,549
—
—
(284,651)
—
—
(4,067)
(94,168)
(284,651)
141,555
(437,218)
$ (3,601,162) $ 4,523,967
F-5
ASSURANT, INC. – 2015 Form 10-K Consolidated Statements of Cash Flows
YEarS ENDED DECEMBEr 31, 2015, 2014 aND 2013
(in thousands)
Operating activities
Net income
Adjustments to reconcile net income to net cash provided by operating
activities:
Change in reinsurance recoverable
Change in premiums and accounts receivable
Change in deferred acquisition costs and value of business acquired
Change in other intangible assets
Change in accrued investment income
Change in insurance policy reserves and expenses
Change in accounts payable and other liabilities
Change in commissions payable
Change in reinsurance balances payable
Change in funds withheld under reinsurance
Change in securities classified as trading
Change in income taxes
Change in tax valuation allowance
Change in inventory associated with mobile business
Amortization of deferred gain on disposal of businesses
Depreciation and amortization
Net realized gains on investments
Loss on extinguishment of debt
(Gain)/Loss on business classified as held for sale
Stock based compensation expense
Income from real estate joint ventures
Change in tax benefit from share-based payment arrangements
Non cash costs associated with exit or disposal activities
Other intangible asset impairment
Changes in premium stabilization program receivables(4)
Other
NEt CaSH PrOVIDED BY OPEratING aCtIVItIES
Investing activities
Sales of:
Fixed maturity securities available for sale
Equity securities available for sale
Other invested assets
Property and equipment and other
Subsidiary, net of cash transferred(1)
Maturities, calls, prepayments, and scheduled redemption of:
Fixed maturity securities available for sale
Commercial mortgage loans on real estate
Purchases of:
Fixed maturity securities available for sale
Equity securities available for sale
Commercial mortgage loans on real estate
Other invested assets
Property and equipment and other
Subsidiary, net of cash transferred(1)
Equity interest(2)
Change in short-term investments
Change in policy loans
Change in collateral held/pledged under securities agreements
NEt CaSH PrOVIDED BY (USED IN) INVEStING aCtIVItIES
F-6
Years Ended December 31,
2015
2014
2013
$
141,555
$
470,907
$
488,907
(155,703)
185,606
(234,676)
2,935
4,713
314,112
(140,337)
(35,914)
(13,647)
26,479
15,291
(14,870)
(4,946)
(27,269)
(12,988)
137,105
(31,826)
—
(1,121)
38,773
(23,550)
4,067
140,084
1,010
(136,630)
76,319
254,572 $
(471,232)
(292,241)
(227,628)
(13,801)
2,409
828,591
266,648
84,920
49,940
57,095
(23,782)
62,087
1,690
(85,742)
1,506
132,217
(60,783)
—
21,526
49,354
(17,826)
(14,900)
—
5,019
(381,158)
(51,000)
393,816 $
2,380,789
181,918
68,465
3,448
49,906
665,554
253,371
(2,747,392)
(185,025)
(149,003)
(29,305)
(114,896)
(16,844)
—
(196,747)
4,068
95,986
264,293
1,887,983
109,233
74,257
172
—
791,528
165,452
(2,472,494)
(132,748)
(156,390)
(41,653)
(83,603)
(149,194)
(24,614)
93,571
3,169
(780)
63,889
444,639
(210,997)
(337,060)
(56,997)
1,839
166,839
181,374
106,424
6,214
18,209
(10,606)
171,311
3,383
(34,682)
(16,310)
124,851
(34,525)
964
—
50,004
(5,573)
1,112
—
3,323
—
(35,082)
1,027,561
2,582,731
236,730
49,456
1,422
—
882,159
217,377
(3,396,588)
(215,881)
(194,468)
(57,001)
(52,326)
(181,865)
(91,420)
(173,603)
1,031
(492)
(392,738)
$
ASSURANT, INC. – 2015 Form 10-K
(in thousands)
Financing activities
Issuance of debt
Repurchase of debt
Repayment of debt
Change in tax benefit from share-based payment arrangements
Acquisition of common stock
Dividends paid
Payment of contingent obligations(3)
Change in obligation under securities agreements
NEt CaSH (USED IN) PrOVIDED BY FINaNCING aCtIVItIES
Effect of exchange rate changes on cash and cash equivalents
Cash included in business classified as held for sale
Change in cash and cash equivalents
Cash and cash equivalents at beginning of period
CaSH aND CaSH EQUIVaLENtS at END OF PErIOD
Supplemental information:
Income taxes paid
Interest on debt paid
Years Ended December 31,
2015
2014
2013
—
—
—
(4,067)
(292,906)
(94,168)
—
(95,986)
(487,127)
(56,231)
(5,858)
(30,351)
1,318,656
1,288,305 $
—
—
(467,330)
14,900
(215,183)
(77,495)
(31,871)
780
(776,199)
(28,126)
(51,908)
(398,528)
1,717,184
1,318,656 $
698,093
(33,634)
—
(1,112)
(393,012)
(74,128)
—
492
196,699
(23,742)
—
807,780
909,404
1,717,184
80,140
54,813
$
$
247,771
68,875
$
$
132,487
70,741
$
$
$
(1) 2015 includes the sale of American Reliable Insurance Co. and certain assets related to our vehicle title administration services business and
supplemental and small group self-funded businesses; the acquisition of Coast to Coast Services, Inc. and Rent Collect Global. 2014 includes the
acquisition of StreetLinks, LLC, eMortgage Logic, LLC, CWI Group and other immaterial subsidiaries. 2013 includes the acquisition of Field Asset
Services Group Limited and Lifestyle Services Group Limited.
(2) Relates to the purchase of equity interest in Iké Asistencia.
(3) Relates to the delayed and contingent liability payments established at the time of acquisition of Lifestyle Services Group. Change in amount paid,
in comparison to December 31, 2013 amount disclosed, is mainly due to foreign currency translation.
(4) Represents non-cash items related to estimated receivables introduced by the Affordable Care Act. See the Affordable Care Act Risk Mitigation
Programs section of Note 2 for additional information.
See the accompanying notes to the consolidated financial statements
F-7
ASSURANT, INC. – 2015 Form 10-K
2 Summary of Significant Accounting Policies
Notes to Consolidated Financial Statements
December 31, 2015, 2014 and 2013
(In thousands except number of shares and per share amounts)
1. Nature of Operations
Assurant, Inc. (the “Company”) is a holding company whose
subsidiaries provide specialty protection products and related
services in North America, Latin America, Europe and other
select worldwide markets.
The Company is traded on the New York Stock Exchange
under the symbol “AIZ.”
Through its operating subsidiaries, the Company provides
mobile device protection products and services; extended
service products and related services for consumer electronics,
appliances and vehicles; pre-funded funeral insurance;
lender-placed homeowners insurance; property preservation
and valuation services; flood insurance; renters insurance
and related products; debt protection administration; credit
insurance; manufactured housing homeowners insurance;
group dental insurance; group disability insurance; and
group life insurance.
As previously announced, the Company concluded a
comprehensive review of its portfolio and decided to sharpen
its focus on specialty housing and lifestyle protection products
and services. As a result, the Company will exit the health
insurance market and has signed a definitive agreement to
sell its Assurant Employee Benefits segment. See Note 3 and
Note 4, respectively, for more information.
2. Summary of Significant Accounting Policies
Basis of Presentation
The consolidated financial statements have been prepared in
accordance with accounting principles generally accepted in the
United States of America (“GAAP”). Amounts are presented in
United States of America (“U.S.”) dollars and all amounts are
in thousands, except for number of shares, per share amounts
and number of securities in an unrealized loss position.
Principles of Consolidation
The consolidated financial statements include the accounts
of the Company and all of its wholly owned subsidiaries. All
inter-company transactions and balances are eliminated
in consolidation.
Variable Interest Entities
The Company may enter into agreements with other entities
that are deemed to be variable interest entities (“VIEs”).
At the time these agreements are executed, the Company
evaluates the applicability of the accounting guidance for
VIEs. Entities which do not have sufficient equity at risk to
allow the entity to finance its activities without additional
financial support or in which the equity investors, as a group,
do not have the characteristic of a controlling financial interest
are referred to as VIEs. A VIE is consolidated by the variable
interest holder that is determined to have the controlling
financial interest (“primary beneficiary”) as a result of having
both the power to direct the activities of a VIE that most
significantly impact the VIE’s economic performance and the
obligation to absorb losses or right to receive benefits from
the VIE that could potentially be significant to the VIE. The
Company determines whether it is the primary beneficiary
of an entity subject to consolidation based on a qualitative
assessment of the VIE’s capital structure, contractual terms,
nature of the VIE’s operations and purpose and the Company’s
relative exposure to the related risks of the VIE on the
date it becomes initially involved in the VIE. The Company
reassesses its VIE determination with respect to an entity
on an ongoing basis.
Use of Estimates
The preparation of financial statements in conformity with
GAAP requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities.
The items on the Company’s balance sheets affected by the
use of estimates include but are not limited to, investments,
premiums and accounts receivable, reinsurance recoverables,
deferred acquisition costs (“DAC”), deferred income taxes
and associated valuation allowances, goodwill, valuation
of business acquired (“VOBA”), future policy benefits and
expenses, unearned premiums, claims and benefits payable,
deferred gain on disposal of businesses, pension and post-
retirement liabilities and commitments and contingencies.
The estimates are sensitive to market conditions, investment
yields, mortality, morbidity, commissions and other acquisition
expenses, policyholder behavior and other factors. Actual
results could differ from the estimates recorded. The Company
believes all amounts reported are reasonable and adequate.
During the fourth quarter of 2015, we identified and corrected
errors that originated in prior periods and assessed the
materiality of the errors using quantitative and qualitative
F-8
ASSURANT, INC. – 2015 Form 10-K factors. The errors primarily related to the overstatement of
other assets associated with our mobile business inventory
and the overstatement of accounts receivable associated
with our legacy run-off warranty business. The correction
of these errors resulted in a decrease to Assurant Solutions
net income of $8,200 for the year ended December 31, 2015
and the fourth quarter of 2015.
We performed both a qualitative and quantitative assessment
of the materiality of the errors and concluded that the
errors were not material to our financial position, results of
operations or cash flows for any previously reported quarterly
or annual financial statements or for the current period in
which they were corrected.
Earnings Per Share
Basic earnings per share is computed by dividing net income by
the weighted average number of common shares outstanding
for the period. Diluted earnings per share reflects the potential
dilution that could occur if securities or other contracts
that can be converted into common stock were exercised
as of the end of the period. Restricted stock and restricted
stock units which have non-forfeitable rights to dividends
or dividend equivalents are included in calculating basic
and diluted earnings per share under the two-class method.
Comprehensive Income
Comprehensive income is comprised of net income, net
unrealized gains and losses on foreign currency translation,
net unrealized gains and losses on securities classified as
available for sale, net unrealized gains and losses on other-
than-temporarily impaired securities and expenses for pension
and post-retirement plans, less deferred income taxes.
Foreign Currency Translation
For foreign affiliates where the local currency is the functional
currency, unrealized foreign currency translation gains and
losses net of deferred income taxes have been reflected in
accumulated other comprehensive income (“AOCI”). Other
than for two of our wholly owned Canadian subsidiaries,
deferred taxes have not been provided for unrealized
currency translation gains and losses since the Company
intends to indefinitely reinvest the earnings in these other
jurisdictions. Transaction gains and losses on assets and
liabilities denominated in foreign currencies are recorded
in underwriting, general and administration expenses in the
consolidated statements of operations during the period in
which they occur.
Fair Value
The Company uses an exit price for its fair value measurements.
An exit price is defined as the amount received to sell an
asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date.
2 Summary of Significant Accounting Policies
In measuring fair value, the Company gives the highest priority
to unadjusted quoted prices in active markets for identical
assets or liabilities and the lowest priority to unobservable
inputs. See Note 6 for further information.
Investments
Fixed maturity and equity securities are classified as available-
for-sale, as defined in the investments guidance, and reported
at fair value. If the fair value is higher than the amortized cost
for fixed maturity securities or the cost for equity securities,
the excess is an unrealized gain; and, if lower than cost,
the difference is an unrealized loss. Net unrealized gains
and losses on securities classified as available-for-sale, less
deferred income taxes, are included in AOCI.
Commercial mortgage loans on real estate are reported at
unpaid balances, adjusted for amortization of premium or
discount, less allowance for losses. The allowance is based on
management’s analysis of factors including actual loan loss
experience, specific events based on geographical, political
or economic conditions, industry experience, loan groupings
that have probable and estimable losses and individually
impaired loan loss analysis. A loan is considered individually
impaired when it becomes probable the Company will be
unable to collect all amounts due, including principal and
interest, according to the contractual terms of the loan
agreement. Indicative factors of impairment include, but
are not limited to, whether the loan is current, the value
of the collateral and the financial position of the borrower.
If a loan is individually impaired, the Company uses one of
the following valuation methods based on the individual
loans’ facts and circumstances to measure the impairment
amount: (1) the present value of expected future cash flows,
(2) the loan’s observable market price, or (3) the fair value
of collateral. Changes in the allowance for loan losses are
recorded in net realized losses on investments, excluding
other-than-temporary impairment losses.
The Company places loans on non-accrual status after
90 days of delinquent payments (unless the loans are both
well secured and in the process of collection). A loan may be
placed on non-accrual status before this time if information
is available that suggests its impairment is probable.
Policy loans are reported at unpaid principal balances, which do
not exceed the cash surrender value of the underlying policies.
Short-term investments include money market funds and
short maturity investments. These amounts are reported at
cost, which approximates fair value.
As of December 31, 2015, the Company has terminated its
securities lending program and there are no outstanding
transactions. Prior to this date, the Company engaged in
collateralized transactions in which fixed maturity securities,
primarily bonds issued by the U.S. government, government
agencies and authorities, and U.S. corporations, were loaned
to selected broker/dealers. The collateral held under these
securities lending transactions was reported at fair value and
the obligation was reported at the amount of the collateral
F-9
ASSURANT, INC. – 2015 Form 10-K 2 Summary of Significant Accounting Policies
received. The difference between the collateral held and
obligations under securities lending was recorded as an
unrealized loss as part of AOCI.
Other investments consist primarily of investments in joint
ventures, partnerships, invested assets associated with a
modified coinsurance arrangement, invested assets associated
with the Assurant Investment Plan (“AIP”), ASIC and the
Assurant Deferred Compensation Plan (“ADC”). The joint
ventures and partnerships are valued according to the equity
method of accounting. In applying the equity method, the
Company uses financial information provided by the investee,
generally on a three month lag. The invested assets related
to the modified coinsurance arrangement, the AIP, ASIC and
ADC are classified as trading securities as defined in the
investment guidance.
The Company monitors its investment portfolio to identify
investments that may be other-than-temporarily impaired.
In addition, securities, aggregated by issuer, whose market
price is equal to 80% or less of their original purchase price
or which had a discrete credit event resulting in the debtor
defaulting or seeking bankruptcy protection are added to
a potential write-down list, which is discussed at quarterly
meetings attended by members of the Company’s investment,
accounting and finance departments. See Note 5 for further
information.
Realized gains and losses on sales of investments are recognized
on the specific identification basis.
Investment income is recorded as earned and reported net
of investment expenses. The Company uses the interest
method to recognize interest income on its commercial
mortgage loans.
The Company anticipates prepayments of principal in the
calculation of the effective yield for mortgage-backed
securities and structured securities. The retrospective method
is used to adjust the effective yield.
Cash and Cash Equivalents
The Company considers cash on hand, all operating cash and
working capital cash to be cash equivalents. These amounts
are carried at cost, which approximates fair value. Cash
balances are reviewed at the end of each reporting period
to determine if negative cash balances exist. If negative cash
balances do exist, the cash accounts are netted with other
positive cash accounts of the same bank provided the right
of offset exists between the accounts. If the right of offset
does not exist, the negative cash balances are reclassified
to accounts payable.
Uncollectible Receivable Balance
The Company maintains allowances for doubtful accounts for
probable losses resulting from the inability to collect payments.
Reinsurance
Reinsurance recoverables include amounts related to paid
benefits and estimated amounts related to unpaid policy and
contract claims, future policyholder benefits and policyholder
contract deposits. The cost of reinsurance is recognized
over the terms of the underlying reinsured policies using
assumptions consistent with those used to account for the
policies. Amounts recoverable from reinsurers are estimated
in a manner consistent with claim and claim adjustment
expense reserves or future policy benefits reserves and are
reported in the consolidated balance sheets. The cost of
reinsurance related to long-duration contracts is recognized
over the life of the underlying reinsured policies. The ceding of
insurance does not discharge the Company’s primary liability
to insureds, thus a credit exposure exists to the extent that
any reinsurer is unable to meet the obligation assumed in
the reinsurance agreements. To mitigate this exposure to
reinsurance insolvencies, the Company evaluates the financial
condition of its reinsurers and holds collateral (in the form of
funds withheld, trusts, and letters of credit) as security under
the reinsurance agreements. An allowance for doubtful accounts
is recorded on the basis of periodic evaluations of balances
due from reinsurers (net of collateral), reinsurer solvency,
management’s experience and current economic conditions.
Funds withheld under reinsurance represent amounts
contractually held from assuming companies in accordance
with reinsurance agreements.
Reinsurance premiums assumed are calculated based upon
payments received from ceding companies together with
accrual estimates, which are based on both payments received
and in force policy information received from ceding companies.
Any subsequent differences arising on such estimates are
recorded in the period in which they are determined.
Income Taxes
Current federal income taxes are recognized based upon
amounts estimated to be payable or recoverable as a result
of taxable operations for the current year. Deferred income
taxes are recorded for temporary differences between the
financial reporting basis and income tax basis of assets and
liabilities, based on enacted tax laws and statutory tax rates
applicable to the periods in which the Company expects the
temporary differences to reverse. A valuation allowance is
established for deferred tax assets when it is more likely
than not that an amount will not be realized.
The Company classifies net interest expense related to tax
matters and any applicable penalties as a component of
income tax expense.
Deferred Acquisition Costs
Only direct incremental costs associated with the successful
acquisition of new or renewal insurance contracts are deferred
to the extent that such costs are deemed recoverable from
F-10
ASSURANT, INC. – 2015 Form 10-K future premiums or gross profits. Acquisition costs primarily
consist of commissions and premium taxes. Certain direct
response advertising expenses are deferred when the primary
purpose of the advertising is to elicit sales to customers
who can be shown to have specifically responded to the
advertising and the direct response advertising results in
probable future benefits.
Premium deficiency testing is performed annually and generally
reviewed quarterly. Such testing involves the use of best
estimate assumptions including the anticipation of investment
income to determine if anticipated future policy premiums
are adequate to recover all DAC and related claims, benefits
and expenses. To the extent a premium deficiency exists, it
is recognized immediately by a charge to the consolidated
statement of operations and a corresponding reduction in
DAC. If the premium deficiency is greater than unamortized
DAC, a liability is accrued for the excess deficiency. See Note 3
for further information on the premium deficiency reserve
related to the exit of the health insurance market.
Long Duration Contracts
Acquisition costs for pre-funded funeral (“preneed”) life
insurance policies issued prior to 2009 and certain life insurance
policies no longer offered are deferred and amortized in
proportion to anticipated premiums over the premium-paying
period. These acquisition costs consist primarily of first year
commissions paid to agents.
Acquisition costs relating to group worksite insurance products
consist primarily of first year commissions to brokers, costs
of issuing new certificates and compensation to sales
representatives. These acquisition costs are front-end loaded,
thus they are deferred and amortized over the estimated
terms of the underlying contracts.
For preneed investment-type annuities, preneed life insurance
policies with discretionary death benefit growth issued
after January 1, 2009, universal life insurance policies,
and investment-type annuities (no longer offered), DAC is
amortized in proportion to the present value of estimated
gross profits from investment, mortality, expense margins
and surrender charges over the estimated life of the policy
or contract. Estimated gross profits include the impact of
unrealized gains or losses on investments as if these gains
or losses had been realized, with corresponding credits or
charges included in AOCI. The assumptions used for the
estimates are consistent with those used in computing the
policy or contract liabilities.
Short Duration Contracts
Acquisition costs relating to property contracts, warranty
and extended service contracts and single premium credit
insurance contracts are amortized over the term of the
contracts in relation to premiums earned.
Acquisition costs relating to monthly pay credit insurance
business consist mainly of direct response advertising costs
and are deferred and amortized over the estimated average
terms and balances of the underlying contracts.
2 Summary of Significant Accounting Policies
Acquisition costs relating to group term life, group
disability, group dental, and group vision consist primarily of
compensation to sales representatives. These acquisition costs
are front-end loaded; thus, they are deferred and amortized
over the estimated terms of the underlying contracts.
Property and Equipment
Property and equipment are reported at cost less accumulated
depreciation. Depreciation is calculated on a straight-line basis
over estimated useful lives with a maximum of 39.5 years for
buildings, a maximum of 7 years for furniture and a maximum
of 5 years for equipment. Expenditures for maintenance and
repairs are charged to income as incurred. Expenditures
for improvements are capitalized and depreciated over the
remaining useful life of the asset.
Property and equipment also includes capitalized software
costs, which represent costs directly related to obtaining,
developing or upgrading internal use software. Such costs
are capitalized and amortized using the straight-line method
over their estimated useful lives, not to exceed 20 years.
Property and equipment are assessed for impairment when
impairment indicators exist. See Note 3 for further information
on the impairment of long-lived assets related to the exit of
the health insurance market.
Goodwill
Goodwill represents the excess of acquisition costs over the
net fair value of identifiable assets acquired and liabilities
assumed in a business combination. Goodwill is deemed
to have an indefinite life and is not amortized, but rather
is tested at least annually for impairment. We review our
goodwill annually in the fourth quarter for impairment, or
more frequently if indicators of impairment exist. We regularly
assess whether any indicators of impairment exist. Such
indicators include, but are not limited to: significant adverse
change in legal factors, adverse action or assessment by a
regulator, unanticipated competition, loss of key personnel
or a significant decline in our expected future cash flows
due to changes in company-specific factors or the broader
business climate. The evaluation of such factors requires
considerable management judgment.
When required, we test goodwill for impairment at the
reporting unit level. Following the guidance on goodwill,
we have concluded that our reporting units for goodwill
testing are equivalent to our reported operating segments,
excluding the Corporate and Other segment.
At the time of the annual goodwill test, the Company has the
option to first assess qualitative factors to determine whether
it is necessary to perform the current two-step goodwill
impairment test. The Company is required to perform step
one if it determines qualitatively that it is more likely than
not (that is, a likelihood of more than 50 percent) that the
fair value of a reporting unit is less than its carrying amount,
including goodwill. Otherwise, no further testing is required.
F-11
ASSURANT, INC. – 2015 Form 10-K 2 Summary of Significant Accounting Policies
If the Company does not take the option to perform the
qualitative assessment or the qualitative assessment performed
indicates that it is more likely than not that the reporting
unit’s fair value is less than the carrying value, the Company
will then compare the estimated fair value of the reporting
unit with its net book value (“Step 1”). If the estimated fair
value exceeds its net book value, goodwill is deemed not to
be impaired, and no further testing is necessary. If the net
book value exceeds its estimated fair value, we perform a
second test to measure the amount of impairment, if any. To
determine the amount of any impairment, we determine the
implied fair value of goodwill in the same manner as if the
reporting unit were being acquired in a business combination
(“Step 2”). Specifically, we determine the fair value of all of
the assets and liabilities of the reporting unit, including any
unrecognized intangible assets, in a hypothetical calculation
that yields the implied fair value of goodwill. If the implied
fair value of goodwill is less than the recorded goodwill, we
record an impairment charge for the difference.
In the fourth quarter 2015, the Company chose the option to
first perform a qualitative assessment for both our Assurant
Specialty Property and Assurant Solutions reporting units.
Based on this assessment, the Company determined that it
was more likely than not that the reporting units’ fair value
was more than their carrying amount, therefore further
impairment testing was not necessary.
In the fourth quarter of 2014, we performed a Step 1 test for
both our Assurant Specialty Property and Assurant Solutions
reporting units and concluded that the estimated fair value
of the reporting units exceeded their respective book values
and therefore goodwill was not impaired.
For 2015 and 2014, the Assurant Employee Benefits and
Assurant Health reporting units did not have goodwill.
Value of Businesses Acquired
VOBA is an identifiable intangible asset representing the
value of the insurance businesses acquired. The amount
is determined using best estimates for mortality, lapse,
maintenance expenses and investment returns at date of
purchase. The amount determined represents the purchase
price paid to the seller for producing the business. Similar
to the amortization of DAC, the amortization of VOBA is over
the premium payment period for traditional life insurance
policies and a small block of limited payment policies.
For the remaining limited payment policies, preneed life
insurance policies, all universal life policies and annuities,
the amortization of VOBA is over the expected lifetime of
the policies.
VOBA is tested annually in the fourth quarter for recoverability.
If it is determined that future policy premiums and investment
income or gross profits are not adequate to cover related
losses or loss expenses, then an expense is reported in
current earnings. Based on 2015 and 2014 testing, future
policy premiums and investment income or gross profits were
deemed adequate to cover related losses or loss expenses.
Other Assets
Other assets consist primarily of investments in unconsolidated
entities, inventory associated with our mobile protection
business and prepaid items. The Company accounts for
investments in unconsolidated entities using the equity
method of accounting since the Company can exert significant
influence over the investee, but does not have effective
control over the investee. The Company’s equity in the net
income (loss) from equity method investments is recorded
as income (loss) with a corresponding increase (decrease) in
the investment. Judgment regarding the level of influence
over each equity method investee includes considering
factors such as ownership interest, board representation and
policy making decisions. In applying the equity method, the
Company uses financial information provided by the investee,
which may be received on a lag basis.
Other Intangible Assets
Other intangible assets that have finite lives, including but
not limited to, customer contracts, customer relationships
and marketing relationships, are amortized over their
estimated useful lives. Other intangible assets deemed
to have indefinite useful lives, primarily certain state
licenses, are not amortized and are subject to at least annual
impairment tests. At the time of the annual impairment
test, the Company has the option to first assess qualitative
factors to determine whether it is necessary to perform a
quantitative impairment test for indefinite-lived intangible
assets. Impairment exists if the carrying amount of the
indefinite-lived other intangible asset exceeds its fair value.
For other intangible assets with finite lives, impairment
is recognized if the carrying amount is not recoverable
and exceeds the fair value of the other intangible asset.
Generally other intangible assets with finite lives are only
tested for impairment if there are indicators (“triggers”) of
impairment identified. Triggers include, but are not limited
to, a significant adverse change in the extent, manner or
length of time in which the other intangible asset is being
used or a significant adverse change in legal factors or in
the business climate that could affect the value of the other
intangible asset. In certain cases, the Company does perform
an annual impairment test for other intangible assets with
finite lives even if there are no triggers present. There were
no material impairment charges related to finite-lived and
indefinite-lived other intangible assets in 2015 or 2014.
Amortization expense and impairment charges, if any,
are included in underwriting, general and administrative
expenses in the consolidated statements of operations.
Separate Accounts
Assets and liabilities associated with separate accounts
relate to premium and annuity considerations for variable
life and annuity products for which the contract-holder,
rather than the Company, bears the investment risk. Separate
account assets (with matching liabilities) are reported at
F-12
ASSURANT, INC. – 2015 Form 10-K fair value. Revenues and expenses related to the separate
account assets and liabilities, to the extent of benefits
paid or provided to the separate account policyholders, are
excluded from the amounts reported in the accompanying
consolidated statements of operations because the accounts
are administered by reinsurers.
Reserves
Reserves are established in accordance with GAAP, using
generally accepted actuarial methods. Factors used in their
calculation include experience derived from historical claim
payments and actuarial assumptions. Such assumptions
and other factors include trends, the incidence of incurred
claims, the extent to which all claims have been reported,
and internal claims processing charges. The process used in
computing reserves cannot be exact, particularly for liability
coverages, since actual claim costs are dependent upon
such complex factors as inflation, changes in doctrines of
legal liabilities and damage awards. The methods of making
such estimates and establishing the related liabilities are
periodically reviewed and updated.
Reserves do not represent an exact calculation of exposure,
but instead represent our best estimates of what we expect
the ultimate settlement and administration of a claim or group
of claims will cost based on facts and circumstances known
at the time of calculation. The adequacy of reserves may
be impacted by future trends in claims severity, frequency,
judicial theories of liability and other factors. These variables
are affected by both external and internal events, including
but not limited to: changes in the economic cycle, changes
in the social perception of the value of work, emerging
medical perceptions regarding physiological or psychological
causes of disability, emerging health issues and new methods
of treatment or accommodation, inflation, judicial trends,
legislative changes and claims handling procedures.
Many of these items are not directly quantifiable. Reserve
estimates are refined as experience develops. Adjustments
to reserves, both positive and negative, are reflected in the
consolidated statement of operations in the period in which
such estimates are updated. Because establishment of reserves
is an inherently uncertain process involving estimates of future
losses, there can be no certainty that ultimate losses will not
exceed existing claims reserves. Future loss development could
require reserves to be increased, which could have a material
adverse effect on our earnings in the periods in which such
increases are made. However, based on information currently
available, we believe our reserve estimates are adequate.
Long Duration Contracts
The Company’s long duration contracts include preneed
life insurance policies and annuity contracts, traditional
life insurance policies no longer offered, universal life
and annuities no longer offered, policies disposed of via
reinsurance (Fortis Financial Group (“FFG”) and Long Term
Care (“LTC”) contracts), group worksite policies, group life
conversion policies and certain medical policies.
2 Summary of Significant Accounting Policies
Future policy benefits and expense reserves for LTC, certain
life and annuity insurance policies no longer offered, a
majority of individual medical policies issued prior to 2003,
certain medical contracts issued from 2003 through 2006, the
traditional life insurance contracts within FFG group worksite
contracts and group life conversion policies are equal to the
present value of future benefits to policyholders plus related
expenses less the present value of the future net premiums.
These amounts are estimated based on assumptions as to the
expected investment yield, inflation, mortality, morbidity
and withdrawal rates as well as other assumptions that are
based on the Company’s experience. These assumptions
reflect anticipated trends and include provisions for possible
unfavorable deviations.
Future policy benefits and expense reserves for preneed
investment-type annuities, preneed life insurance policies
with discretionary death benefit growth issued after 2008,
universal life insurance policies and investment-type annuity
contracts (no longer offered), and the variable life insurance
and investment-type annuity contracts in FFG consist of
policy account balances before applicable surrender charges
and certain deferred policy initiation fees that are being
recognized in income over the terms of the policies. Policy
benefits charged to expense during the period include
amounts paid in excess of policy account balances and
interest credited to policy account balances. An unearned
revenue reserve is also recorded for those preneed life
insurance contracts which represents the balance of the
excess of gross premiums over net premiums that is still
to be recognized in future years’ income in a constant
relationship to estimated gross profits.
Future policy benefits and expense reserves for preneed life
insurance contracts issued prior to 2009 are reported at the
present value of future benefits to policyholders and related
expenses less the present value of future net premiums.
Reserve assumptions are selected using best estimates for
expected investment yield, inflation, mortality and withdrawal
rates. These assumptions reflect current trends, are based
on Company experience and include provision for possible
unfavorable deviation. An unearned revenue reserve is also
recorded for these contracts which represents the balance
of the excess of gross premiums over net premiums that is
still to be recognized in future years’ income in a constant
relationship to insurance in force.
Reserves for group worksite policies also include case reserves
and incurred but not reported (“IBNR”) reserves which
equal the net present value of the expected future claims
payments. Worksite group disability reserves are discounted
to the valuation date at the valuation interest rate. The
valuation interest rate is reviewed quarterly by taking into
consideration actual and expected earned rates on our
asset portfolio.
Changes in the estimated liabilities are reported as a charge
or credit to policyholder benefits as the estimates are revised.
F-13
ASSURANT, INC. – 2015 Form 10-K 2 Summary of Significant Accounting Policies
Short Duration Contracts
The Company’s short duration contracts include group term
life contracts, group disability contracts, medical contracts,
dental contracts, vision contracts, property and warranty
contracts, credit life and disability contracts and extended
service contracts. For short duration contracts, claims and
benefits payable reserves are recorded when insured events
occur. The liability is based on the expected ultimate cost of
settling the claims. The claims and benefits payable reserves
include (1) case reserves for known but unpaid claims as of
the balance sheet date; (2) IBNR reserves for claims where
the insured event has occurred but has not been reported
to the Company as of the balance sheet date; and (3) loss
adjustment expense reserves for the expected handling costs
of settling the claims.
For group disability, the case reserves and the IBNR reserves
are recorded at an amount equal to the net present value
of the expected future claims payments. Group long-term
disability and group term life waiver of premiums reserves
are discounted to the valuation date at the valuation interest
rate. The valuation interest rate is reviewed quarterly by
taking into consideration actual and expected earned rates
on our asset portfolio. Group long-term disability and group
term life reserve adequacy studies are performed annually,
and morbidity and mortality assumptions are adjusted where
appropriate.
The Company has exposure to asbestos, environmental and
other general liability claims arising from its participation
in various reinsurance pools from 1971 through 1985. This
exposure arose from a short duration contract that the
Company discontinued writing many years ago. The Company
carries case reserves for these liabilities as recommended by
the various pool managers and IBNR reserves. Any estimation
of these liabilities is subject to greater than normal variation
and uncertainty due to the general lack of sufficient detailed
data, reporting delays, and absence of generally accepted
actuarial methodology for determining the exposures. There
are significant unresolved industry legal issues, including
such items as whether coverage exists and what constitutes
an occurrence. In addition, the determination of ultimate
damages and the final allocation of losses to financially
responsible parties are highly uncertain.
Changes in the estimated liabilities are recorded as a charge
or credit to policyholder benefits as estimates are revised.
Amounts reimbursed by the National Flood Insurance Program
for processing and adjudication services are reported as a
reduction of policyholder benefits.
Deferred Gain on Disposal of Businesses
On March 1, 2000, the Company sold its LTC business using a
coinsurance contract. On April 2, 2001, the Company sold its
FFG business using a modified coinsurance contract. Since the
form of sale did not discharge the Company’s primary liability
to the insureds, the gain on these disposals was deferred and
reported as a liability. The liability is decreased and recognized
as revenue over the estimated life of the contracts’ terms.
The Company reviews and evaluates the estimates affecting
the deferred gain on disposal of businesses annually or when
significant information affecting the estimates becomes
known to the Company, and adjusts the revenue recognized
accordingly. Based on the Company’s annual review in the
fourth quarter of 2015, there were no adjustments to the
estimates affecting the deferred gain. Based on the Company’s
annual review in the fourth quarter of 2014, the Company
re-established $12,777 of the FFG deferred gain.
Debt
The Company reports debt net of unamortized discount or
premium and repurchases. Interest expense related to debt
is expensed as incurred.
Premiums
Long Duration Contracts
The Company’s long duration contracts which are actively
being sold are preneed life insurance and certain group
worksite insurance policies. The preneed life insurance
policies include provisions for death benefit growth that is
either pegged to the changes in the Consumer Price Index or
determined periodically at the discretion of management.
For preneed life insurance policies issued prior to 2009,
revenues are recognized when due from policyholders. For
preneed life insurance policies with discretionary death
benefit growth issued after 2008 and for preneed investment-
type annuity contracts, revenues consist of charges assessed
against policy balances. Revenues are recognized ratably
as earned income over the premium-paying periods of the
policies for the group worksite insurance products.
For a majority of individual medical contracts issued
prior to 2003, a limited number of individual medical
contracts currently issued from 2003 through 2006 in
certain jurisdictions, and traditional life insurance contracts
previously sold by the preneed business (no longer offered),
revenue is recognized when due from policyholders.
For universal life insurance and investment-type annuity
contracts previously sold by the Assurant Solutions segment
(no longer offered), revenues consist of charges assessed
against policy balances.
Premiums for LTC insurance and traditional life insurance
contracts within FFG are recognized as revenue when due
from the policyholder. For universal life insurance and
investment-type annuity contracts within FFG, revenues
consist of charges assessed against policy balances. For
the FFG and LTC businesses previously sold, all revenue
is ceded.
Short Duration Contracts
The Company’s short duration contracts revenue is recognized
over the contract term in proportion to the amount of
insurance protection provided. The Company’s short duration
F-14
ASSURANT, INC. – 2015 Form 10-K contracts primarily include group term life, group disability,
medical, dental, vision, property and warranty, credit life
and disability, and extended service contracts and individual
medical contracts issued from 2003 through 2006 in most
jurisdictions and in all jurisdictions after 2006.
Reinstatement premiums for reinsurance are netted against
net earned premiums in the consolidated statements
of operations.
Medical Loss Ratio Rebate Unearned Premium
Reserve
The Affordable Care Act was signed into law in March 2010.
One provision of the Affordable Care Act, effective January 1,
2011, established a minimum medical loss ratio (“MLR”) designed
to ensure that a minimum percentage of premiums is paid for
clinical services or health care quality improvement activities.
The Affordable Care Act established an MLR of 80% for individual
and small group businesses and 85% for large group business.
If the actual loss ratios, calculated in a manner prescribed by
the Department of Health and Human Services (“HHS”), are
less than the required MLR, premium rebates are payable to
the policyholders by August 1 of the subsequent year.
The Company has estimated its 2015 impact of this regulation
based on definitions and calculation methodologies outlined
in the HHS regulations and guidance. The estimate was based
on separate projection models for the individual medical
and small group businesses using projections of expected
premiums, claims, and enrollment by state, legal entity, and
market for medical business subject to MLR requirements for
the MLR reporting year. In addition, the projection models
include quality improvement expenses, state assessments
and taxes. The premium rebate is presented as a reduction
of net earned premiums in the consolidated statement
of operations and included in unearned premiums in the
consolidated balance sheets.
Affordable Care Act Risk Mitigation Programs
Beginning in 2014, the Affordable Care Act introduced new and
significant premium stabilization programs. These programs,
discussed in further detail below, are meant to mitigate
the potential adverse impact to individual health insurers
as a result of Affordable Care Act provisions that became
effective January 1, 2014.
A three-year (2014-2016) reinsurance program provides
reimbursement to insurers for high cost individual business
sold on or off the public marketplaces. The reinsurance entity
established by HHS is funded by a per-member reinsurance
fee assessed on all commercial medical plans, including
self-insured group health plans. Only Affordable Care Act
individual plans are eligible for recoveries if claims exceed
a specified threshold, up to a reinsurance cap. Reinsurance
contributions associated with Affordable Care Act individual
plans are reported as a reduction in net earned premiums in
the consolidated statements of operations, and estimated
reinsurance recoveries are established as reinsurance
2 Summary of Significant Accounting Policies
recoverables in the consolidated balance sheets with an
offsetting reduction in policyholder benefits in the consolidated
statements of operations. Reinsurance fee contributions for
non-Affordable Care Act business are reported in underwriting,
general and administrative expenses in the consolidated
statements of operations.
A permanent risk adjustment program transfers funds from
insurers with lower risk populations to insurers with higher risk
populations based on the relative risk scores of participants
in Affordable Care Act plans in the individual and small group
markets, both on and off the public marketplaces. Based on the
risk of its members compared to the total risk of all members
in the same state and market, considering data obtained from
industry studies, the Company estimates its year-to-date risk
adjustment transfer amount. The Company records a risk
adjustment transfer receivable (payable) in premiums and
accounts receivable (unearned premiums) in the consolidated
balance sheets, with an offsetting adjustment to net earned
premiums in the consolidated statements of operations.
A three year (2014-2016) risk corridor program limits insurer
gains and losses by comparing allowable medical costs to
a target amount as defined by HHS. This program applies
to a subset of Affordable Care Act eligible individual and
small group products certified as Qualified Health Plans.
The public marketplace can only sell Qualified Health Plans.
In addition, carriers who sell Qualified Health Plans on
the public marketplace can also sell them off the public
marketplace. Variances from the target amount exceeding
certain thresholds may result in amounts due to or due from
HHS. During 2015, the Company participated in the Federal
insurance public marketplace for several states so the risk
corridor program is applicable. However, as the funding status
for this program is unclear at this time, a 100% allowance
was established against recorded receivable amounts, thus
there is no impact on the Company’s 2015 consolidated
statement of operations. The Company does not anticipate
any payables into this program for 2015.
Total Other-Than-Temporary
Impairment Losses
For debt securities with credit losses and non-credit losses or
gains, total other-than-temporary impairment (“OTTI”) losses
is the total of the decline in fair value from either the most
recent OTTI determination or a prior period end in which the
fair value declined until the current period end valuation date.
This amount does not include any securities that had fair value
increases. For equity securities and debt securities that the
Company has the intent to sell or if it is more likely than not
that it will be required to sell for equity securities that have
an OTTI or for debt securities if there are only credit losses,
total other-than-temporary impairment losses is the total
amount by which the fair value of the security is less than its
amortized cost basis at the period end valuation date and the
decline in fair value is deemed to be other-than-temporary.
When a decline in value is considered to be other-than-
temporary for equity method investments, the carrying value of
these investments is written down, or impaired, to fair value.
F-15
ASSURANT, INC. – 2015 Form 10-K 2 Summary of Significant Accounting Policies
Fees and Other Income
Income earned on preneed life insurance policies with
discretionary death benefit growth issued after 2008 is
presented within fees and other income.
The Company also derives fees and other income from
providing administrative services, mobile related services,
and mortgage property risk management services. These
fees are recognized monthly when services are performed.
Dealer obligor service contracts are sales in which the retailer/
dealer is designated as the obligor (administrative service-
only plans). For these contract sales, the Company recognizes
administrative fee revenue on a straight-line pro-rata basis
over the terms of the service contract.
Administrator obligor service contracts are sales in which
the Company is designated as the obligor. The Company
recognizes and reports administration fees related to these
contracts as earned on the same basis as the premium is
recognized or on a straight-line pro-rata basis.
Administration fees related to the unexpired portion of the
contract term for both the dealer obligor and administrator
obligor service contracts are deferred and amortized over
the term of the contracts. These unexpired amounts are
reported in accounts payable and other liabilities on the
consolidated balance sheets.
Underwriting, General and Administrative
Expenses
Underwriting, general and administrative expenses consist
primarily of commissions, premium taxes, licenses, fees,
salaries and personnel benefits and other general operating
expenses and are expensed as incurred.
Leases
The Company records expenses for operating leases on a
straight-line basis over the lease term.
Contingencies
The Company evaluates each contingent matter separately.
A loss contingency is recorded if reasonably estimable and
probable. The Company establishes reserves for these
contingencies at the best estimate, or if no one estimated
number within the range of possible losses is more probable
than any other, the Company records an estimated reserve
at the low end of the estimated range. Contingencies
affecting the Company primarily relate to litigation matters
which are inherently difficult to evaluate and are subject to
significant changes. The Company believes the contingent
amounts recorded are reasonable.
Recent Accounting Pronouncements —
Adopted
On December 31, 2014, the Company adopted the amended
guidance on reporting discontinued operations and disclosures
of disposals of components of an entity. To qualify as a
discontinued operation under the amended guidance, a
component or group of components must represent a strategic
shift that has (or will have) a major effect on an entity’s
operations and financial results. The amended guidance
includes expanded disclosures for discontinued operations
and requires comparative balance sheet presentation. New
disclosures are also required for disposals of individually
significant components that do not qualify as discontinued
operations. The adoption of this amended guidance did
not impact the Company’s financial position or results of
operations.
On January 1, 2014, the Company adopted the new guidance
on presentation of an unrecognized tax benefit when a net
operating loss carryforward, a similar tax loss, or a tax credit
carryforward exists. The amendments in this guidance state
that an unrecognized tax benefit, or a portion thereof, should
be presented in the financial statements as a reduction to a
deferred tax asset for a net operating loss carryforward, a
similar tax loss, or a tax credit carryforward. An exception to
this guidance would be where a net operating loss carryforward
or similar tax loss or credit carryforward would not be available
under the tax law to settle any additional income taxes
that would result from the disallowance of a tax position,
or the tax law does not require the entity to use, and the
entity does not intend to use, the deferred tax asset for
such purpose. In such a case, the unrecognized tax benefit
should be presented in the financial statements as a liability
and should not be combined with deferred tax assets. The
adoption of this new presentation guidance did not impact
the Company’s financial position or results of operations.
On January 1, 2014, the Company adopted the other expenses
guidance that addresses how health insurers should recognize
and classify in their statements of operations fees mandated
by the Affordable Care Act. The Affordable Care Act imposes an
annual fee on health insurers for each calendar year beginning
on or after January 1, 2014. The amendments specify that
the liability for the fee should be estimated and recorded in
full once the entity provides qualifying health insurance in
the applicable calendar year in which the fee is payable with
a corresponding deferred cost that is amortized to expense
ratably over the calendar year during which it is payable. The
Company’s adoption of this guidance impacts the results of
our Assurant Health and Assurant Employee Benefits segments.
For the calendar year ended December 31, 2015 and 2014,
the Company ratably recorded $39,606 and $25,723,
respectively in underwriting, general and administrative
expenses in the consolidated statements of operations, and
paid, in full, the final assessment during the third quarter
of 2015 and 2014.
F-16
ASSURANT, INC. – 2015 Form 10-K Recent Accounting Pronouncements —
Not Yet Adopted
In January 2016, the Financial Accounting Standards Board
(“FASB”) issued amended guidance on the measurement
and classification of financial instruments. This amended
guidance requires that all equity investments be measured
at fair value with changes in fair value recognized through
net income (other than those accounted for under equity
method of accounting or those that result in consolidation
of the investee). The amendments also require an entity
to present separately in other comprehensive income the
portion of the total change in the fair value of a liability
resulting from a change in the instrument-specific credit risk
when the fair value option has been elected for financial
liabilities. The amendments eliminate the requirement to
disclose the methods and significant assumptions used to
estimate the fair value for financial instruments measured
at amortized cost, however public business entities will be
required to use the exit price when measuring the fair value
of financial instruments measured at amortized cost for
disclosure purposes. In addition, the new guidance requires
financial assets and financial liabilities to be presented
separately in the notes to the financial statements, grouped
by measurement category and form of financial asset. The
amended guidance is effective in fiscal years beginning after
December 15, 2017, including interim periods within those
fiscal years. Therefore, the Company is required to adopt
the guidance on January 1, 2018. For the provision related to
presentation of financial liabilities, early adoption is permitted
for financial statements that have not been previously issued.
The Company is evaluating the requirements of this amended
measurement and classification of financial instruments
guidance and the potential impact on the Company’s financial
position and results of operations.
In April 2015, the FASB issued amended guidance on
presentation of debt issuance costs. This amended guidance
requires that debt issuance costs be presented in the balance
sheet as a direct deduction from the carrying amount of the
debt liability, consistent with debt discounts or premiums.
The recognition and measurement guidance for debt issuance
costs is not affected by the amendments. The amended
guidance is effective for interim and annual periods beginning
after December 15, 2015. Therefore, the Company is required
to adopt the guidance on January 1, 2016. Early adoption of
the amended guidance is permitted for financial statements
that have not been previously issued. An entity should apply
the amended guidance on a retrospective basis, wherein the
balance sheet of each individual period presented should be
adjusted to reflect the period-specific effects of applying the
2 Summary of Significant Accounting Policies
new guidance. The Company does not expect the adoption of
this presentation guidance to impact the Company’s financial
position or results of operations.
In February 2015, the FASB issued new consolidation guidance
that affects reporting entities that are required to evaluate
whether they should consolidate certain legal entities. All
legal entities are subject to reevaluation under the revised
consolidation model. The new guidance eliminates specialized
guidance for limited partnerships and similar legal entities,
and removes the indefinite deferral for certain investment
funds. The new guidance is effective for interim and annual
periods beginning after December 15, 2015. Therefore, the
Company is required to adopt the guidance on January 1,
2016. Early adoption is permitted, including adoption
in an interim period. The new guidance may be applied
retrospectively or through a cumulative effect adjustment
to retained earnings as of the beginning of the year of
adoption. The Company does not expect the adoption of
this new consolidation guidance to have an impact on it’s
financial position or results of operations.
In May 2014, the FASB issued amended guidance on revenue
recognition. The amended guidance affects any entity that
either enters into contracts with customers to transfer
goods or services or enters into contracts for the transfer
of nonfinancial assets unless those contracts are within the
scope of other standards. Insurance contracts are within
the scope of other standards and therefore are specifically
excluded from the scope of the amended revenue recognition
guidance. The core principle of the amended guidance is
that an entity recognizes revenue to depict the transfer of
promised goods or services to customers in an amount that
reflects the consideration to which the entity expects to be
entitled in exchange for those goods or services. To achieve
the core principle, the entity applies a five step process
outlined in the amended guidance. The amended guidance also
includes a cohesive set of disclosure requirements. In August
2015, the FASB issued guidance to defer the effective date
of the revenue recognition guidance. The amended guidance
is effective for interim and annual periods beginning after
December 15, 2017 and earlier application is permitted only
as of annual reporting periods beginning after December 15,
2016, including interim reporting periods within that reporting
period. Therefore, the Company is required to adopt the
guidance on January 1, 2018. An entity can choose to apply
the amended guidance using either the full retrospective
approach or a modified retrospective approach. The Company
is evaluating the requirements of the revenue recognition
guidance as it relates to its non-insurance contract revenue
and the potential impact on the Company’s financial position
and results of operations.
F-17
ASSURANT, INC. – 2015 Form 10-K 4 Dispositions
3. Reorganization
On June 7, 2015, the Company concluded its comprehensive
review of strategic alternatives for the Assurant Health
business segment and decided to sharpen its focus on housing
and lifestyle specialty protection products and services.
The Company has begun a process to wind down its major
medical operations and expects to substantially complete its
exit from the health insurance market by the end of 2016.
As part of this process, Assurant reinsured its supplemental
and small-group self-funded lines of business and sold certain
legal entities to National General Holdings Corp. (“National
General”), effective October 1, 2015.
The following table presents information regarding exit-related charges:
Severance
and
retention
—
14,435
—
—
14,435
20,927
(10,728)
24,634
16,344
(4,413)
36,565
82,038
$
$
$
$
$
$
$
$
$
$
Long-
lived asset
impairments
and contract
and lease
terminations
Other
transaction
costs
— $
— $
22,307
(21,247)
—
1,060
13
(168)
905
17
(152)
770
27,651
$
$
$
$
4,996
(2,947)
—
2,049
5,795
(4,338)
3,506
795
(3,808)
493
11,586
$
$
$
$
$
$
Total
—
41,738
(24,194)
—
17,544
26,735
(15,234)
29,045
17,156
(8,373)
37,828
121,275
169,101
290,376
The premium deficiency reserve liability decreased $91,054 from
$169,101 at September 30, 2015 to $78,047 at December 31,
2015. The $91,054 decrease is consistent with the estimate
established at September 30, 2015.
Future cash payments, for these exit-related charges, are
expected to be substantially complete by 2016.
BALANCE AT JANUARY 1, 2015
Charges
Non-cash adjustment
Cash payments
BALANCE AT JUNE 30, 2015
Charges
Cash payments
BALANCE AT SEPTEMBER 30, 2015
Charges
Cash payments
BALANCE AT DECEMBER 31, 2015
Amount expected to be incurred
Premium deficiency reserves
TOTAL AMOUNT EXPECTED TO BE INCURRED
Amounts in the above table are included in underwriting, general
and administrative expenses on the Consolidated Statements
of Operations.
The total amount expected to be incurred is an estimate that
is subject to change as facts and circumstances evolve. For
instance, severance and retention estimates could change
if employees previously identified for separation resign
from the Company before the date through which they are
required to be employed in order to receive severance and
retention benefits.
4. Dispositions
On October 7, 2015, the Company sold certain assets
related to the Assurant Specialty Property’s automobile title
administration services business for cash consideration of
$19,600. The Company recognized a gain on sale of $16,773
in the fourth quarter 2015, which is classified in fees and
other income on the Consolidated Statements of Operations.
On October 1, 2015, the Company completed the sale of
Assurant Health’s supplemental and small-group self-funded
lines of business and certain assets to National General
Holdings Corp. (“National General”), for cash consideration
of $14,000, consisting primarily of a ceding commission. Since
the form of sale did not discharge the Company’s primary
liability to the insureds, a $5,336 gain on the disposal of
the small-group self-funded business was deferred and
reported as a liability as of the date of sale. The liability is
decreased and recognized as revenue over the estimated life
of contract terms. The Company will review and evaluate
the estimates affecting the deferred gain annually or when
significant information affecting the estimates becomes known
to the Company, and will adjust the revenue recognized
accordingly. Losses resulting from coinsurance transactions
are recognized immediately, thus in the fourth quarter 2015
the Company recognized a loss of $11,587, primarily related
to the write-off of deferred acquisition costs, on the sale of
the supplemental business. The loss on sale is classified in
underwriting, general and administrative expenses on the
F-18
ASSURANT, INC. – 2015 Form 10-K
5 Investments
Consolidated Statements of Operations. In the third quarter
of 2015, the Company recognized a tax benefit related to the
sale of these legal entities. See Note 8 for more information
on the tax benefit.
On September 9, 2015, the Company entered into a Master
Transaction Agreement with Sun Life Assurance Company of
Canada, a subsidiary of Sun Life Financial Inc., to sell its
Assurant Employee Benefits segment for cash consideration
of approximately $940,000 consisting primarily of a ceding
commission. The sale structure includes the following:
coinsurance agreements, with related trust accounts, for
the insurance business; stock sale for certain legal entities;
administrative agreement for certain non-insurance contracts;
and asset sale of certain software and fixed assets. The
transaction is subject to regulatory approvals and other
customary closing conditions and is expected to close in the
first quarter of 2016. The assets and liabilities related to the
coinsurance agreements do not qualify as held for sale. The
sale of the legal entities and other non-insurance assets and
liabilities meets the criteria for held for sale accounting as
of December 31, 2015.
As of December 31, 2015, the divested legal entities and
other non-insurance assets and liabilities had assets of
$83,004 (primarily consisting of $35,920 of investments
and cash and cash equivalents, $17,312 of premiums and
accounts receivable, $19,368 of property and equipment, and
$8,674 of other intangible assets) and liabilities of $14,923
(primarily consisting of $13,622 of accounts payable and
other liabilities). These assets and liabilities are classified as
held for sale and are included in other assets and accounts
payable and other liabilities in the Company’s Consolidated
Balance Sheets, respectively.
In January 2015, the Company completed the sale of its
general agency business and primary insurance carrier,
American Reliable Insurance Company (“ARIC”), to Global
Indemnity Group, Inc., a subsidiary of Global Indemnity plc,
for $117,860 in net cash consideration. The business was
part of the Assurant Specialty Property segment and offers
specialty personal lines and agricultural insurance through
general and independent agents. The sale price was based
on the GAAP book value of the business from June 30, 2014
adjusted as of January 1, 2015. In accordance with held for
sale accounting, the Company recorded a loss of $21,526 for
the period ended December 31, 2014. Upon final settlement,
the Company recorded gains (losses) of $5,284 and $(4,164)
for the three months ended March 31, 2015 and June 30,
2015, respectively. The $1,120 net gain recorded on the
sale is classified in underwriting, general and administrative
expenses on the Consolidated Statements of Operations.
As of December 31, 2014, the divested business had assets,
excluding goodwill, of $441,942 (primarily consisting of
$199,097 fixed maturity securities, $48,695 cash and cash
equivalents, $26,186 premiums and accounts receivable,
$105,603 reinsurance recoverables and $25,055 deferred
acquisition costs) and liabilities of $321,820 (primarily
consisting of $172,235 unearned premiums, $72,645 claims and
benefits payable and $54,949 funds held under reinsurance).
These assets and liabilities are classified as held for sale and
are included in other assets and accounts payable and other
liabilities in the Company’s Consolidated Balance Sheets,
respectively. The loss associated with the divested business of
$21,526 includes a $15,451 goodwill write-off and is classified
in underwriting, general and administrative expenses on the
Consolidated Statements of Operations.
5.
Investments
The following tables show the cost or amortized cost, gross unrealized gains and losses, fair value and other-than-temporary
impairment (“OTTI”) of the Company’s fixed maturity and equity securities as of the dates indicated:
Fixed maturity securities:
United States Government and
government agencies and authorities
States, municipalities and political
subdivisions
Foreign governments
Asset-backed
Commercial mortgage-backed
Residential mortgage-backed
Corporate
TOTAL FIXED MATURITY SECURITIES
Equity securities:
Common stocks
Non-redeemable preferred stocks
TOTAL EQUITY SECURITIES
Cost or Amortized
Cost
Gross Unrealized
Gains
Gross Unrealized
Losses
Fair Value
OTTI
in AOCI(a)
December 31, 2015
$
150,681 $
3,891 $
(537) $
154,035 $
—
647,335
497,785
3,499
22,169
953,247
7,196,079
9,470,795 $
13,048 $
437,515
450,563 $
$
$
$
48,389
65,188
1,367
352
48,676
677,549
845,412 $
6,623 $
45,495
52,118 $
(94)
(723)
(204)
—
(3,409)
(95,912)
695,630
562,250
4,662
22,521
998,514
7,777,716
(100,879) $ 10,215,328 $
(7) $
19,664 $
(2,617)
(2,624) $
480,393
500,057 $
—
—
1,285
—
15,343
17,885
34,513
—
—
—
F-19
ASSURANT, INC. – 2015 Form 10-K
5 Investments
Cost or Amortized
Cost
Gross Unrealized
Gains
Gross Unrealized
Losses
Fair Value
OTTI
in AOCI(a)
December 31, 2014
$
(429) $
5,201 $
172,070 $
Fixed maturity securities:
United States Government and government
agencies and authorities
States, municipalities and political
subdivisions
Foreign governments
Asset-backed
Commercial mortgage-backed
Residential mortgage-backed
Corporate
TOTAL FIXED MATURITY SECURITIES
Equity securities:
—
Common stocks
—
Non-redeemable preferred stocks
TOTAL EQUITY SECURITIES
—
(a) Represents the amount of OTTI recognized in accumulated other comprehensive income (“AOCI”). Amount includes unrealized gains and losses on
(353)
(1,457)
(78)
—
(1,154)
(16,614)
(20,085) $ 11,263,174 $
703,167
591,981
3,917
44,907
911,004
7,621,054
10,048,100 $
67,027
74,339
1,680
1,109
58,876
1,026,927
1,235,159 $
769,841
664,863
5,519
46,016
968,726
8,631,367
—
—
1,570
—
17,732
21,612
40,914
15,651 $
50,975
66,626 $
461,457
499,407 $
412,575
434,875 $
(2,093)
(2,094) $
176,842 $
37,950 $
22,300 $
(1) $
—
$
$
$
impaired securities relating to changes in the value of such securities subsequent to the impairment measurement date.
The Company’s states, municipalities and political subdivisions
holdings are highly diversified across the U.S. and Puerto
Rico, with no individual state’s exposure (including both
general obligation and revenue securities) exceeding 0.5%
of the overall investment portfolio as of December 31, 2015
and 2014. At December 31, 2015 and 2014, the securities
include general obligation and revenue bonds issued by
states, cities, counties, school districts and similar issuers,
including $319,654 and $270,107, respectively, of advance
refunded or escrowed-to-maturity bonds (collectively referred
to as “pre-refunded bonds”), which are bonds for which an
irrevocable trust has been established to fund the remaining
payments of principal and interest. As of December 31,
2015 and 2014, revenue bonds account for 50% and 51% of
the holdings, respectively. Excluding pre-refunded revenue
bonds, the activities supporting the income streams of the
Company’s revenue bonds are across a broad range of sectors,
primarily highway, water, transit, airport and marina, higher
education, specifically pledged tax revenues, and other
miscellaneous sources such as bond banks, finance authorities
and appropriations.
The Company’s investments in foreign government fixed
maturity securities are held mainly in countries and currencies
where the Company has policyholder liabilities, which allow
the assets and liabilities to be more appropriately matched.
At December 31, 2015, approximately 79%, 8%, and 5% of
the foreign government securities were held in the Canadian
government/provincials and the governments of Brazil and
Germany, respectively. At December 31, 2014, approximately
76%, 10% and 5% of the foreign government securities were
held in the Canadian government/provincials and the
governments of Brazil and Germany, respectively. No other
country represented more than 3% of the Company’s foreign
government securities as of December 31, 2015 and 2014.
The Company has European investment exposure in its
corporate fixed maturity and equity securities of $888,923
with a net unrealized gain of $67,957 at December 31, 2015
and $1,060,655 with a net unrealized gain of $116,975 at
December 31, 2014. Approximately 25% and 22% of the
corporate European exposure is held in the financial industry
at December 31, 2015 and 2014, respectively. The Company’s
largest European country exposure represented approximately
5% of the fair value of the Company’s corporate securities
as of December 31, 2015 and 2014. Approximately 6% of the
fair value of the corporate European securities are pound
and euro-denominated and are not hedged to U.S. dollars,
but held to support those foreign-denominated liabilities.
The Company’s international investments are managed as
part of the overall portfolio with the same approach to risk
management and focus on diversification.
The Company has exposure to the energy sector in its
corporate fixed maturity securities of $779,720 with a net
unrealized loss of $6,985 at December 31, 2015 and $992,012
with a net unrealized gain of $89,590 at December 31,
2014. Approximately 89% of the energy exposure is rated as
investment grade as of December 31, 2015 and 2014.
The cost or amortized cost and fair value of fixed maturity
securities at December 31, 2015 by contractual maturity are
shown below. Expected maturities may differ from contractual
maturities because issuers of the securities may have the
right to call or prepay obligations with or without call or
prepayment penalties.
F-20
ASSURANT, INC. – 2015 Form 10-K
5 Investments
Due in one year or less
Due after one year through five years
Due after five years through ten years
Due after ten years
TOTAL
Asset-backed
Commercial mortgage-backed
Residential mortgage-backed
TOTAL
Major categories of net investment income were as follows:
$
$
Cost or Amortized Cost
324,097 $
Fair Value
327,824
1,984,818
2,171,426
4,705,563
9,189,631
4,662
22,521
998,514
9,470,795 $ 10,215,328
1,904,357
2,121,934
4,141,492
8,491,880
3,499
22,169
953,247
Fixed maturity securities
Equity securities
Commercial mortgage loans on real estate
Policy loans
Short-term investments
Other investments
Cash and cash equivalents
Total investment income
Investment expenses
NET INVESTMENT INCOME
$
$
$
$
Years Ended December 31,
2015
486,165
29,957
72,658
2,478
2,033
37,759
18,416
649,466
(23,249)
626,217 $
2014
522,309
28,014
73,959
2,939
1,950
34,527
18,556
682,254
(25,825)
656,429 $
2013
530,144
27,013
76,665
3,426
2,156
20,573
14,679
674,656
(24,360)
650,296
No material investments of the Company were non-income producing for the years ended December 31, 2015, 2014 and 2013.
The following table summarizes the proceeds from sales of available-for-sale securities and the gross realized gains and
gross realized losses that have been included in earnings as a result of those sales.
Proceeds from sales
Gross realized gains
Gross realized losses
$
For the Years Ended December 31,
2015
2,568,166 $
65,097
31,657
2014
1,995,368 $
69,184
10,681
2013
2,821,177
81,921
50,667
For securities sold at a loss during 2015, the average period of time these securities were trading continuously at a price
below book value was approximately 6 months.
The following table sets forth the net realized gains (losses), including other-than-temporary impairments, recognized in
the statement of operations as follows:
Net realized gains (losses) related to sales and other:
Fixed maturity securities
Equity securities
Commercial mortgage loans on real estate
Other investments
TOTAL NET REALIZED GAINS RELATED TO SALES AND OTHER
Net realized losses related to other-than-temporary impairments:
Fixed maturity securities
Other investments
Total net realized losses related to other-than-temporary impairments
TOTAL NET REALIZED GAINS
Years Ended December 31,
2015
2014
2013
$
$
$
13,322
19,016
817
3,695
36,850
(5,024)
—
(5,024)
31,826 $
$
54,200
6,190
532
(109)
60,813
(30)
—
(30)
60,783 $
14,579
19,789
2,515
2,029
38,912
(3,295)
(1,092)
(4,387)
34,525
F-21
ASSURANT, INC. – 2015 Form 10-K
5 Investments
Other-Than-Temporary Impairments
The Company follows the OTTI guidance, which requires entities
to separate an OTTI of a debt security into two components
when there are credit related losses associated with the
impaired debt security for which the Company asserts that it
does not have the intent to sell, and it is more likely than not
that it will not be required to sell before recovery of its cost
basis. Under the OTTI guidance, the amount of the OTTI related
to a credit loss is recognized in earnings, and the amount of
the OTTI related to other, non-credit factors (e.g., interest
rates, market conditions, etc.) is recorded as a component
of other comprehensive income. In instances where no credit
loss exists but the Company intends to sell the security or it
is more likely than not that the Company will have to sell the
debt security prior to the anticipated recovery, the decline
in market value below amortized cost is recognized as an
OTTI in earnings. In periods after the recognition of an OTTI
on debt securities, the Company accounts for such securities
as if they had been purchased on the measurement date of
the OTTI at an amortized cost basis equal to the previous
amortized cost basis less the OTTI recognized in earnings. For
debt securities for which OTTI was recognized in earnings,
the difference between the new amortized cost basis and
the cash flows expected to be collected will be accreted or
amortized into net investment income.
For the twelve months ended December 31, 2015 and 2014,
the Company recorded $7,212 and $69, respectively, of OTTI,
of which $5,024 and $30 was related to credit losses and
recorded as net OTTI losses recognized in earnings, with the
remaining amounts of $2,188 and $39, respectively, related
to all other factors and was recorded as an unrealized loss
component of AOCI.
The following table sets forth the amount of credit loss impairments recognized within the results of operations on fixed
maturity securities held by the Company as of the dates indicated, for which a portion of the OTTI loss was recognized in
AOCI, and the corresponding changes in such amounts.
Balance, beginning of year
Additions for credit loss impairments recognized in the current period on securities
previously impaired
Additions for credit loss impairments recognized in the current period on securities not
previously impaired
Reductions for increases in cash flows expected to be collected that are recognized over
the remaining life of the security
Reductions for credit loss impairments previously recognized on securities which matured,
paid down, prepaid or were sold during the period
Years Ended December 31,
2015
$ 35,424
2014
$ 45,278
$
2013
95,589
—
2,621
30
—
107
—
(2,398)
(5,248)
(1,851)
(3,270)
(4,636)
$ 32,377 $ 35,424 $
(48,567)
45,278
BALANCE, END OF YEAR
The Company regularly monitors its investment portfolio
to ensure investments that may be other-than-temporarily
impaired are timely identified, properly valued, and charged
against earnings in the proper period. The determination
that a security has incurred an other-than-temporary decline
in value requires the judgment of management. Assessment
factors include, but are not limited to, the length of time
and the extent to which the market value has been less
than cost, the financial condition and rating of the issuer,
whether any collateral is held, the intent and ability of
the Company to retain the investment for a period of time
sufficient to allow for recovery for equity securities and the
intent to sell or whether it is more likely than not that the
Company will be required to sell for fixed maturity securities.
Inherently, there are risks and uncertainties involved in
making these judgments. Changes in circumstances and
critical assumptions such as a continued weak economy, a
more pronounced economic downturn or unforeseen events
which affect one or more companies, industry sectors, or
countries could result in additional impairments in future
periods for other-than-temporary declines in value. Any
equity security whose price decline is deemed other-than-
temporary is written down to its then current market value
with the amount of the impairment reported as a realized
loss in that period. The impairment of a fixed maturity
security that the Company has the intent to sell or that it
is more likely than not that the Company will be required
F-22
to sell is deemed other-than-temporary and is written
down to its market value at the balance sheet date with
the amount of the impairment reported as a realized loss in
that period. For all other-than-temporarily impaired fixed
maturity securities that do not meet either of these two
criteria, the Company is required to analyze its ability to
recover the amortized cost of the security by calculating
the net present value of projected future cash flows. For
these other-than-temporarily impaired fixed maturity
securities, the net amount recognized in earnings is equal
to the difference between the amortized cost of the fixed
maturity security and its net present value.
The Company considers different factors to determine the
amount of projected future cash flows and discounting
methods for corporate debt and residential and commercial
mortgage-backed or asset-backed securities. For corporate
debt securities, the split between the credit and non-
credit losses is driven principally by assumptions regarding
the amount and timing of projected future cash flows.
The net present value is calculated by discounting the
Company’s best estimate of projected future cash flows
at the effective interest rate implicit in the security at
the date of acquisition. For residential and commercial
mortgage-backed and asset-backed securities, cash flow
estimates, including prepayment assumptions, are based
on data from widely accepted third-party data sources or
ASSURANT, INC. – 2015 Form 10-K 5 Investments
internal estimates. In addition to prepayment assumptions,
cash flow estimates vary based on assumptions regarding
the underlying collateral including default rates, recoveries
and changes in value. The net present value is calculated
by discounting the Company’s best estimate of projected
future cash flows at the effective interest rate implicit
in the fixed maturity security prior to impairment at the
balance sheet date. The discounted cash flows become the
new amortized cost basis of the fixed maturity security.
In periods subsequent to the recognition of an OTTI, the
Company generally accretes the discount (or amortizes
the reduced premium) into net investment income, up to
the non-discounted amount of projected future cash flows,
resulting from the reduction in cost basis, based upon the
amount and timing of the expected future cash flows over
the estimated period of cash flows.
The investment category and duration of the Company’s gross unrealized losses on fixed maturity securities and equity
securities at December 31, 2015 and 2014 were as follows:
Fixed maturity securities:
United States Government and
government agencies and authorities
States, municipalities and political
subdivisions
Foreign governments
Asset-backed
Residential mortgage-backed
Corporate
TOTAL FIXED MATURITY SECURITIES
Equity securities:
Common stock
Non-redeemable preferred stocks
TOTAL EQUITY SECURITIES
Fixed maturity securities:
United States Government and
government agencies and authorities
States, municipalities and political
subdivisions
Foreign governments
Asset-backed
Residential mortgage-backed
Corporate
TOTAL FIXED MATURITY SECURITIES
Equity securities:
Common stock
Non-redeemable preferred stocks
TOTAL EQUITY SECURITIES
Less than 12 months
Fair Value
Unrealized
Losses
December 31, 2015
12 Months or More
Total
Fair Value
Unrealized
Losses
Fair Value
Unrealized
Losses
$
90,008 $
(465) $
5,564 $
(72) $
95,572 $
(537)
6,881
24,071
—
260,620
1,636,457
$ 2,018,037 $
(94)
(347)
—
(3,179)
(85,247)
(89,332) $
—
22,239
1,136
11,147
54,029
94,115 $
(94)
6,881
—
(723)
46,310
(376)
(204)
1,136
(204)
(3,409)
271,767
(230)
(10,665)
(95,912)
1,690,486
(11,547) $ 2,112,152 $ (100,879)
$
$
623 $
63,665
64,288 $
(7) $
(1,632)
(1,639) $
— $
13,806
13,806 $
— $
(985)
(985) $
623 $
77,471
78,094 $
(7)
(2,617)
(2,624)
Less than 12 months
Fair Value
Unrealized
Losses
December 31, 2014
12 Months or More
Total
Fair Value
Unrealized
Losses
Fair Value
Unrealized
Losses
$
34,551 $
(188) $
21,488 $
(241) $
56,039 $
(429)
3,050
19,886
—
22,337
640,641
720,465 $
(282)
(67)
—
(71)
(13,132)
(13,740) $
4,633
37,741
1,348
61,682
113,918
240,810 $
(71)
(1,390)
(78)
(1,083)
(3,482)
(6,345) $
7,683
57,627
1,348
84,019
754,559
961,275 $
(353)
(1,457)
(78)
(1,154)
(16,614)
(20,085)
— $
8,844
8,844 $
— $
(264)
(264) $
196 $
24,784
24,980 $
(1) $
196 $
(1,829)
(1,830) $
33,628
33,824 $
(1)
(2,093)
(2,094)
$
$
$
Total gross unrealized losses represent approximately 5% and
2% of the aggregate fair value of the related securities at
December 31, 2015 and 2014, respectively. Approximately
88% and 63% of these gross unrealized losses have been in
a continuous loss position for less than twelve months at
December 31, 2015 and 2014, respectively. The total gross
unrealized losses are comprised of 884 and 385 individual
securities at December 31, 2015 and 2014, respectively. In
accordance with its policy described above, the Company
concluded that for these securities an adjustment to its results
of operations for other-than-temporary impairments of the
gross unrealized losses was not warranted at December 31,
2015 and 2014. These conclusions were based on a detailed
analysis of the underlying credit and expected cash flows of
F-23
ASSURANT, INC. – 2015 Form 10-K
5 Investments
each security. As of December 31, 2015, the gross unrealized
losses that have been in a continuous loss position for twelve
months or more were concentrated in the Company’s corporate
fixed maturity securities and in non-redeemable preferred
stocks. The non-redeemable preferred stocks are perpetual
preferred securities that have characteristics of both debt and
equity securities. To evaluate these securities, the Company
applies an impairment model similar to that used for the
Company’s fixed maturity securities. As of December 31, 2015,
the Company did not intend to sell these securities and it was
not more likely than not that the Company would be required
to sell them and no underlying cash flow issues were noted.
Therefore, the Company did not recognize an OTTI on those
perpetual preferred securities that had been in a continuous
unrealized loss position for twelve months or more. As of
December 31, 2015, the Company did not intend to sell the
fixed maturity securities and it was not more likely than not that
the Company would be required to sell the securities before
the anticipated recovery of their amortized cost basis. The
gross unrealized losses are primarily attributable to widening
credit spreads associated with an underlying shift in overall
credit risk premium.
The cost or amortized cost and fair value of available-for-sale fixed maturity securities in an unrealized loss position at
December 31, 2015, by contractual maturity, is shown below:
Due in one year or less
Due after one year through five years
Due after five years through ten years
Due after ten years
TOTAL
Asset-backed
Residential mortgage-backed
TOTAL
Cost or Amortized Cost
$
52,077 $
469,320
754,402
660,716
1,936,515
1,340
275,176
2,213,031 $
$
Fair Value
51,667
459,930
720,632
607,020
1,839,249
1,136
271,767
2,112,152
The Company has exposure to sub-prime and related mortgages
within the Company’s fixed maturity security portfolio. At
December 31, 2015, approximately 2% of the residential
mortgage-backed holdings had exposure to sub-prime mortgage
collateral. This represented less than 1% of the total fixed
income portfolio and approximately 2% of the total unrealized
gain position. Of the securities with sub-prime exposure,
approximately 9% are rated as investment grade. All residential
mortgage-backed securities, including those with sub-prime
exposure, are reviewed as part of the ongoing other-than-
temporary impairment monitoring process.
The Company has entered into commercial mortgage loans,
collateralized by the underlying real estate, on properties
located throughout the U.S. and Canada. At December 31,
2015, approximately 41% of the outstanding principal balance
of commercial mortgage loans was concentrated in the states
of California, New York, and Oregon. Although the Company
has a diversified loan portfolio, an economic downturn could
have an adverse impact on the ability of its debtors to repay
their loans. The outstanding balance of commercial mortgage
loans range in size from $17 to $14,625 at December 31, 2015
and from $77 to $15,190 at December 31, 2014.
Credit quality indicators for commercial mortgage loans are
loan-to-value and debt-service coverage ratios. Loan-to-value
and debt-service coverage ratios are measures commonly
used to assess the credit quality of commercial mortgage
loans. The loan-to-value ratio compares the principal amount
of the loan to the fair value of the underlying property
collateralizing the loan, and is commonly expressed as a
percentage. The debt-service coverage ratio compares a
property’s net operating income to its debt-service payments
and is commonly expressed as a ratio. The loan-to-value and
debt-service coverage ratios are generally updated annually
in the third quarter.
The following summarizes the Company’s loan-to-value and average debt-service coverage ratios as of the dates indicated:
Loan-to-Value
70% and less
71 – 80%
81 – 95%
Greater than 95%
Gross commercial mortgage loans
Less valuation allowance
Net commercial mortgage loans
Carrying Value
1,101,572
$
% of Gross Mortgage Loans
95.5%
Debt-Service Coverage Ratio
2.01
December 31, 2015
39,080
8,370
4,816
1,153,838
(2,582)
1,151,256
$
3.4%
0.7%
0.4%
100.0%
1.19
1.05
3.52
1.98
F-24
ASSURANT, INC. – 2015 Form 10-K 5 Investments
Loan-to-Value
70% and less
71 – 80%
81 – 95%
Greater than 95%
Gross commercial mortgage loans
Less valuation allowance
Net commercial mortgage loans
Carrying Value
1,168,454
$
% of Gross Mortgage Loans
91.6%
Debt-Service Coverage Ratio
2.01
December 31, 2014
73,762
27,268
6,531
1,276,015
(3,399)
1,272,616
$
5.8%
2.1%
0.5%
100.0%
1.26
1.04
0.43
1.94
All commercial mortgage loans that are individually impaired
have an established mortgage loan valuation allowance for
losses. An additional valuation allowance is established for
incurred, but not specifically identified impairments. Changing
economic conditions affect the Company’s valuation of
commercial mortgage loans. Changing vacancies and rents
are incorporated into the discounted cash flow analysis
that the Company performs for monitored loans and may
contribute to the establishment of (or an increase or decrease
in) a commercial mortgage loan valuation allowance for
losses. In addition, the Company continues to monitor
the entire commercial mortgage loan portfolio to identify
risk. Areas of emphasis are properties that have exposure
to specific geographic events, have deteriorating credits
or have experienced a reduction in debt-service coverage
ratio. Where warranted, the Company has established or
increased a valuation allowance based upon this analysis.
The commercial mortgage loan valuation allowance for losses
was $2,582 and $3,399 at December 31, 2015 and 2014,
respectively. In 2015 and 2014, the loan valuation allowance
was decreased $817 and $1,083, respectively, due to changing
economic conditions and geographic concentrations.
At December 31, 2015, the Company had mortgage loan
commitments outstanding of approximately $6,350. The
Company is also committed to fund additional capital
contributions of $28,607 to partnerships.
The Company has short term investments and fixed maturities
of $441,851 and $519,659 at December 31, 2015 and 2014,
respectively, on deposit with various governmental authorities
as required by law.
The Company utilizes derivative instruments on a limited basis
to limit interest rate, foreign exchange and inflation risks and
bifurcates the options on certain securities where the option
is not clearly and closely related to the host instrument.
The derivatives do not qualify under GAAP as effective
hedges; therefore, they are marked-to-market on a quarterly
basis and the gain or loss is recognized in the statement of
operations in fees and other income, underwriting, general
and administrative expenses, and realized gains (losses). As of
December 31, 2015 and 2014, amounts related to derivative
assets were $6,715 and $9,040, respectively, while derivative
liabilities were $27,689 and $25,303, respectively, all of
which are included in the consolidated balance sheets. The
loss recorded in the results of operations totaled $5,298,
$7,453 and $703 for the years ended December 31, 2015,
2014 and 2013, respectively.
Variable Interest Entities
A VIE is a legal entity which does not have sufficient equity
at risk to allow the entity to finance its activities without
additional financial support or in which the equity investors,
as a group, do not have the characteristic of a controlling
financial interest. The Company’s investments in VIE’s include
private equity limited partnerships and real estate joint
ventures. These investments are generally accounted for
under the equity method and included in the consolidated
balance sheets in other investments. The Company’s maximum
exposure to loss with respect to these investments is limited
to the investment carrying amounts reported in the Company’s
consolidated balance sheet in addition to any required
unfunded commitments. As of December 31, 2015, the
Company’s maximum exposure to loss is $56,781 in recorded
carrying value and $28,607 in unfunded commitments.
Collateralized Transactions
As of December 31, 2015, the Company has terminated its
securities lending program and there are no outstanding
transactions.
In the past, the Company lent fixed maturity securities,
primarily bonds issued by the U.S. government and government
agencies and authorities, and U.S. corporations, to selected
broker/dealers. All such loans were negotiated on an overnight
basis; term loans were not permitted. The Company received
collateral, greater than or equal to 102% of the fair value
of the securities lent, plus accrued interest, in the form
of cash and cash equivalents held by a custodian bank for
the benefit of the Company. The use of cash collateral
received was unrestricted. The Company reinvested the
cash collateral received, generally in investments of high
credit quality that are designated as available-for-sale. The
Company monitored the fair value of securities loaned and
the collateral received, with additional collateral obtained,
as necessary. The Company was subject to the risk of loss
on the re-investment of cash collateral.
As of December 31, 2014, the Company’s collateral held
under securities lending agreements, of which its use was
unrestricted, was $95,985, and is included in the consolidated
balance sheets under the collateral held/pledged under
securities agreements. The Company’s liability to the borrower
for collateral received was $95,986, and is included in the
consolidated balance sheets under the obligation under
securities agreements. The difference between the collateral
held and obligations under securities lending is recorded as
F-25
ASSURANT, INC. – 2015 Form 10-K 6 Fair Value Disclosures
an unrealized gain (loss) and is included as part of AOCI.
The Company included the available-for-sale investments
purchased with the cash collateral in its evaluation of other-
than-temporary impairments.
Cash proceeds that the Company received as collateral for
the securities it lent and subsequent repayment of the cash
are regarded by the Company as cash flows from financing
activities, since the cash received was considered a borrowing.
Since the Company reinvested the cash collateral generally
in investments that were designated as available-for-sale,
the reinvestment is presented as cash flows from investing
activities.
6. Fair Value Disclosures
Fair Values, Inputs and Valuation Techniques for
Financial Assets and Liabilities Disclosures
The fair value measurements and disclosures guidance
defines fair value and establishes a framework for measuring
fair value. Fair value is defined as the price that would be
received to sell an asset or paid to transfer a liability in
an orderly transaction between market participants at the
measurement date. In accordance with this guidance, the
Company has categorized its recurring basis financial assets
and liabilities into a three-level fair value hierarchy based
on the priority of the inputs to the valuation technique.
The fair value hierarchy gives the highest priority to quoted
prices in active markets for identical assets or liabilities
(Level 1) and the lowest priority to unobservable inputs
(Level 3). The inputs used to measure fair value may fall into
different levels of the fair value hierarchy. In such cases,
the level in the fair value hierarchy within which the fair
value measurement in its entirety falls has been determined
based on the lowest level input that is significant to the fair
value measurement in its entirety. The Company’s assessment
of the significance of a particular input to the fair value
measurement in its entirety requires judgment, and takes
into account factors specific to the asset or liability.
The levels of the fair value hierarchy are described below:
••Level 1 inputs utilize quoted prices (unadjusted) in active
markets for identical assets or liabilities that the Company
can access.
••Level 2 inputs utilize other than quoted prices included in
Level 1 that are observable for the asset, either directly or
indirectly, for substantially the full term of the asset. Level 2
inputs include quoted prices for similar assets in active markets,
quoted prices for identical or similar assets in markets that
are not active and inputs other than quoted prices that are
observable in the marketplace for the asset. The observable
inputs are used in valuation models to calculate the fair value
for the asset.
••Level 3 inputs are unobservable but are significant to the fair
value measurement for the asset, and include situations where
there is little, if any, market activity for the asset. These inputs
reflect management’s own assumptions about the assumptions
a market participant would use in pricing the asset.
The Company reviews fair value hierarchy classifications on
a quarterly basis. Changes in the observability of valuation
inputs may result in a reclassification of levels for certain
securities within the fair value hierarchy.
F-26
ASSURANT, INC. – 2015 Form 10-K 6 Fair Value Disclosures
The following tables present the Company’s fair value hierarchy for assets and liabilities measured at fair value on a recurring
basis as of December 31, 2015 and 2014. The amounts presented below for Collateral held/pledged under securities agreements,
Other investments, Cash equivalents, Other assets, Assets and Liabilities held in separate accounts and Other liabilities
differ from the amounts presented in the consolidated balance sheets because only certain investments or certain assets and
liabilities within these line items are measured at estimated fair value. Other investments are comprised of investments in
the Assurant Investment Plan, American Security Insurance Company Investment Plan, Assurant Deferred Compensation Plan,
a modified coinsurance arrangement and other derivatives. Other liabilities are comprised of investments in the Assurant
Investment Plan and other derivatives. The fair value amount and the majority of the associated levels presented for Other
investments and Assets and Liabilities held in separate accounts are received directly from third parties.
Financial Assets
Fixed maturity securities:
Total
December 31, 2015
Level 1
Level 2
United States Government and government agencies and authorities
State, municipalities and political subdivisions
Foreign governments
Asset-backed
Commercial mortgage-backed
Residential mortgage-backed
Corporate
$
154,035 $
695,630
562,250
4,662
22,521
998,514
7,777,716
$
— $
—
944
—
—
—
—
154,035
695,630
561,306
4,662
22,317
998,514
7,714,570
Equity securities:
Common stocks
Non-redeemable preferred stocks
Short-term investments
Other investments
Cash equivalents
Other assets
Assets held in separate accounts
TOTAL FINANCIAL ASSETS
Financial Liabilities
Other liabilities
Liabilities related to separate accounts
TOTAL FINANCIAL LIABILITIES
19,664
480,393
508,950
253,708
908,936
1,320
1,750,556
$ 14,138,855 $
18,981
—
453,335b
62,076a
907,248b
—
1,570,000a
3,012,584 $ 11,058,012 $
683
478,143
55,615c
189,407c
1,688c
886e
180,556c
$
89,765 $
1,750,556
$ 1,840,321 $
62,076a $
1,570,000a
1,632,076 $
6e $
180,556c
180,562 $
Level 3
—
—
—
—
204
—
63,146
—
2,250
—
2,225d
—
434e
—
68,259
27,683e
—
27,683
F-27
ASSURANT, INC. – 2015 Form 10-K
6 Fair Value Disclosures
Financial Assets
Fixed maturity securities:
Total
December 31, 2014
Level 1
Level 2
United States Government and government agencies and authorities
State, municipalities and political subdivisions
Foreign governments
Asset-backed
Commercial mortgage-backed
Residential mortgage-backed
Corporate
$
176,842 $
769,841
664,863
5,519
46,016
968,726
8,631,367
$
— $
—
757
—
—
—
—
176,842
769,841
664,106
5,519
45,613
964,081
8,527,092
Level 3
—
—
—
—
403
4,645
104,275
—
2,000
—
—
2,121d
—
807e
—
114,251
37,950
461,457
345,246
74,985
272,755
683,142
1,674
1,854,193
$ 14,994,576 $
37,266
—
266,980b
67,783b
59,358a
635,804b
—
1,682,671a
2,750,619 $ 12,129,706 $
684
459,457
78,266c
7,202c
211,276c
47,338c
867e
171,522c
$
84,660 $
1,854,193
$ 1,938,853 $
59,358a $
1,682,671a
1,742,029 $
69e $
171,522c
171,591 $
25,233e
—
25,233
Equity securities:
Common stocks
Non-redeemable preferred stocks
Short-term investments
Collateral held/pledged under securities agreements
Other investments
Cash equivalents
Other assets
Assets held in separate accounts
TOTAL FINANCIAL ASSETS
Financial Liabilities
Other liabilities
Liabilities related to separate accounts
TOTAL FINANCIAL LIABILITIES
a. Mainly includes mutual funds.
b. Mainly includes money market funds.
c. Mainly includes fixed maturity securities.
d. Mainly includes fixed maturity securities and other derivatives.
e. Mainly includes derivatives.
There were no transfers between Level 1 and Level 2 financial
assets during 2015 or 2014. However, there were transfers
between Level 2 and Level 3 financial assets in 2015 and 2014,
which are reflected in the “Transfers in” and “Transfers out”
columns below. Transfers between Level 2 and Level 3 most
commonly occur from changes in the availability of observable
market information and re-evaluation of the observability
of pricing inputs. Any remaining unpriced securities are
submitted to independent brokers who provide non-binding
broker quotes or are priced by other qualified sources.
The following tables summarize the change in balance sheet carrying value associated with Level 3 financial assets and
liabilities carried at fair value during the years ended December 31, 2015 and 2014:
Year Ended December 31, 2015
Total
(losses)
gains
(realized/
unrealized)
included in
earnings(1)
Balance,
beginning
of period
Net unrealized
(losses) gains
included in
other
comprehensive
income(2) Purchases
Sales
Transfers
in(3)
Transfers
out(3)
Balance,
end of
period
Financial Assets
Fixed Maturity Securities
Commercial mortgage-backed
Residential mortgage-backed
Corporate
$
$
403
4,645
104,275
— $
1
591
(11) $
— $
(104)
(3,620)
9,721
6,523
(188) $
—
(7,167)
— $
—
30,302
— $
(14,263)
(67,758)
204
—
63,146
Equity Securities
Non-redeemable preferred
stocks
Other investments
Other assets
Financial Liabilities
Other liabilities
TOTAL LEVEL 3 ASSETS AND
LIABILITIES
F-28
2,000
2,121
807
—
34
(373)
250
(42)
—
—
—
—
—
(124)
—
(25,233)
(2,450)
—
77
(77)
—
236
—
—
—
—
—
—
2,250
2,225
434
(27,683)
$ 89,018
$
(2,197) $
(3,527) $ 16,321 $ (7,556) $ 30,538 $ (82,021) $ 40,576
ASSURANT, INC. – 2015 Form 10-K
6 Fair Value Disclosures
Year Ended December 31, 2014
Total
(losses)
gains
(realized/
unrealized)
included in
earnings(1)
Balance,
beginning
of period
Net unrealized
(losses) gains
included in
other
comprehensive
income(2) Purchases
Sales
Transfers
in(3)
Transfers
out(3)
Balance,
end of
period
$
$ 22,657
16,857
598
4,167
115,344
— $
(2)
—
—
2,438
— $
18
(18)
(78)
1,546
— $
—
—
4,723
— $
—
(177)
—
23,578 (16,958)
— $ (22,657) $
(16,873)
—
—
—
(4,167)
—
(23,188)
1,515
—
—
403
4,645
104,275
7,510
4,171
2,491
562
(2,174)
(1,684)
(517)
10
—
—
440
—
(3,779)
(128)
—
—
—
—
(1,776)
(198)
—
2,000
2,121
807
Financial Assets
Fixed Maturity Securities
States, municipalities and
political subdivisions
Foreign governments
Commercial mortgage-backed
Residential mortgage-backed
Corporate
Equity Securities
Non-redeemable preferred
stocks
Other investments
Other assets
Financial Liabilities
Other liabilities
TOTAL LEVEL 3 ASSETS AND
LIABILITIES
(1) Included as part of net realized gains on investments in the consolidated statement of operations.
(2) Included as part of change in unrealized gains on securities in the consolidated statement of comprehensive income.
(3) Transfers are primarily attributable to changes in the availability of observable market information and re-evaluation of the observability of
1,515 $ (68,859) $ 89,018
$ 24,660 $ (21,042) $
(1,682) $
$ 153,465
(25,233)
(20,330)
(4,081)
(822)
961
—
—
—
—
$
pricing inputs.
Three different valuation techniques can be used in
determining fair value for financial assets and liabilities:
the market, income or cost approaches. The three valuation
techniques described in the fair value measurements and
disclosures guidance are consistent with generally accepted
valuation methodologies. The market approach valuation
techniques use prices and other relevant information generated
by market transactions involving identical or comparable assets
or liabilities. When possible, quoted prices (unadjusted) in
active markets are used as of the period-end date (such as
for mutual funds and money market funds). Otherwise, the
Company uses valuation techniques consistent with the market
approach including matrix pricing and comparables. Matrix
pricing is a mathematical technique employed principally to
value debt securities without relying exclusively on quoted
prices for those securities but, rather, relying on the securities’
relationship to other benchmark quoted securities. Market
approach valuation techniques often use market multiples
derived from a set of comparables. Multiples might lie in
ranges with a different multiple for each comparable. The
selection of where within the range the appropriate multiple
falls requires judgment, considering both qualitative and
quantitative factors specific to the measurement.
Income approach valuation techniques convert future amounts,
such as cash flows or earnings, to a single present amount,
or a discounted amount. These techniques rely on current
market expectations of future amounts as of the period-end
date. Examples of income approach valuation techniques
include present value techniques, option-pricing models,
binomial or lattice models that incorporate present value
techniques and the multi-period excess earnings method.
Cost approach valuation techniques are based upon the amount
that would be required to replace the service capacity of an
asset at the period-end date, or the current replacement
cost. That is, from the perspective of a market participant
(seller), the price that would be received for the asset is
determined based on the cost to a market participant (buyer)
to acquire or construct a substitute asset of comparable
utility, adjusted for obsolescence.
While not all three approaches are applicable to all financial
assets or liabilities, where appropriate, the Company may
use one or more valuation techniques. For all the classes of
financial assets and liabilities included in the above hierarchy,
excluding certain derivatives and certain privately placed
corporate bonds, the Company generally uses the market
valuation technique. For certain privately placed corporate
bonds and certain derivatives, the Company generally uses
the income valuation technique. For the periods ended
December 31, 2015 and 2014, the application of the valuation
technique applied to the Company’s classes of financial assets
and liabilities has been consistent.
••Level 1 Securities
The Company’s investments and liabilities classified as Level 1
as of December 31, 2015 and 2014, consisted of mutual
funds and money market funds, foreign government fixed
maturities and common stocks that are publicly listed and/
or actively traded in an established market.
••Level 2 Securities
The Company values Level 2 securities using various observable
market inputs obtained from a pricing service. The pricing
F-29
ASSURANT, INC. – 2015 Form 10-K
6 Fair Value Disclosures
service prepares estimates of fair value measurements for
the Company’s Level 2 securities using proprietary valuation
models based on techniques such as matrix pricing which
include observable market inputs. The fair value measurements
and disclosures guidance defines observable market inputs
as the assumptions market participants would use in pricing
the asset or liability developed on market data obtained from
sources independent of the Company. The extent of the use
of each observable market input for a security depends on
the type of security and the market conditions at the balance
sheet date. Depending on the security, the priority of the use
of observable market inputs may change as some observable
market inputs may not be relevant or additional inputs may
be necessary. The Company uses the following observable
market inputs (“standard inputs”), listed in the approximate
order of priority, in the pricing evaluation of Level 2 securities:
benchmark yields, reported trades, broker/dealer quotes,
issuer spreads, two-sided markets, benchmark securities,
bids, offers and reference data including market research
data. Further details for Level 2 investment types follow:
United States Government and government agencies and
authorities: U.S. government and government agencies and
authorities securities are priced by the Company’s pricing
service utilizing standard inputs. Included in this category
are U.S. Treasury securities which are priced using vendor
trading platform data in addition to the standard inputs.
State, municipalities and political subdivisions: State,
municipalities and political subdivisions securities are priced
by the Company’s pricing service using material event notices
and new issue data inputs in addition to the standard inputs.
Foreign governments: Foreign government securities are
primarily fixed maturity securities denominated in Canadian
dollars which are priced by the Company’s pricing service using
standard inputs. The pricing service also evaluates each security
based on relevant market information including relevant credit
information, perceived market movements and sector news.
Commercial mortgage-backed, residential mortgage-
backed and asset-backed: Commercial mortgage-backed,
residential mortgage-backed and asset-backed securities
are priced by the Company’s pricing service using monthly
payment information and collateral performance information
in addition to the standard inputs. Additionally, commercial
mortgage-backed securities and asset-backed securities
utilize new issue data while residential mortgage-backed
securities utilize vendor trading platform data.
Corporate: Corporate securities are priced by the Company’s
pricing service using standard inputs. Non-investment grade
securities within this category are priced by the Company’s
pricing service using observations of equity and credit default
swap curves related to the issuer in addition to the standard
inputs. Certain privately placed corporate bonds are priced
by a non-pricing service source using a model with observable
inputs including, but not limited to, the credit rating, credit
spreads, sector add-ons, and issuer specific add-ons.
Non-redeemable preferred stocks: Non-redeemable preferred
stocks are priced by the Company’s pricing service using
observations of equity and credit default swap curves related
to the issuer in addition to the standard inputs.
Short-term investments, collateral held/pledged under
securities agreements, other investments, cash equivalents,
and assets/liabilities held in separate accounts: To price
the fixed maturity securities in these categories, the pricing
service utilizes the standard inputs.
Valuation models used by the pricing service can change
period to period, depending on the appropriate observable
inputs that are available at the balance sheet date to price
a security. When market observable inputs are unavailable
to the pricing service, the remaining unpriced securities are
submitted to independent brokers who provide non-binding
broker quotes or are priced by other qualified sources. If
the Company cannot corroborate the non-binding broker
quotes with Level 2 inputs, these securities are categorized
as Level 3 securities.
••Level 3 Securities
The Company’s investments classified as Level 3 as of
December 31, 2015 and 2014 consisted of fixed maturity
and equity securities and derivatives. All of the Level 3
fixed maturity and equity securities are priced using non-
binding broker quotes which cannot be corroborated with
Level 2 inputs. Of the Company’s total Level 3 fixed maturity
and equity securities, $304 and $63,614 were priced by a
pricing service using single broker quotes due to insufficient
information to provide an evaluated price as of December 31,
2015 and 2014, respectively. The single broker quotes are
provided by market makers or broker-dealers who are
recognized as market participants in the markets in which
they are providing the quotes. The remaining $65,600 and
$47,923 were priced internally using independent and non-
binding broker quotes as of December 31, 2015 and 2014,
respectively. The inputs factoring into the broker quotes
include trades in the actual bond being priced, trades of
comparable bonds, quality of the issuer, optionality, structure
and liquidity. Significant changes in interest rates, issuer
credit, liquidity, and overall market conditions would result
in a significantly lower or higher broker quote. The prices
received from both the pricing service and internally are
reviewed for reasonableness by management and if necessary,
management works with the pricing service or broker to
further understand how they developed their price. Further
details on Level 3 derivative investment types follow:
Other investments and other liabilities: The Company prices
swaptions using a Black-Scholes pricing model incorporating
third-party market data, including swap volatility data.
The Company prices credit default swaps using non-binding
quotes provided by market makers or broker-dealers who are
recognized as market participants. Inputs factored into the
non-binding quotes include trades in the actual credit default
swap which is being priced, trades in comparable credit
default swaps, quality of the issuer, structure and liquidity.
The net option related to the investment in Iké is valued using
an income approach; specifically, a Monte Carlo simulation
option pricing model. The inputs to the model include, but
are not limited to, the projected normalized earnings before
F-30
ASSURANT, INC. – 2015 Form 10-K interest, tax, depreciation, and amortization (EBITDA) and
free cash flow for the underlying asset, the discount rate, and
the volatility of and the correlation between the normalized
EBITDA and the value of the underlying asset. Significant
increases (decreases) in the projected normalized EBITDA
relative to the value of the underlying asset in isolation would
result in a significantly higher (lower) fair value.
Other assets: A non-pricing service source prices certain
derivatives using a model with inputs including, but not
limited to, the time to expiration, the notional amount,
the strike price, the forward rate, implied volatility and
the discount rate.
Management evaluates the following factors in order to
determine whether the market for a financial asset is inactive.
The factors include, but are not limited to:
••There are few recent transactions,
••Little information is released publicly,
••The available prices vary significantly over time or among
market participants,
••The prices are stale (i.e., not current), and
••The magnitude of the bid-ask spread.
Illiquidity did not have a material impact in the fair value
determination of the Company’s financial assets.
The Company generally obtains one price for each financial
asset. The Company performs a monthly analysis to assess if
the evaluated prices represent a reasonable estimate of their
fair value. This process involves quantitative and qualitative
analysis and is overseen by investment and accounting
professionals. Examples of procedures performed include,
but are not limited to, initial and on-going review of pricing
service methodologies, review of the prices received from the
pricing service, review of pricing statistics and trends, and
comparison of prices for certain securities with two different
appropriate price sources for reasonableness. Following this
analysis, the Company generally uses the best estimate of
fair value based upon all available inputs. On infrequent
occasions, a non-pricing service source may be more familiar
with the market activity for a particular security than the
pricing service. In these cases the price used is taken from
the non-pricing service source. The pricing service provides
information to indicate which securities were priced using
market observable inputs so that the Company can properly
categorize the Company’s financial assets in the fair value
hierarchy.
For the net option, the Company performs a periodic analysis
to assess if the evaluated price represents a reasonable
estimate of the fair value for the financial liability. This process
involves quantitative and qualitative analysis overseen by
finance and accounting professionals. Examples of procedures
performed include, but are not limited to, initial and on-
going review of the pricing methodology and review of the
projection for the underlying asset including the probability
distribution of possible scenarios.
6 Fair Value Disclosures
Disclosures for Non-Financial Assets Measured
at Fair Value on a Non-Recurring Basis
The Company also measures the fair value of certain assets
on a non-recurring basis, generally on an annual basis, or
when events or changes in circumstances indicate that the
carrying amount of the assets may not be recoverable. These
assets include commercial mortgage loans, goodwill and
finite-lived intangible assets.
For its 2015 fourth quarter annual goodwill impairment tests,
a qualitative assessment was performed for the Assurant
Solutions and Assurant Specialty Property reporting units.
Based on these assessments, it was determined that it was
not necessary to perform a Step 1 quantitative goodwill
impairment test for the Assurant Solutions and Assurant
Specialty Property reporting units and that it is more-likely-
than-not that the fair value of each reporting unit continues
to exceed its net book value at year-end 2015.
For its 2014 fourth quarter annual goodwill impairment test,
the Company performed a Step 1 analysis for the Assurant
Solutions and Assurant Specialty Property reporting units.
Based on these analyses, it was determined that goodwill
was not impaired at either reporting unit. The Company
utilized both the income and market valuation approaches
to measure the fair value of its reporting units. Under the
income approach, the Company determined the fair value
of the reporting units considering distributable earnings,
which were estimated from operating plans. The resulting
cash flows were then discounted using a market participant
weighted average cost of capital estimated for the reporting
units. After discounting the future discrete earnings to their
present value, the Company estimated the terminal value
attributable to the years beyond the discrete operating plan
period. The discounted terminal value was then added to
the aggregate discounted distributable earnings from the
discrete operating plan period to estimate the fair value
of the reporting units. Under the market approach, the
Company derived the fair value of the reporting units based
on various financial multiples, including but not limited to:
price to tangible book value of equity, price to estimated
2013 earnings and price to estimated 2014 earnings, which
were estimated based on publicly available data related
to comparable guideline companies. In addition, financial
multiples were also estimated from publicly available purchase
price data for acquisitions of companies operating in the
insurance industry. The estimated fair value of the reporting
units was more heavily weighted towards the income approach
because in that economic environment the earnings capacity
of a business was generally considered the most important
factor in the valuation of a business enterprise. This fair value
determination was categorized as Level 3 (unobservable) in
the fair value hierarchy. See Note 11 for further information.
There was no remaining goodwill or material other intangible
assets measured at fair value on a non-recurring basis on
which an impairment charge was recorded as of December 31,
2015, 2014 and 2013.
F-31
ASSURANT, INC. – 2015 Form 10-K 6 Fair Value Disclosures
Fair Value of Financial Instruments Disclosures
The financial instruments guidance requires disclosure of fair
value information about financial instruments, as defined
therein, for which it is practicable to estimate such fair
value. Therefore, it requires fair value disclosure for financial
instruments that are not recognized or are not carried at
fair value in the consolidated balance sheets. However, this
guidance excludes certain financial instruments, including
those related to insurance contracts and those accounted
for under the equity method and joint ventures guidance
(such as real estate joint ventures).
For the financial instruments included within the following
financial assets and financial liabilities, the carrying value in
the consolidated balance sheets equals or approximates fair
value. Please refer to the Fair Value Inputs and Valuation
Techniques for Financial Assets and Liabilities Disclosures
section above for more information on the financial instruments
included within the following financial assets and financial
liabilities and the methods and assumptions used to estimate
fair value:
••Cash and cash equivalents
••Fixed maturity securities
••Equity securities
••Short-term investments
••Collateral held/pledged under securities agreements
••Other investments
••Other assets
••Assets held in separate accounts
••Other liabilities
••Liabilities related to separate accounts
In estimating the fair value of the financial instruments that
are not recognized or are not carried at fair value in the
consolidated balance sheets, the Company used the following
methods and assumptions:
Commercial mortgage loans: the fair values of mortgage
loans are estimated using discounted cash flow models.
The model inputs include mortgage amortization schedules
and loan provisions, an internally developed credit spread
based on the credit risk associated with the borrower and
the U.S. Treasury spot curve. Mortgage loans with similar
characteristics are aggregated for purposes of the calculations.
Policy loans: the carrying value of policy loans reported in
the consolidated balance sheets approximates fair value.
Other investments: Other investments include equity
investments accounted for under the cost method, real
estate held for sale, Certified Capital Company and low
income housing tax credits, business debentures, credit
tenant loans and social impact loans which are recorded at
cost or amortized cost. The carrying value reported for these
investments approximates fair value. Due to the nature of
these investments, there is a lack of liquidity in the primary
market which results in the holdings being classified as Level 3.
Policy reserves under investment products: the fair values for
the Company’s policy reserves under investment products are
determined using discounted cash flow analysis. Key inputs
to the valuation include projections of policy cash flows,
reserve run-off, market yields and risk margins.
Funds held under reinsurance: the carrying value reported
approximates fair value due to the short maturity of the
instruments.
Debt: the fair value of debt is based upon matrix pricing
performed by the pricing service utilizing the standard inputs.
Obligation under securities agreements: obligation under
securities agreements is reported at the amount of cash
received from the selected broker/dealers.
The following tables disclose the carrying value, fair value amount and hierarchy level of the financial instruments that are
not recognized or are not carried at fair value in the consolidated balance sheets:
Carrying Value
Total
Level 1
Level 2
Level 3
December 31, 2015
Fair Value
Financial Assets
Commercial mortgage loans on real estate
Policy loans
Other investments
TOTAL FINANCIAL ASSETS
Financial Liabilities
Policy reserves under investment products
(Individual and group annuities, subject to
discretionary withdrawal)(1)
Funds withheld under reinsurance
Debt
TOTAL FINANCIAL LIABILITIES
$
$
$
$
1,151,256 $
43,858
27,534
1,222,648 $
1,201,806 $
43,858
27,534
1,273,198 $
— $
43,858
—
43,858 $
— $
—
—
— $
1,201,806
—
27,534
1,229,340
666,068 $
94,417
1,171,382
1,931,867 $
676,586 $
94,417
1,250,602
2,021,605 $
— $
94,417
—
94,417 $
— $
—
1,250,602
1,250,602 $
676,586
—
—
676,586
F-32
ASSURANT, INC. – 2015 Form 10-K
8 Income Taxes
Carrying Value
Total
Level 1
Level 2
Level 3
December 31, 2014
Fair Value
$
— $
1,272,616 $
48,272
10,896
1,331,784 $
Financial Assets
Commercial mortgage loans on real estate
Policy loans
Other investments
TOTAL FINANCIAL ASSETS
Financial Liabilities
Policy reserves under investment products
(Individual and group annuities, subject to
discretionary withdrawal)(1)
764,949
—
Funds withheld under reinsurance
—
Debt
—
Obligations under securities agreements
TOTAL FINANCIAL LIABILITIES
764,949
(1) Only the fair value of the Company’s policy reserves for investment-type contracts (those without significant mortality or morbidity risk) is
743,951 $
75,161
1,171,079
95,986
2,086,177 $
764,949 $
75,161
1,296,139
95,986
2,232,235 $
1,448,215 $
48,272
10,896
1,507,383 $
— $
—
1,296,139
—
75,161
—
95,986
171,147 $
1,448,215
—
10,896
1,459,111
— $
—
—
— $
48,272
—
1,296,139 $
48,272 $
— $
$
$
$
reflected in the table above.
7. Premiums and Accounts Receivable
Receivables are reported net of an allowance for uncollectible amounts. A summary of such receivables is as follows:
Insurance premiums receivable
Other receivables
Allowance for uncollectible amounts
TOTAL
8.
Income Taxes
As of December 31,
2015
1,092,136
196,277
(27,696)
1,260,717
$
$
2014
1,275,440
201,758
(31,568)
1,445,630
$
$
The Company and the majority of its subsidiaries are subject to U.S. tax and file a U.S. consolidated federal income tax
return. Information about domestic and foreign pre-tax income as well as current and deferred tax expense follows:
Pre-tax income:
Domestic
Foreign
TOTAL PRE-TAX INCOME
Current expense:
Federal & state
Foreign
Total current expense
Deferred expense (benefit):
Federal & state
Foreign
Total deferred (benefit) expense
TOTAL INCOME TAX EXPENSE
Years Ended December 31,
2015
2014
2013
126,797
74,384
201,181
$
$
632,738
111,399
744,137
$
$
716,172
73,527
789,699
Years Ended December 31,
2015
2014
2013
40,643
22,851
63,494
173
(4,041)
(3,868)
59,626
$
$
162,483
46,593
209,076
72,645
(8,491)
64,154
273,230
$
$
129,204
35,188
164,392
131,336
5,064
136,400
300,792
$
$
$
$
F-33
ASSURANT, INC. – 2015 Form 10-K
8.
Income Taxes
8 Income Taxes
The provision for foreign taxes includes amounts attributable to income from U.S. possessions that are considered foreign
under U.S. tax laws. International operations of the Company are subject to income taxes imposed by the jurisdiction in
which they operate.
A reconciliation of the federal income tax rate to the Company’s effective income tax rate follows:
Federal income tax rate:
Reconciling items:
Non-taxable investment income
Foreign earnings(a)
Non deductible compensation
Non deductible health insurer fee
Sale of subsidiary
Other
2015
35.0%
December 31,
2014
35.0%
2013
35.0%
(6.8)
(5.2)
9.1
6.9
(8.0)
(1.4)
29.6%
(1.9)
(2.2)
3.8
1.1
—
0.9
36.7%
(1.7)
1.1
3.4
—
—
0.3
38.1%
EFFECTIVE INCOME TAX RATE:
(a) Results for all years primarily include tax expense (benefit) associated with the earnings of certain non-U.S. subsidiaries that are deemed
reinvested indefinitely and realization of foreign tax credits for certain other subsidiaries. In addition, 2015 reflects a 6.5% benefit related to a
Latin American reorganization and 2014 reflects a 2.6% benefit related to the conversion of Canadian branch operations of certain U.S. companies
to foreign corporate entities.
A reconciliation of the beginning and ending amount of unrecognized tax benefits for the years ended December 31, 2015,
2014 and 2013 is as follows:
Balance at beginning of year
Additions based on tax positions related to the current year
Reductions based on tax positions related to the current year
Additions for tax positions of prior years
Reductions for tax positions of prior years
Settlements
BALANCE AT END OF YEAR
The total unrecognized tax benefit of $35,618, $7,631, and
$12,510 for 2015, 2014, and 2013, respectively, which includes
interest, would impact the Company’s consolidated effective
tax rate if recognized. The liability for unrecognized tax
benefits is included in tax receivable and accounts payable
and other liabilities on the consolidated balance sheets.
The Company’s continuing practice is to recognize interest
expense related to income tax matters in income tax expense.
During the years ended December 31, 2015, 2014 and 2013,
the Company recognized approximately $169, $246 and
$375, respectively, of interest expense related to income tax
matters. The Company had $1,733 and $1,730, and $4,500 of
Years Ended December 31,
2015
$
(6,262) $
(30,712)
102
(2,128)
1,990
—
$
(37,010) $
2014
(10,322) $
(2,940)
581
(1,037)
2,495
4,961
(6,262) $
2013
(11,515)
(309)
995
(1,090)
959
638
(10,322)
interest accrued as of December 31, 2015, 2014 and 2013,
respectively. No penalties have been accrued.
The Company does not anticipate any significant increase
or decrease of unrecognized tax benefit within the next
12 months.
The Company and its subsidiaries file income tax returns
in the U.S. and various state and foreign jurisdictions. The
Company has substantially concluded all U.S. federal income
tax matters for years through 2011. Substantially all non-
U.S. income tax matters have been concluded for the years
through 2009, and all state and local income tax matters
have been concluded for the years through 2009.
F-34
ASSURANT, INC. – 2015 Form 10-K
The tax effects of temporary differences that result in significant deferred tax assets and deferred tax liabilities are as follows:
8 Income Taxes
Deferred Tax Assets
Policyholder and separate account reserves
Accrued liabilities
Investments, net
Net operating loss carryforwards
Deferred gain on disposal of businesses
Compensation related
Employee and post-retirement benefits
Unearned fee income
Other
Total deferred tax asset
Less valuation allowance
Deferred tax assets, net of valuation allowance
Deferred Tax Liabilities
Deferred acquisition costs
Net unrealized appreciation on securities
Total deferred tax liability
NET DEFERRED INCOME TAX LIABILITY
December 31,
2015
2014
$
568,053
32,257
140,785
40,479
32,362
28,289
115,904
50,931
48,548
1,057,608
(13,218)
1,044,390
$
498,231
23,183
168,061
50,103
35,347
24,029
111,716
55,765
40,584
1,007,019
(18,164)
988,855
(931,630)
(262,075)
(1,193,705)
$ (149,315)
(867,212)
(435,375)
(1,302,587)
$ (313,732)
The net deferred tax liability of $149,315 as of December 31,
2015 is comprised of $177,748 deferred tax liabilities and
$28,433 deferred tax assets, by jurisdiction. Similarly, the net
deferred tax liability of $313,732 as of December 31, 2014
is comprised of $341,290 deferred tax liabilities and $27,558
deferred tax assets, by jurisdiction.
The Company’s valuation allowance against deferred tax assets
decreased $4,946 to $13,218 at December 31, 2015 from $18,164
at December 31, 2014. A cumulative valuation allowance
of $13,218 has been recorded because it is management’s
assessment that it is more likely than not that only $1,044,390
of deferred tax assets will be realized. The valuation allowance
relates to the deferred tax assets attributable to certain
international subsidiaries.
The Company’s ability to realize deferred tax assets depends
on its ability to generate sufficient taxable income of the
same character within the carryback or carryforward periods.
In assessing future taxable income, the Company considered
all sources of taxable income available to realize its deferred
tax asset, including the future reversal of existing temporary
differences, future taxable income exclusive of reversing
temporary differences and carryforwards, taxable income in
carryback years and tax-planning strategies. If changes occur
in the assumptions underlying the Company’s tax planning
strategies or in the scheduling of the reversal of the Company’s
deferred tax liabilities, the valuation allowance may need to
be adjusted in the future.
Other than for certain wholly owned Canadian subsidiaries,
deferred taxes have not been provided on the undistributed
earnings of wholly owned foreign subsidiaries since the Company
intends to indefinitely reinvest the earnings in these other
jurisdictions. The cumulative amount of undistributed earnings
for which the Company has not provided deferred income taxes
is $198,325. Upon distribution of such earnings in a taxable
event, the Company would incur additional U.S. income taxes
of $21,285, net of anticipated foreign tax credits.
At December 31, 2015, the Company and its subsidiaries had $163,722 of net operating loss carryforwards in certain foreign
subsidiaries that will expire if unused as follows:
Expiration Year
2016 – 2020
2021 – 2025
2026 – 2030
2031 – 2035
Unlimited
Amount
31,205
7,436
4,140
19,200
101,741
163,722
$
$
F-35
ASSURANT, INC. – 2015 Form 10-K
10 Property and Equipment
9. Deferred Acquisition Costs
Information about deferred acquisition costs is as follows:
Beginning balance
$
$
2015
2,957,740
1,587,453
(1,394,259)
3,150,934 $
December 31,
2014
3,128,931
1,306,390
(1,477,581)
2,957,740 $
$
2013
2,861,163
1,729,613
(1,461,845)
3,128,931
Costs deferred and other(1)
Amortization
ENDING BALANCE
(1) Includes foreign currency translation, the adjustment previously disclosed in 2014 and the reclassification of assets held for sale as described
$
in Note 4.
10. Property and Equipment
Property and equipment consists of the following:
Land
Buildings and improvements
Furniture, fixtures and equipment
TOTAL
Less accumulated depreciation
TOTAL
As of December 31,
$
2015
14,884
262,769
478,717
756,370
(457,956)
298,414 $
2014
14,359
258,680
519,146
792,185
(514,540)
277,645
$
$
Depreciation expense for 2015, 2014 and 2013 amounted to $47,439, $47,670 and $50,652, respectively. Depreciation expense
is included in underwriting, general and administrative expenses in the consolidated statements of operations.
F-36
ASSURANT, INC. – 2015 Form 10-K 11. Goodwill
The Company has assigned goodwill to its operating segments for impairment testing purposes. The Corporate and Other
segment is not assigned goodwill. Below is a roll forward of goodwill by reportable segment.
11 Goodwill
Balance at December 31, 2013
Goodwill
Accumulated impairment losses
$
Acquisitions
Dispositions
Foreign currency translation and other
Balance at December 31, 2014
Goodwill
Accumulated impairment losses
Acquisitions
Dispositions
Foreign currency translation and other
Balance at December 31, 2015
Goodwill
Accumulated impairment losses
Solutions(1)
1,757,140
(1,260,939)
496,201
51,574
—
(8,122)
1,800,592
(1,260,939)
539,653
2,520
—
(13,080)
1,790,032
(1,260,939)
Specialty
Property
$
288,360 $
—
288,360
28,677
(15,451)
—
301,586
—
301,586
5,365
(2,532)
—
304,419
—
$
Health
204,303
(204,303)
—
—
—
—
204,303
(204,303)
—
—
—
—
204,303
(204,303)
Employee
Benefits
Consolidated
$
185,078
(185,078)
—
—
—
—
185,078
(185,078)
—
—
—
—
185,078
(185,078)
2,434,881
(1,650,320)
784,561
80,251
(15,451)
(8,122)
2,491,559
(1,650,320)
841,239
7,885
(2,532)
(13,080)
2,483,832
(1,650,320)
833,512
$
529,093 $
304,419 $
— $
— $
(1) The accumulated impairment loss relates to an acquisition made in 1999. The entity acquired had businesses that currently are primarily
represented by the Assurant Solutions and Assurant Specialty Property segments. Prior to 2006, the Assurant Solutions and Assurant Specialty
Property segments were combined and together called Assurant Solutions. Thus, the entire goodwill impairment recognized in 2002 due to the
adoption of FAS 142 is included in the tables under the Assurant Solutions segment.
In accordance with the goodwill guidance, goodwill is deemed
to have an indefinite life and should not be amortized, but
rather must be tested, at least annually, for impairment. In
addition, goodwill should be tested for impairment between
annual tests if an event occurs or circumstances change that
would “more likely than not” reduce the estimated fair value
of the reporting unit below its carrying value.
The goodwill impairment test has two steps. Step 1 of the test
identifies potential impairments at the reporting unit level,
which for the Company is the same as our operating segments,
by comparing the estimated fair value of each reporting unit
to its net book value. If the estimated fair value of a reporting
unit exceeds its net book value, there is no impairment of
goodwill and Step 2 is unnecessary. However, if the net book
value exceeds the estimated fair value, then Step 1 is failed, and
Step 2 is performed to determine the amount of the potential
impairment. Step 2 utilizes acquisition accounting guidance
and requires the fair value calculation of all individual assets
and liabilities of the reporting unit (excluding goodwill, but
including any unrecognized intangible assets). The net fair
value of assets less liabilities is then compared to the reporting
unit’s total estimated fair value as calculated in Step 1. The
excess of fair value over the net asset value equals the implied
fair value of goodwill. The implied fair value of goodwill is
then compared to the carrying value of goodwill to determine
the reporting unit’s goodwill impairment. Alternatively, the
amended intangibles- goodwill and other guidance provides
the option to first assess qualitative factors to determine
whether the existence of events or circumstances leads to
a determination that it is more likely than not that the fair
value of a reporting unit is less than its carrying amount. If,
after assessing the totality of events or circumstances, an
entity determines it is not more likely than not that the fair
value of a reporting unit is less than its carrying amount,
then performing the two-step impairment test is unnecessary.
However, if an entity concludes otherwise, then it is required
to perform the first step of the two-step impairment test,
described above.
In the fourth quarters of 2015, 2014 and 2013, the Company
conducted its annual assessments of goodwill. During the
year ended December 31, 2014, the Company changed its
annual testing date from November 30 to October 1. With
respect to its annual goodwill testing date, management
believes that this voluntary change in accounting method is
preferable as it better aligns the annual impairment testing
date with the Company’s strategic planning cycle, which is
a significant element in the testing process. This change in
annual testing date did not delay, accelerate or avoid an
impairment charge.
In 2015 for both Assurant Solutions and Assurant Specialty
Property reporting units and in 2013 for the Assurant Specialty
Property reporting unit, the Company chose the option
to perform a qualitative assessment under the amended
intangibles—goodwill and other guidance. The Company
performed a Step 1 test for the Assurant Solutions reporting
unit in 2014 and 2013 and for the Assurant Specialty Property
reporting unit in 2014. Based on these tests, it was determined
that goodwill was not impaired at either reporting unit.
F-37
ASSURANT, INC. – 2015 Form 10-K
12 VOBA and Other Intangible Assets
12. VOBA and Other Intangible Assets
Information about VOBA is as follows:
Beginning balance
Additions
Amortization, net of interest accrued
Foreign currency translation and other
ENDING BALANCE
$
$
$
For the Years Ended December 31,
2015
45,462
4,134
(8,314)
(128)
41,154
2014
53,549
—
(7,978)
(109)
45,462
$
$
$
2013
62,109
—
(8,442)
(118)
53,549
As of December 31, 2015, the entire outstanding balance of VOBA is from the Assurant Solutions segment with the majority
related to the preneed life insurance business. VOBA in the preneed life insurance business assumes an interest rate ranging
from 5.4% to 7.5%.
At December 31, 2015 the estimated amortization of VOBA for the next five years and thereafter is as follows:
Year
2016
2017
2018
2019
2020
Thereafter
TOTAL
Amount
9,066
7,820
7,021
6,645
6,289
4,313
41,154
$
$
Information about other intangible assets is as follows:
2015
2014
As of December 31,
Carrying Value
Accumulated
Amortization
47,134 $
(30,820) $
Net Other
Intangible
Assets
16,314
Carrying Value
Accumulated
Amortization
$
63,538 $
(36,221) $
Net Other
Intangible
Assets
27,317
Contract based intangibles $
Customer related
intangibles
Marketing related
intangibles
Technology based
intangibles
TOTAL
$
438,737
(212,542)
226,195
520,894
(212,326)
308,568
41,386
(20,977)
20,409
41,861
(15,686)
26,175
25,235
552,492 $
(10,990)
(275,329) $
14,245
277,163 $
25,235
651,528 $
(5,335)
(269,568) $
19,900
381,960
Other intangible assets amortization for 2015, 2014 and 2013 amounted to $71,664, $63,924 and $44,671, respectively.
Other intangible assets that have finite lives, including customer relationships, customer contracts and other intangible
assets, are amortized over their useful lives. The estimated amortization of other intangible assets are as follows:
Year
2016
2017
2018
2019
2020
Thereafter
TOTAL OTHER INTANGIBLE ASSETS WITH FINITE LIVES
Amount
67,079
59,782
47,081
30,837
26,276
46,108
277,163
$
$
F-38
ASSURANT, INC. – 2015 Form 10-K 13 Reserves
13. Reserves
The following table provides reserve information of the Company’s major product lines at the dates shown:
December 31, 2015
December 31, 2014
Claims and Benefits
Payable
Claims and Benefits
Payable
Future
Policy
Benefits and
Expenses
Unearned
Premiums
Case
Reserves
Incurred
But Not
Reported
Reserves
Future
Policy
Benefits and
Expenses
Unearned
Premiums
Case
Reserves
Incurred
But Not
Reported
Reserves
Long Duration
Contracts:
Preneed funeral life
insurance policies
and investment-type
annuity contracts
Life insurance no
longer offered
Universal life and
other products no
longer offered
FFG, LTC and other
disposed businesses
Medical
All other
Short Duration
Contracts:
Group term life
Group disability
Medical
Dental
Property and warranty
Credit life and
disability
Extended service
contracts
All other
TOTAL
$ 4,670,977 $
134,534 $
13,644 $
6,324
$ 4,618,505 $
4,872 $
14,696 $
6,456
407,360
427
2,360
1,070
418,672
570
2,272
1,301
153,801
118
773
1,674
168,808
136
704
1,959
4,129,233
68,353
36,970
47,132
742
404
973,614
1,465
12,855
103,652
2,321
10,836
4,153,741
87,563
36,383
46,585
7,254
382
881,514
1,959
13,863
97,524
7,886
9,803
—
—
—
—
—
—
2,431
1,984
25,401
4,244
2,223,589
166,920
1,092,841
235,516
1,587
182,095
30,857
100,155
253,295
16,454
507,310
2,905
—
1,564
—
130,185
—
4,013
—
— 2,386,719
169,006
1,127,068
137,370
2,251
130,517
28,786
107,961
240,830
17,037
546,979
181,466
25,966
35,718
—
241,092
34,581
43,298
33,928
57,270
$ 9,466,694 $ 6,423,720 $ 2,735,855 $ 1,160,864
3,669,859
131,389
7,258
18,961
—
—
42,054
18,776
$ 9,483,672 $ 6,529,675 $ 2,527,956 $ 1,170,650
— 3,568,352
135,046
—
6,780
5,375
F-39
ASSURANT, INC. – 2015 Form 10-K
13 Reserves
The following table provides a rollforward of the Company’s product lines with the most significant claims and benefits
payable balances: group term life, group disability, medical and property and warranty lines of business. Claims and benefits
payable is comprised of case and IBNR reserves.
Balance as of December 31, 2012,
gross of reinsurance(3)
Less: Reinsurance ceded and other(1)
Balance as of January 1, 2013, net of reinsurance
Incurred losses related to:
Current year
Prior year’s interest
Prior year(s)
Total incurred losses
Paid losses related to:
Current year
Prior year(s)
Total paid losses
Balance as of December 31, 2013,
net of reinsurance(3)
Plus: Reinsurance ceded and other(1)
Balance as of December 31, 2013,
gross of reinsurance(3)
Less: Reinsurance ceded and other(1)(4)
Balance as of January 1, 2014, net of reinsurance
Incurred losses related to:
Current year
Prior year’s interest
Prior year(s)
Total incurred losses
Paid losses related to:
Current year
Prior year(s)
Total paid losses
Balance as of December 31, 2014,
net of reinsurance(3)
Plus: Reinsurance ceded and other(1)
Balance as of December 31, 2014,
gross of reinsurance(3)
Less: Reinsurance ceded and other(1)
Balance as of January 1, 2015, net of reinsurance
Incurred losses related to:
Current year
Prior year’s interest
Prior year(s)
Total incurred losses
Paid losses related to:
Group Term
Life
Group
Disability
Short Duration
Medical(2)
Long Duration
Medical(2)
Property and
Warranty
$
203,757
(2,817)
200,940
$ 1,309,087
(38,166)
1,270,921
$
$
247,758
(16,447)
231,311
16,847
(736)
16,111
$ 1,167,058
(715,058)
452,000
121,708
7,773
(14,300)
115,181
75,119
43,694
118,813
197,308
2,463
284,005
56,705
(29,975)
310,735
70,236
278,559
348,795
1,232,861
38,990
1,097,313
—
(42,063)
1,055,250
894,533
184,824
1,079,357
207,204
14,978
110,933
—
(3,971)
106,962
98,183
11,869
110,052
13,021
618
1,140,500
—
(23,801)
1,116,699
802,130
310,660
1,112,790
455,909
183,315
$
199,771
(2,463)
197,308
$ 1,271,851
(38,990)
1,232,861
$
$
222,182
(14,978)
207,204
$
13,639
(618)
13,021
639,224
(229,038)
410,186
124,228
7,548
(16,560)
115,216
77,113
41,028
118,141
194,383
3,409
285,095
53,657
(36,003)
302,749
80,172
262,023
342,195
1,193,415
41,614
1,782,891
—
(51,352)
1,731,539
1,424,448
151,298
1,575,746
362,997
15,203
128,093
—
(4,044)
124,049
118,842
8,829
127,671
9,399
446
1,401,187
—
(2,848)
1,398,339
988,075
323,795
1,311,870
496,655
180,841
$
197,792
(3,409)
194,383
$ 1,235,029
(41,614)
1,193,415
$
$
378,200
(15,203)
362,997
$
9,845
(446)
9,399
677,496
(180,841)
496,655
132,330
7,317
(17,513)
122,134
264,077
51,798
(18,540)
297,335
2,404,632
—
(36,795)
2,367,837
80,845
—
(2,483)
78,362
1,105,991
—
(43,619)
1,062,372
82,847
38,643
121,490
Current year
Prior year(s)
Total paid losses
Balance as of December 31, 2015,
net of reinsurance(3)
Plus: Reinsurance ceded and other(1)
BALANCE AS OF DECEMBER 31, 2015, GROSS
OF REINSURANCE(3)
(1) Reinsurance ceded and other includes claims and benefits payable balances that have either been (a) reinsured to third parties, (b) established for
claims related expenses whose subsequent payment is not recorded as a paid claim, or (c) reserves established for obligations that would persist
even if contracts were cancelled (such as extension of benefits), which cannot be analyzed appropriately under a roll-forward approach.
752,752
317,589
1,070,341
2,016,726
318,327
2,335,053
76,000
263,412
339,412
77,427
6,709
84,136
1,151,338
41,658
195,027
2,750
395,781
93,030
488,686
200,719
$ 1,192,996
3,625
161
197,777
689,405
488,811
3,786
$
$
$
$
(2) Short duration and long duration medical methodologies used for settling claims and benefits payable are similar.
(3) The Company’s net retained credit life and disability claims and benefits payable were $33,852, $45,096 and $54,483 at December 31, 2015, 2014 and 2013.
(4) Includes the reclassification of assets held for sale as described in Note 4.
F-40
ASSURANT, INC. – 2015 Form 10-K
Short Duration Contracts
The Company’s short duration contracts are comprised of
group term life, group disability, medical, dental, property
and warranty, credit life and disability, extended service
contract and all other. The principal products and services
included in these categories are described in the summary
of significant accounting polices (see Note 2).
Case and IBNR reserves are developed using actuarial
principles and assumptions that consider, among other
things, contractual requirements, historical utilization
trends and payment patterns, benefit changes, medical
inflation, seasonality, membership, product mix, legislative
and regulatory environment, economic factors, disabled life
mortality and claim termination rates and other relevant
factors. The Company consistently applies the principles
and assumptions listed above from year to year, while
also giving due consideration to the potential variability
of these factors.
Since case and IBNR reserves include estimates developed
from various actuarial methods, the Company’s actual losses
incurred may be more or less than the Company’s previously
developed estimates. As shown in the table above, if the
amounts listed on the line labeled “Incurred losses related
to: Prior years” are negative (redundant) this means that
the Company’s actual losses incurred related to prior years
for these lines were less than the estimates previously
made by the Company. If the line labeled “Incurred losses
related to: Prior years” are positive (deficient) this means
that the Company’s actual losses incurred related to prior
years for these lines were greater than the estimates
previously made by the Company.
Medical reserves established for obligations that would
persist even if contracts were cancelled (such as extension
of benefits) have been excluded from the incurred loss roll-
forwards because they cannot be analyzed appropriately
under a rollforward approach. Affordable Care Act risk
mitigation accruals and payments have also been excluded
as they involve other receivable accounts which would
be inconsistent with this reserve rollforward approach.
Group Term Life case and IBNR reserves redundancies in all
years are due to actual mortality rates running below those
assumed in prior year reserves, and actual recovery rates
running higher than those assumed in prior year reserves.
Group Disability case and IBNR reserves show redundancies
in all years due to actual claim recovery rates exceeding
those assumed in prior year reserves.
The redundancies in our Medical lines case and IBNR
reserves were caused by the Company’s claims and other
case reserves developing more favorably than expected.
The Company’s actual claims experience reflected lower
medical provider utilization and lower medical inflation
than assumed in the Company’s prior-year pricing and
reserving processes.
13 Reserves
The Company’s group disability products include short
and long term disability coverage. Case and IBNR reserves
for long-term disability claims have been discounted
at 5.25% for claims incurred in 2010 and prior years,
and between 4.25% and 4.75% for claims incurred after
2010. The December 31, 2015 and 2014 liabilities net of
reinsurance include $1,192,996 and $1,235,029, respectively,
of such reserves. The amount of discounts deducted from
outstanding reserves as of December 31, 2015 and 2014
are $343,954 and $362,207, respectively.
In 2015, the Company’s Property and Warranty case and
IBNR reserves reflected an increased degree of favorable
development on prior accident years compared to 2014
and 2013. Unfavorable development on lender-placed
products in 2014 led to a lower redundancy level than seen
in prior years. In 2015, reserve redundancies returned to
long-term historical norms due to improvements in non-
catastrophe loss experience for lender-placed products
as well as reserve strengthening taken in 2014. In 2013,
adverse development of $6,500 from Super Storm Sandy
lowered the reserve redundancy compared to 2012. For
the longer-tail Property and Warranty coverages (e.g.
asbestos, environmental, and other general liability),
for all years presented, there were no material changes
in estimated amounts for incurred claims in prior years.
Long Duration Contracts
The Company’s long duration contracts are primarily comprised
of preneed life insurance and annuity policies, life insurance
policies (no longer offered), universal life and annuities (no
longer offered), FFG and LTC disposed businesses and medical
policies. The principal products and services included in
these categories are described in the summary of significant
accounting policies. See Note 2 for further information.
The Assurant Solutions segment manages preneed insurance
products through two separate divisions: the independent
division and the American Memorial Life Insurance Company
(“AMLIC”) division. The Company signed an agreement with
Forethought Life Insurance Company on November 9, 2005
whereby the Company discontinued writing new preneed
insurance policies in the U.S. via independent funeral homes.
The reserve assumptions for future policy benefits and
expenses for pre-funded funeral life and annuity contracts
and traditional life insurance (no longer offered) by the
preneed business differ by division and are established based
upon the following:
Preneed Business — Independent Division
Interest and discount rates for preneed life insurance issued
prior to 2009 vary by year of issuance and product, are based
on pricing assumptions and modified to allow for provisions
for adverse deviation. For preneed life insurance with
discretionary death benefit growth issued after 2008, interest
and discount rates are based upon current assumptions
F-41
ASSURANT, INC. – 2015 Form 10-K 13 Reserves
without provisions for adverse deviation. During 2015 and
2014, interest and discount rates ranged between 3.3%
and 7.3%.
Interest and discount rates for traditional life insurance (no
longer offered) vary by year of issuance and products and
were 7.5% grading to 5.3% over 20 years in 2015 and 2014
with the exception of a block of pre-1980 business which
had a level 8.8% discount rate in 2015 and 2014.
Mortality assumptions for business issued prior to 2009
are based upon pricing assumptions and modified to allow
for provisions for adverse deviation. For business issued
after 2008, mortality assumptions are based upon pricing
assumptions without provisions for adverse deviation.
Surrender rates vary by product and are based upon pricing
assumptions.
Future assumed policy benefit increases on preneed life
insurance issued prior to 2009 ranged from 1.0% to 7.0% in
2015 and 2014. Some policies have future policy benefit
increases, which are guaranteed or tied to equal some
measure of inflation. The inflation assumption for most of
these inflation-linked benefits was 3.0% in both 2015 and
2014 with the exception of most policies issued in 2005
through 2007 where the assumption was 2.3%. Future policy
benefit increases for business issued in 2015 are based on
current assumptions.
The reserves for annuities issued by the independent division
are based on assumed interest rates credited on deferred
annuities, which vary by year of issue, and ranged from
1.0% to 5.5% in 2015 and 2014. Withdrawal charges, if any,
generally range from 7.0% to 0.0% and grade to zero over a
period of seven years for business issued in the U.S. Canadian
annuity products have a surrender charge that varies by
product series and premium paying period.
PreNeed Business — AMLIC Division
Interest and discount rates for preneed life insurance issued
or acquired after September 2000 and prior to 2009 vary by
year of issuance and are based on pricing assumptions and
modified to allow for provisions for adverse deviation. For
preneed life insurance with discretionary death benefit growth
issued after 2008, interest and discount rates are based on
current assumptions without provisions for adverse deviation.
Discount rates for 2015 and 2014 issues ranged from 1.5% to
4.3%. Preneed insurance issued prior to October 2000 and
all traditional life insurance issued by the AMLIC division
use discount rates, which vary by issue year and product,
ranging from 0.0% to 7.5% in 2015 and 2014.
Mortality assumptions for preneed life insurance issued
or acquired after September 2000 and prior to 2009 are
based upon pricing assumptions, which approximate actual
experience, and modified to allow for provisions for adverse
deviation. For preneed life insurance with discretionary death
benefit growth issued after 2008, mortality assumptions
are based upon pricing assumptions, which approximate
actual experience, without provisions for adverse deviation.
Surrender rates for preneed life insurance issued or acquired
in October 2000 and beyond vary by product and are based
upon pricing assumptions. Mortality assumptions for all preneed
life insurance and traditional life insurance acquired by the
AMLIC division prior to October 2000 are based on statutory
valuation requirements, which approximate GAAP, with no
explicit provision for lapses.
Future policy benefit increases for preneed life insurance
products are based upon pricing assumptions. First-year
guaranteed benefit increases were 0.0% in 2015 and 2014.
Renewal guaranteed benefit increases ranged from 0.0% to
3.0% in 2015 and 2014. For contracts with minimum benefit
increases associated with an inflation index, assumed benefit
increases equaled the discount rate less 3.0% in 2015 and 2014.
The reserves for annuities issued by the AMLIC division are
based on assumed interest rates credited on deferred annuities
and ranged from 1.0% to 6.5% in 2015 and 2014. Withdrawal
charges ranged from 0.0% to 8.0% grading to zero over eight
years for United States products. Canadian annuity products
have a flat 35% surrender charge. Nearly all the deferred
annuities contracts have a 3.0% guaranteed interest rate.
Universal Life and Annuities — No Longer
Offered
The reserves for universal life and annuity products (no
longer offered) in the Assurant Solutions segment have been
established based on the following assumptions: Interest
rates credited on annuities, which vary by product and time
when funds were received, ranged from 3.5% to 4.0% with
guaranteed credited rates that ranged from 3.5% to 4.0% in
2015 and 2014, except for a limited number of policies with
credited rates of 4.5% with guaranteed credited rate of 4.5%.
Annuities are also subject to surrender charges, which vary
by contract year and grade to zero over a period no longer
than seven years. Surrender values on annuities will never
be less than the amount of paid-in premiums (net of prior
withdrawals) regardless of the surrender charge. Credited
interest rates on universal life funds vary by product and time
when funds were received and ranged from 4.0% to 4.1% in
2015 and 2014. Guaranteed crediting rates where present
were 4.0%. Additionally, universal life funds are subject to
surrender charges that vary by product, age, sex, year of
issue, risk class, face amount and grade to zero over a period
not longer than 20 years.
FFG and LTC
Reserves for previously disposed FFG and LTC businesses are
included in the Company’s reserves in accordance with the
insurance guidance. The Company maintains an offsetting
reinsurance recoverable related to these reserves. See
Note 14 for further information.
F-42
ASSURANT, INC. – 2015 Form 10-K 14 Reinsurance
14. Reinsurance
In the ordinary course of business, the Company is involved in both the assumption and cession of reinsurance with non-affiliated
companies. The following table provides details of the reinsurance recoverables balance for the years ended December 31:
Ceded future policyholder benefits and expense
Ceded unearned premium
Ceded claims and benefits payable
Ceded paid losses
TOTAL
2015
4,037,682 $
1,667,228
1,429,128
336,365
7,470,403 $
2014
4,052,976
1,587,583
1,283,510
330,516
7,254,585
$
$
A key credit quality indicator for reinsurance is the A.M. Best
financial strength ratings of the reinsurer. The A.M. Best ratings
are an independent opinion of a reinsurer’s ability to meet
ongoing obligations to policyholders. The A.M. Best ratings for
new reinsurance agreements where there is material credit
exposure are reviewed at the time of execution. The A.M.
Best ratings for existing reinsurance agreements are reviewed
on a periodic basis, at least annually. The following table
provides the reinsurance recoverable as of December 31,
2015 grouped by A.M. Best rating:
Best Ratings of Reinsurer
A++ or A+
A or A-
B++ or B+
B or B-
Not Rated
Total
Less: Allowance
NET REINSURANCE
RECOVERABLE
Ceded future
policyholder benefits
and expense
Ceded unearned
premiums
Ceded claims and
benefits payable
Ceded paid losses
$
2,567,918 $
1,460,465
747
251
8,301
4,037,682
—
50,041 $
79,623
23,153
258
1,514,153
1,667,228
—
977,498 $
185,131
2,628
86
263,785
1,429,128
—
17,445 $
25,292
—
45
304,403
347,185
(10,820)
Total
3,612,902
1,750,511
26,528
640
2,090,642
7,481,223
(10,820)
$
4,037,682 $
1,667,228 $
1,429,128 $
336,365 $
7,470,403
A.M. Best ratings for The Hartford and John Hancock, the
reinsurers with the largest reinsurance recoverable balances,
are A- and A+, respectively. A.M. Best currently maintains
a stable outlook on the financial strength ratings of John
Hancock and The Hartford. The total amount of recoverable for
these two reinsurers is $4,607,056 as of December 31, 2015.
Most of the assets backing reserves relating to reinsurance
recoverables from these two counterparties are held in trust.
A substantial portion of the Not Rated category is related
to Assurant Solutions’ and Assurant Specialty Property’s
agreements to reinsure premiums and risks related to business
generated by certain clients to the clients’ own captive
insurance companies or to reinsurance subsidiaries in which
the clients have an ownership interest. To mitigate exposure
to credit risk for these reinsurers, the Company evaluates
the financial condition of the reinsurer and holds substantial
collateral (in the form of funds withheld, trusts, and letters
of credit) as security. The Not Rated category also includes
recoverables from the Department of Health and Human
Services, the National Flood Insurance Program and the
Florida Hurricane Catastrophe Fund.
An allowance for doubtful accounts related to reinsurance
recoverables is recorded on the basis of periodic evaluations
of balances due from reinsurers (net of collateral), reinsurer
solvency, management’s experience and current economic
conditions. The allowance for doubtful accounts was $10,820
at December 31, 2015 and 2014, respectively. There were
no additions or write-downs charged against the allowance
during 2015 or 2014.
F-43
ASSURANT, INC. – 2015 Form 10-K
14 Reinsurance
The effect of reinsurance on premiums earned and benefits incurred was as follows:
Long
Duration
2015
Short
Duration
Total
Long
Duration
2014
Short
Duration
Total
Long
Duration
2013
Short
Duration
Total
Years Ended December 31,
$
509,080 $11,091,644 $11,600,724 $ 510,822 $10,740,127 $11,250,949 $ 555,368 $ 9,293,288 $ 9,848,656
8,410
517,578
525,988
8,762
478,894
487,656
10,117
304,980
315,097
(288,975)
(3,486,740)
(3,775,715)
(276,525)
(2,829,938)
(3,106,463)
(304,064)
(2,099,893)
(2,403,957)
$ 228,515 $ 8,122,482 $ 8,350,997 $ 243,059 $ 8,389,083 $ 8,632,142 $ 261,421 $ 7,498,375 $ 7,759,796
$
937,962 $ 6,024,395 $ 6,962,357 $1,702,475 $ 5,244,646 $ 6,947,121 $ 933,110 $ 3,706,848 $ 4,639,958
19,948
290,925
310,873
23,911
306,365
330,276
22,844
211,446
234,290
(647,873)
(1,882,822)
(2,530,695)
(1,373,953)
(1,498,111)
(2,872,064)
(590,281)
(608,435)
(1,198,716)
$
310,037 $ 4,432,498 $ 4,742,535 $ 352,433 $ 4,052,900 $ 4,405,333 $ 365,673 $ 3,309,859 $ 3,675,532
Direct earned
premiums
Premiums
assumed
Premiums
ceded
NET EARNED
PREMIUMS
Direct
policyholder
benefits
Policyholder
benefits
assumed
Policyholder
benefits
ceded
NET
POLICYHOLDER
BENEFITS
The Company had $923,512 and $1,022,078, respectively,
of invested assets held in trusts or by custodians as of
December 31, 2015 and 2014, respectively, for the benefit
of others related to certain reinsurance arrangements.
The Company utilizes ceded reinsurance for loss protection
and capital management, business dispositions, and in the
Assurant Solutions and Assurant Specialty Property segments,
for client risk and profit sharing.
Loss Protection and Capital Management
As part of the Company’s overall risk and capacity management
strategy, the Company purchases reinsurance for certain risks
underwritten by the Company’s various segments, including
significant individual or catastrophic claims.
For those product lines where there is exposure to losses from
catastrophe events, the Company closely monitors and manages
its aggregate risk exposure by geographic area. The Company
has entered into reinsurance treaties to manage exposure to
these types of events.
On January 30, 2012, certain of the Companies’ subsidiaries
(“the Subsidiaries”) entered into two reinsurance agreements
with Ibis Re II Ltd. (“Ibis Re II”). Ibis Re II is an independent
special purpose reinsurance company domiciled in the Cayman
Islands. The Ibis Re II agreements provide up to $130,000 of
reinsurance coverage for protection against losses over a
three-year period from individual hurricane events in Hawaii,
Puerto Rico, and along the Gulf and Eastern Coasts of the
United States. The agreements expired in February 2015. Ibis
Re II financed the property catastrophe reinsurance coverage
by issuing $130,000 in catastrophe bonds to unrelated investors
(the “Series 2012-1 Notes”).
On June 26, 2013, the Subsidiaries entered into three additional
reinsurance agreements with Ibis Re II providing up to $185,000
of reinsurance coverage for protection against losses over a
three-year period from individual hurricane events in Hawaii,
Puerto Rico, and along the Gulf and Eastern Coasts of the
United States. The agreements expire in June 2016. Ibis Re
II financed the property catastrophe reinsurance coverage by
issuing $185,000 in catastrophe bonds to unrelated investors
(the “Series 2013-1 Notes”).
The $315,000 of coverage represents approximately 17% of the
expected first event coverage (net of reimbursements of the
Florida Hurricane Catastrophe Fund) purchased by the Company
in excess of the Company’s anticipated retention.
Under the terms of these reinsurance agreements, the Subsidiaries
are obligated to pay annual reinsurance premiums to Ibis Re II
for the reinsurance coverage. The reinsurance agreements with
Ibis Re II utilize a dual trigger that is based upon an index that
is created by applying predetermined percentages to insured
industry losses in each state in the covered area as reported
by an independent party and the Subsidiaries’ covered losses
incurred. Reinsurance contracts that have a separate, pre-
identified variable (e.g., a loss-based index) are accounted for
as reinsurance if certain conditions are met. In the case of the
reinsurance agreements with Ibis Re II, these conditions were
met, thus the Company accounted for them as reinsurance in
accordance with the guidance for reinsurance contracts.
Amounts payable to the Subsidiaries under the reinsurance
agreements will be determined by the index-based losses,
which are designed to approximate the Subsidiaries’ actual
losses from any covered event. The amount of actual losses
and index losses from any covered event may differ. For each
covered event, Ibis Re II pays the Subsidiaries the lesser of the
F-44
ASSURANT, INC. – 2015 Form 10-K covered index-based losses or the Subsidiaries’ actual losses.
The principal amount of the catastrophe bonds will be reduced
by any amounts paid to the Subsidiaries under the reinsurance
agreements. The Subsidiaries have not incurred any losses
subject to the reinsurance agreements since their inception.
As of December 31, 2015, the Company had not ceded any
losses to Ibis Re II.
As with any reinsurance agreement, there is credit risk associated
with collecting amounts due from reinsurers. With regard to the
Series 2012-1 Notes and Series 2013-1 Notes, the credit risk is
mitigated by two reinsurance trust accounts for each Series,
respectively. Each reinsurance trust account has been funded
by Ibis Re II with money market funds that invest solely in
direct government obligations backed by the U.S. government
with maturities of no more than 13 months. The money market
funds must have a principal stability rating of at least AAA by
Standard & Poor’s.
As a result of the evaluation of the reinsurance agreements
with Ibis Re II, the Company concluded that Ibis Re II is a VIE.
However, while Ibis Re II is a VIE, the Company concluded that
it does not have a significant variable interest in Ibis Re II as the
variability in results, caused by the reinsurance agreements, is
expected to be absorbed entirely by the bondholders and the
Company is not entitled to any residual amounts. Accordingly, the
Company is not the primary beneficiary of Ibis Re II and does not
consolidate the entities in the Company’s financial statements.
Business Divestitures
The Company has used reinsurance to exit certain businesses,
such as the disposals of FFG and LTC. Reinsurance was used
in these cases to facilitate the transactions because the
businesses shared legal entities with operating segments
that the Company retained. Assets supporting liabilities
ceded relating to these businesses are mainly held in trusts
and the separate accounts relating to FFG are still reflected
in the Company’s balance sheet.
If the reinsurers became insolvent, we would be exposed
to the risk that the assets in the trusts and/or the separate
accounts would be insufficient to support the liabilities that
would revert back to us. The reinsurance recoverable from The
Hartford was $1,053,496 and $1,077,791 as of December 31,
2015 and 2014, respectively. The reinsurance recoverable
from John Hancock was $3,553,560 and $3,471,908 as of
December 31, 2015 and 2014, respectively.
The reinsurance agreement associated with the FFG sale also
stipulates that The Hartford contribute funds to increase the
value of the separate account assets relating to Modified
Guaranteed Annuity business sold if such value declines below
the value of the associated liabilities. If The Hartford fails
to fulfill these obligations, the Company will be obligated
to make these payments.
14 Reinsurance
In addition, the Company would be responsible for
administering this business in the event of reinsurer insolvency.
We do not currently have the administrative systems and
capabilities to process this business. Accordingly, we would
need to obtain those capabilities in the event of an insolvency
of one or more of the reinsurers of these businesses. We
might be forced to obtain such capabilities on unfavorable
terms with a resulting material adverse effect on our results
of operations and financial condition.
As of December 31, 2015, we were not aware of any regulatory
actions taken with respect to the solvency of the insurance
subsidiaries of The Hartford or John Hancock that reinsure
the FFG and LTC businesses, and the Company has not been
obligated to fulfill any of such reinsurers’ obligations.
John Hancock and The Hartford have paid their obligations
when due and there have been no disputes.
Segment Client Risk and Profit Sharing
The Assurant Solutions and Assurant Specialty Property
segments write business produced by their clients, such as
mobile providers, mortgage lenders and servicers, and financial
institutions and reinsures all or a portion of such business to
insurance subsidiaries of some clients. Such arrangements
allow significant flexibility in structuring the sharing of risks
and profits on the underlying business.
A substantial portion of Assurant Solutions and Assurant Specialty
Property’s reinsurance activities are related to agreements to
reinsure premiums and risks related to business generated by
certain clients to the clients’ own captive insurance companies
or to reinsurance subsidiaries in which the clients have an
ownership interest. Through these arrangements, our insurance
subsidiaries share some of the premiums and risk related
to client-generated business with these clients. When the
reinsurance companies are not authorized to do business in
our insurance subsidiary’s domiciliary state, the Company’s
insurance subsidiary generally obtains collateral, such as a
trust or a letter of credit, from the reinsurance company or
its affiliate in an amount equal to the outstanding reserves to
obtain full statutory financial credit in the domiciliary state
for the reinsurance.
The Company’s reinsurance agreements do not relieve the
Company from its direct obligation to its insureds. Thus, a credit
exposure exists to the extent that any reinsurer is unable to
meet the obligations assumed in the reinsurance agreements. To
mitigate its exposure to reinsurance insolvencies, the Company
evaluates the financial condition of its reinsurers and holds
substantial collateral (in the form of funds, trusts, and letters
of credit) as security under the reinsurance agreements.
F-45
ASSURANT, INC. – 2015 Form 10-K 15 Debt
15. Debt
On March 28, 2013, the Company issued two series of senior
notes with an aggregate principal amount of $700,000 (the
“2013 Senior Notes”). The Company received net proceeds
of $698,093 from this transaction, which represents the
principal amount less the discount before offering expenses.
The discount of $1,907 is being amortized over the life of the
2013 Senior Notes and is included as part of interest expense
on the consolidated statements of operations. The first series is
$350,000 in principal amount, bears interest at 2.50% per year
and is payable in a single installment due March 15, 2018 and
was issued at a 0.18% discount. The second series is $350,000
in principal amount, bears interest at 4.00% per year and is
payable in a single installment due March 15, 2023 and was
issued at a 0.37% discount. Interest on the 2013 Senior Notes is
payable semi-annually on March 15 and September 15 of each
year. The 2013 Senior Notes are unsecured obligations and
rank equally with all of the Company’s other senior unsecured
indebtedness. The Company may redeem each series of the
2013 Senior Notes in whole or in part at any time and from
time to time before their maturity at the redemption price set
forth in the Indenture. The 2013 Senior Notes are registered
under the Securities Act of 1933, as amended.
The interest expense incurred related to the 2013 Senior
Notes was $22,988, $22,981 and $17,357 for the year ended
December 31, 2015, 2014 and 2013, respectively. There was
$6,635 of accrued interest at both December 31, 2015 and
2014. The Company made interest payments on the 2013
Senior Notes of $11,375 on March 15, 2015 and 2014 and
September 15, 2015 and 2014.
In February 2004, the Company issued two series of senior notes
with an aggregate principal amount of $975,000 (the “2004
Senior Notes”). The Company received net proceeds of $971,537
from this transaction, which represents the principal amount
less the discount before operating expenses. The discount of
$3,463 is being amortized over the life of the 2004 Senior Notes
and is included as part of interest expense on the statement of
operations. The first series was $500,000 in principal amount,
issued at a 0.11% discount, bore interest at 5.63% per year and
was repaid on February 18, 2014. The second series is $475,000
in principal amount, bears interest at 6.75% per year and is
payable in a single installment due February 15, 2034 and was
issued at a 0.61% discount. Interest on the 2004 Senior Notes
is payable semi-annually on February 15 and August 15 of each
year. The 2004 Senior Notes are unsecured obligations and
rank equally with all of the Company’s other senior unsecured
indebtedness. The senior notes are not redeemable prior to
maturity. All of the holders of the 2004 Senior Notes exchanged
their notes in May 2004 for new notes registered under the
Securities Act of 1933, as amended.
The interest expense incurred related to the 2004 Senior
Notes was $32,127, $35,414, and $59,414 for the years ended
December 31, 2015, 2014, and 2013, respectively. There was
$12,023 of accrued interest at both December 31, 2015 and
2014. The Company made interest payments on the 2004 Senior
Notes of $16,031 and $30,094 on February 15, 2015 and 2014,
respectively, and $16,031 on August 15, 2015 and 2014.
Credit Facility
The Company’s commercial paper program requires the
Company to maintain liquidity facilities either in an available
amount equal to any outstanding notes from the commercial
paper program or in an amount sufficient to maintain the
ratings assigned to the notes issued from the commercial
paper program. The Company’s subsidiaries do not maintain
commercial paper or other borrowing facilities at their level.
This program is currently backed up by a $400,000 senior
revolving credit facility, of which $395,960 was available at
December 31, 2015, due to $4,040 of outstanding letters of
credit related to this program.
On September 16, 2014, the Company entered into a five-year
unsecured $400,000 revolving credit agreement, as amended
by Amendment No. 1, dated as of March 5, 2015 (the “2014
Credit Facility”) with a syndicate of banks arranged by JP
Morgan Chase Bank, N.A. and Wells Fargo, N.A. The 2014
Credit Facility replaces the Company’s prior four-year $350,000
revolving credit facility (the “2011 Credit Facility”), which
was entered into on September 21, 2011 and was scheduled to
expire in September 2015. The 2011 Credit Facility terminated
upon the effectiveness of the 2014 Credit Facility. The 2014
Credit Facility provides for revolving loans and the issuance
of multi-bank, syndicated letters of credit and/or letters of
credit from a sole issuing bank in an aggregate amount of
$400,000 and is available until September 2019, provided
the Company is in compliance with all covenants. The 2014
Credit Facility has a sublimit for letters of credit issued
thereunder of $50,000. The proceeds of these loans may
be used for the Company’s commercial paper program or
for general corporate purposes. The Company may increase
the total amount available under the 2014 Credit Facility to
$525,000 subject to certain conditions. No bank is obligated
to provide commitments above their share of the $400,000
facility.
The Company did not use the commercial paper program
during the years ended December 31, 2015 and 2014 and
there were no amounts relating to the commercial paper
program outstanding at December 31, 2015 and 2014. The
Company made no borrowings using the 2014 Credit Facility
and no loans are outstanding at December 31, 2015.
The 2014 Credit Facility contains restrictive covenants and
requires that the Company maintain certain specified minimum
ratios and thresholds. Among others, these covenants include
maintaining a maximum debt to capitalization ratio and a
minimum consolidated adjusted net worth. At December 31,
2015, the Company was in compliance with all covenants,
minimum ratios and thresholds.
F-46
ASSURANT, INC. – 2015 Form 10-K 17 Stock Based Compensation
16. Common Stock
Changes in the number of common stock shares outstanding are as follows:
Shares outstanding, beginning
Vested restricted stock and restricted stock units, net(a)
Issuance related to performance share units(a)
Issuance related to ESPP
Issuance related to SARS exercise
Shares repurchased
2015
69,299,559
335,518
269,576
130,622
—
(4,184,889)
65,850,386
December 31,
2014
71,828,208
321,841
277,164
141,576
29,260
(3,298,490)
69,299,559
2013
78,664,029
340,525
252,025
217,573
61,070
(7,707,014)
71,828,208
SHARES OUTSTANDING, ENDING
(a) Vested restricted stock, restricted stock units and performance share units are shown net of shares retired to cover participant tax liability.
The Company is authorized to issue 800,000,000 shares of common stock. In addition, 150,001 shares of Class B and 400,001
shares of Class C common stock, per the Restated Certificate of Incorporation of Assurant, Inc., are still authorized but
have not been issued.
17. Stock Based Compensation
In accordance with the guidance on share based compensation,
the Company recognized stock-based compensation costs based
on the grant date fair value. The Company also applied the
“long form” method to calculate its beginning pool of windfall
tax benefits related to employee stock-based compensation
awards as of the adoption date of the guidance. For the years
ended December 31, 2015, 2014 and 2013, the Company
recognized compensation costs net of a 5% per year forfeiture
rate on a pro-rated basis over the remaining vesting period.
Long-Term Equity Incentive Plan
Under the Assurant, Inc. Long-Term Equity Incentive Plan
(“ALTEIP”), amended and restated in May 2010, the Company
is authorized to issue up to 5,300,000 new shares of the
Company’s common stock to employees, officers and non-
employee directors. Under the ALTEIP, the Company may grant
awards based on shares of its common stock, including stock
options, stock appreciation rights (“SARs”), restricted stock
(including performance shares), unrestricted stock, restricted
stock units (“RSUs”), performance share units (“PSUs”) and
dividend equivalents. All future share-based grants will be
awarded under the ALTEIP.
The Compensation Committee of the Board of Directors (the
“Compensation Committee”) awards RSUs and PSUs annually.
RSUs and PSUs are promises to issue actual shares of common
stock at the end of a vesting period or performance period.
The RSUs granted to employees under the ALTEIP are based on
salary grade and performance and vest one-third each year over
a three-year period. RSUs granted to non-employee directors
also vest one-third each year over a three-year period, however,
issuance of vested shares is deferred until separation from
Board service. RSUs receive dividend equivalents in cash during
the restricted period and do not have voting rights during the
restricted period. PSUs accrue dividend equivalents during
the performance period based on a target payout, and will
be paid in cash at the end of the performance period based
on the actual number of shares issued. The fair value of RSUs
is estimated using the fair market value of a share of the
Company’s common stock at the date of grant. The fair value
of PSUs is estimated using the Monte Carlo simulation model
and is described in further detail below.
For the PSU portion of an award, the number of shares a
participant will receive upon vesting is contingent upon the
Company’s performance with respect to selected metrics,
identified below, compared against a broad index of insurance
companies and assigned a percentile ranking. These rankings
are then averaged to determine the composite percentile
ranking for the performance period. The payout levels can vary
between 0% and 150% (maximum) of the target (100% ) ALTEIP
award amount based on the Company’s level of performance
against the selected metrics.
PSU Performance Goals. The Compensation Committee
established book value per share (“BVPS”) growth excluding
AOCI, revenue growth and total stockholder return as the
three performance measures for PSU awards. BVPS growth
is defined as the year-over-year growth of the Company’s
stockholders’ equity excluding AOCI divided by the number
of fully diluted total shares outstanding at the end of the
period. Revenue growth is defined as the year-over-year
change in total revenues as disclosed in the Company’s
annual statement of operations. Total stockholder return is
defined as appreciation in Company stock plus dividend yield
to stockholders. Payouts will be determined by measuring
performance against the average performance of companies
included in an insurance industry market index.
From 2009 to 2013, the Company used the A.M. Best U.S.
Insurance Index to measure its relative performance ranking. In
2014, A.M. Best stopped publishing this index. As of January 1,
2014, the Company is using the S&P Total Market Index
to measure the Company’s performance for all new and
outstanding PSU awards. Consistent with adjustments made
F-47
ASSURANT, INC. – 2015 Form 10-K 17 Stock Based Compensation
to the A.M. Best U.S. Insurance Index, adjustments will be
made to the S&P Total Market Index to exclude companies
with revenues of less than $1,000,000 or that are not in the
insurance or managed healthcare Global Industry Classification
Standard codes. In addition, companies within the Company’s
compensation peer group, but not otherwise in the S&P Total
Market Index, will be included. The adjusted S&P Total Market
Index is substantially similar in composition to the previous
A.M. Best U.S. Insurance Index.
Under the ALTEIP, the Company’s Chief Executive Officer
(“CEO”) is authorized by the Board of Directors to grant
common stock, restricted stock and RSUs to employees other
than the executive officers of the Company (as defined in
Section 16 of the Securities Exchange Act of 1934, as amended
(the “Exchange Act”)). The Board of Directors reviews and
ratifies these grants quarterly. Restricted stock and RSUs
granted under this program may have different vesting periods.
Restricted Stock Units
A summary of the Company’s outstanding restricted stock units is presented below:
Shares outstanding at December 31, 2014
Grants
Vests
Forfeitures and adjustments
SHARES OUTSTANDING AT DECEMBER 31, 2015
$
Shares Weighted-Average Grant-Date Fair Value
51.39
63.09
47.92
59.63
59.34
978,028
366,200
(557,402)
(38,007)
748,819
$
The compensation expense recorded related to RSUs was
$22,001, $23,856 and $26,734 for the years ended December 31,
2015, 2014 and 2013, respectively. The related total income
tax benefit recognized was $7,696, $8,337 and $9,343 for the
years ended December 31, 2015, 2014 and 2013, respectively.
The weighted average grant date fair value for RSUs granted
in 2014 and 2013 was $65.14 and $45.27, respectively.
As of December 31, 2015, there was $12,931 of unrecognized
compensation cost related to outstanding RSUs. That cost is
expected to be recognized over a weighted-average period
of 1.06 years. The total fair value of shares vested during the
years ended December 31, 2015, 2014 and 2013 was $35,771,
$35,206 and $24,812, respectively.
Performance Share Units
A summary of the Company’s outstanding performance share units is presented below:
Performance share units outstanding, December 31, 2014
Grants
Vests
Performance adjustment(1)
Forfeitures and adjustments
$
Performance Share Units Weighted-Average Grant-Date Fair Value
49.63
61.82
41.68
41.68
58.90
56.37
1,127,088
355,688
(458,755)
70,140
(31,242)
1,062,919
PERFORMANCE SHARE UNITS OUTSTANDING, DECEMBER 31, 2015
(1) Represents the change in shares issued based upon the attainment of performance goals established by the Company.
$
PSU grants above represent initial target awards and do not
reflect potential increases or decreases resulting from the
financial performance objectives to be determined at the end
of the prospective performance period. The actual number
of shares to be issued at the end of each performance period
will range from 0% to 150% of the initial target awards.
As of December 31, 2015, there was $16,920 of unrecognized
compensation cost related to outstanding PSUs. That cost is
expected to be recognized over a weighted-average period of
0.77 years. The total fair value of shares vested and issued
during the years ended December 31, 2015 and 2014 was
$27,461 and $31,609, respectively.
The compensation expense recorded related to PSUs
was $15,523, $24,380 and $22,257 for the years ended
December 31, 2015, 2014 and 2013, respectively. Portions of
the compensation expense recorded during 2014 were reversed
in 2015 since the Company’s level of actual performance as
measured against pre-established performance goals had
declined. The related total income tax benefit recognized was
$5,428, $8,516, and $7,774 for the years ended December 31,
2015, 2014 and 2013, respectively. The weighted average
grant date fair value for PSUs granted in 2014 and 2013 was
$64.93 and $44.22, respectively.
The fair value of PSUs with market conditions was estimated
on the date of grant using a Monte Carlo simulation model,
which utilizes multiple variables that determine the probability
of satisfying the market condition stipulated in the award.
Expected volatilities for awards granted during the years
ended December 31, 2015, 2014 and 2013 were based on
the historical stock prices of the Company’s stock and peer
insurance group. The expected term for grants issued during
the years ended December 31, 2015, 2014 and 2013 was
assumed to equal the average of the vesting period of the
PSUs. The risk-free rate was based on the U.S. Treasury yield
curve in effect at the time of grant.
F-48
ASSURANT, INC. – 2015 Form 10-K
Expected volatility
Expected term (years)
Risk free interest rate
17 Stock Based Compensation
For awards granted during the year ended December 31,
2015
19.06%
2.81
0.99%
2014
24.66%
2.80
0.66%
2013
26.76%
2.80
0.39%
Long-Term Incentive Plan
Prior to the approval of the ALTEIP, share based awards were
granted under the 2004 Assurant Long-Term Incentive Plan
(“ALTIP”), which authorized the granting of up to 10,000,000
new shares of the Company’s common stock to employees and
officers under the ALTIP, Business Value Rights Program and
CEO Equity Grants Program. Under the ALTIP, the Company
was authorized to grant restricted stock and SARs. Since
May 2008, no new grants have been made under this plan
and the impact of these grants on the consolidated financial
statements is immaterial.
Employee Stock Purchase Plan
Under the Employee Stock Purchase Plan (“ESPP”), the
Company is authorized to issue up to 5,000,000 new shares
to employees who are participants in the ESPP. The ESPP
allows eligible employees to contribute, through payroll
deductions, portions of their after-tax compensation in
each offering period toward the purchase of shares of the
Company’s common stock. There are two offering periods
during the year (January 1 through June 30 and July 1 through
December 31) and shares are purchased at the end of each
offering period at 90% of the lower of the closing price of
the common stock on the first or last day of the offering
period. Participants’ contributions are limited to a maximum
contribution of $7.5 per offering period, or $15 per year.
The ESPP is offered to individuals who are scheduled to work
at least 20 hours per week and at least five months per year,
have been continuously employed for at least six months by
the start of the offering period, are not temporary employees
(employed less than 12 months), and have not been on a leave
of absence for more than 90 days immediately preceding
the offering period. Participants must be employed on the
last trading day of the offering period in order to purchase
Company shares under the ESPP. The maximum number of
shares that can be purchased each offering period is 5,000
shares per employee.
In January 2016, the Company issued 59,102 shares at a
discounted price of $61.70 for the offering period of July 1,
2015 through December 31, 2015. In January 2015, the Company
issued 65,302 shares at a discounted price of $59.65 for the
offering period of July 1, 2014 through December 31, 2014.
In July 2015, the Company issued 65,320 shares to employees at
a discounted price of $60.30 for the offering period of January 1,
2015 through June 30, 2015. In July 2014, the Company issued
65,867 shares to employees at a discounted price of $58.79 for
the offering period of January 1, 2014 through June 30, 2014.
The compensation expense recorded related to the ESPP was
$1,277, $1,201 and $1,098 for the years ended December 31,
2015, 2014 and 2013, respectively. The related income tax
benefit for disqualified disposition was $186, $147 and $208 for
the years ended December 31, 2015, 2014 and 2013, respectively.
The fair value of each award under the ESPP was estimated at
the beginning of each offering period using the Black-Scholes
option-pricing model and assumptions in the table below.
Expected volatilities are based on implied volatilities from
traded options on the Company’s stock and the historical
volatility of the Company’s stock. The risk-free rate for
periods within the contractual life of the option is based on
the U.S. Treasury yield curve in effect at the time of grant.
The dividend yield is based on the current annualized dividend
and share price as of the grant date.
Expected volatility
Risk free interest rates
Dividend yield
Expected term (years)
For awards issued during the year ended December 31,
2013
18.30-25.40 %
0.08-0.15 %
2.34-2.38 %
2014
19.02-20.65 %
0.09 %
1.52-1.92 %
2015
16.79-17.67 %
0.06-0.11 %
1.58-1.62 %
0.5
0.5
0.5
Non-Stock Based Incentive Plans
Deferred Compensation
The deferred compensation programs consist of the AIP, the
ASIC and the ADC Plans. The AIP and ASIC Plans provided
key employees the ability to exchange a portion of their
compensation for options to purchase certain third-party
mutual funds. The AIP and ASIC Plans were frozen in
December 2004 and no additional contributions can be made
to either Plan. Effective March 1, 2005 and amended and
restated on January 1, 2008, the ADC Plan was established in
order to comply with the American Jobs Creation Act of 2004
(“Jobs Act”) and IRC Section 409A. The ADC Plan provides
key employees the ability to defer a portion of their eligible
compensation to be notionally invested in a variety of mutual
funds. Deferrals and withdrawals under the ADC Plan are
intended to be fully compliant with the Jobs Act definition
of eligible compensation and distribution requirements.
F-49
ASSURANT, INC. – 2015 Form 10-K 19 Accumulated Other Comprehensive Income
18. Stock Repurchase
The following table shows the shares repurchased during the periods indicated:
Period in 2015
January
February
March
April
May
June
July
August
September
October
November
December
TOTAL
Number of
Shares Purchased
529,100 $
120,000
645,000
640,000
472,000
482,586
303,807
67,436
—
924,960
—
—
4,184,889 $
Average
Price Paid
Per Share
65.51
61.07
61.50
61.20
64.89
67.19
70.98
73.67
—
80.26
—
—
68.02
Total Number of Shares
Purchased as Part of
Publicly Announced Programs
529,100
120,000
645,000
640,000
472,000
482,586
303,807
67,436
—
924,960
—
—
4,184,889
On November 15, 2013 and September 9, 2015, the Company’s Board of Directors authorized the Company to repurchase
up to $600,000 and $750,000, respectively, of its outstanding common stock.
During the year ended December 31, 2015, the Company repurchased 4,184,889 shares of the Company’s outstanding common
stock at a cost of $284,567, exclusive of commissions, leaving $952,103 remaining under the total repurchase authorization
at December 31, 2015.
The timing and the amount of future repurchases will depend on market conditions, the Company’s financial condition,
results of operations, liquidity and other factors.
19. Accumulated Other Comprehensive Income
Certain amounts included in the consolidated statements of comprehensive income are net of reclassification adjustments.
The following tables summarize those reclassification adjustments (net of taxes):
Balance at December 31, 2014
$
(127,711) $
Foreign
currency
translation
adjustment
Year Ended December 31, 2015
Unrealized
gains on
securities
793,082 $
Pension
under-
funding
OTTI
26,594
$ (136,198)
Accumulated
other
comprehensive
income
555,767
$
Other comprehensive loss before
reclassifications
Amounts reclassified from accumulated other
comprehensive income (loss)
Net current-period other comprehensive
(loss) income
Balance at December 31, 2015
(143,023)
(324,934)
(2,746)
(3,130)
(473,833)
—
27,295
(1,414)
10,734
36,615
(143,023)
(270,734) $
$
(297,639)
495,443 $
(4,160)
22,434
7,604
$ (128,594)
$
(437,218)
118,549
F-50
ASSURANT, INC. – 2015 Form 10-K 19 Accumulated Other Comprehensive Income
Year Ended December 31, 2014
Foreign
currency
translation
adjustment
(38,767)
$
Unrealized
gains on
securities
526,071
OTTI
$
26,427
$
Pension
under-
funding
(86,901) $
Accumulated
other
comprehensive
(88,944)
235,000
(1,321)
(56,647)
—
32,011
1,488
7,350
(88,944)
(127,711)
$
267,011
793,082
$
167
26,594
(49,297)
$ (136,198) $
128,937
555,767
income
426,830
88,088
40,849
Balance at December 31, 2013
Other comprehensive (loss) income before
reclassifications
Amounts reclassified from accumulated
other comprehensive income
Net current-period other comprehensive
(loss) income
Balance at December 31, 2014
$
$
Balance at December 31, 2012
$
6,882
$
Foreign
currency
translation
adjustment
Year Ended December 31, 2013
Unrealized
gains on
securities
981,879
Pension
under-
funding
Accumulated
other
comprehensive
income
OTTI
$
23,861
$ (182,219) $
830,403
Other comprehensive (loss) income before
reclassifications
Amounts reclassified from accumulated
other comprehensive income
Net current-period other comprehensive
(loss) income
Balance at December 31, 2013
(45,649)
(478,853)
(2,237)
77,938
(448,801)
—
23,045
4,803
(45,649)
(38,767)
$
(455,808)
526,071
$
2,566
26,427
$
17,380
95,318
$
(86,901) $
45,228
(403,573)
426,830
The following tables summarize the reclassifications out of accumulated other comprehensive income.
Details about accumulated other
comprehensive income components
Unrealized gains on securities
OTTI
Amortization of pension and postretirement
unrecognized net periodic benefit cost:
Amortization of prior service cost
Amortization of net loss
Amount reclassified from accumulated
other comprehensive income
Years Ended December 31,
2015
2014
2013
Affected line item in the statement
where net income is presented
$ 41,992
(14,697)
$ 27,295
$
$
49,248
(17,237)
32,011
$ (2,176) $
762
$ (1,414) $
2,289
(801)
1,488
$
$
$
$
$
(146) $
(97) $
16,660
16,514
(5,780)
$
$ 10,734
$ 36,615 $
11,405
11,308
(3,958)
$
7,350
40,849 $
Net realized gains on investments,
excluding other-than-temporary
impairment losses
35,454
(12,409) Provision for income taxes
23,045
Net of tax
Portion of net loss (gain) recognized in
other comprehensive income, before
taxes
7,389
(2,586) Provision for income taxes
4,803
Net of tax
(1)
(1)
(77)
26,816
26,739 Total before tax
(9,359)
17,380
45,228
Provision for income taxes
Net of tax
NET OF TAX
TOTAL RECLASSIFICATIONS FOR THE PERIOD
(1) These accumulated other comprehensive income components are included in the computation of net periodic pension cost. See Note 21—Retirement
and Other Employee Benefits for additional information
F-51
ASSURANT, INC. – 2015 Form 10-K 20 Statutory Information
20. Statutory Information
The Company’s insurance subsidiaries prepare financial
statements on the basis of statutory accounting practices
(“SAP”) prescribed or permitted by the insurance departments
of their states of domicile. Prescribed SAP includes the
Accounting Practices and Procedures Manual of the National
Association of Insurance Commissioners (“NAIC”) as well as
state laws, regulations and administrative rules.
The principal differences between SAP and GAAP are: 1)
policy acquisition costs are expensed as incurred under SAP,
but are deferred and amortized under GAAP; 2) the value of
business acquired is not capitalized under SAP but is under
GAAP; 3) amounts collected from holders of universal life-
type and annuity products are recognized as premiums when
collected under SAP, but are initially recorded as contract
deposits under GAAP, with cost of insurance recognized as
revenue when assessed and other contract charges recognized
over the periods for which services are provided; 4) the
classification and carrying amounts of investments in certain
securities are different under SAP than under GAAP; 5) the
criteria for providing asset valuation allowances, and the
methodologies used to determine the amounts thereof,
are different under SAP than under GAAP; 6) the timing of
establishing certain reserves, and the methodologies used to
determine the amounts thereof, are different under SAP than
under GAAP; 7) certain assets are not admitted for purposes
of determining surplus under SAP; 8) methodologies used to
determine the amounts of deferred taxes, intangible assets
and goodwill are different under SAP than under GAAP; and 9)
the criteria for obtaining reinsurance accounting treatment
is different under SAP than under GAAP.
The combined statutory net income, excluding intercompany dividends and surplus note interest, and capital and surplus
of the Company’s U.S. domiciled statutory insurance subsidiaries follow:
Statutory net income
P&C companies
Life and Health companies
TOTAL STATUTORY NET INCOME(1)
Years Ended December 31,
2015
2014
$
$
437,422 $
(266,559)
170,863 $
440,930 $
67,270
508,200 $
2013
457,068
148,851
605,919
December 31,
2015
2014
Statutory capital and surplus
1,396,305
P&C companies
1,064,174
Life and Health companies
TOTAL STATUTORY CAPITAL AND SURPLUS
2,460,479
(1) The decline in 2015 from 2014 is primarily due to higher loss experience and adverse claims development on 2015 individual major medical
policies, a reduction in the 2014 estimated recoveries from the Affordable Care Act risk mitigation programs and $106,389 (after-tax) of exit and
disposal costs, including premium deficiency reserves, severance and retention costs, long-lived asset impairments and similar exit and disposal
costs related to the decision to exit the health business mentioned above.
1,137,978 $
1,153,137
2,291,115 $
$
$
The Company also has non-insurance subsidiaries and foreign
insurance subsidiaries that are not subject to SAP. The
statutory net income and statutory capital and surplus
amounts presented above do not include foreign insurance
subsidiaries in accordance with SAP.
Insurance enterprises are required by state insurance
departments to adhere to minimum risk-based capital (“RBC”)
requirements developed by the NAIC. All of the Company’s
insurance subsidiaries exceed minimum RBC requirements.
The payment of dividends to the Company by any of the
Company’s regulated U.S domiciled insurance subsidiaries
in excess of a certain amount (i.e., extraordinary dividends)
must be approved by the subsidiary’s domiciliary state
department of insurance. Ordinary dividends, for which no
regulatory approval is generally required, are limited to
amounts determined by a formula, which varies by state.
The formula for the majority of the states in which the
Company’s subsidiaries are domiciled is based on the prior
year’s statutory net income or 10% of the statutory surplus
as of the end of the prior year. Some states limit ordinary
dividends to the greater of these two amounts, others limit
them to the lesser of these two amounts and some states
exclude prior year realized capital gains from prior year net
income in determining ordinary dividend capacity. Some
states have an additional stipulation that dividends may
only be paid out of earned surplus. If insurance regulators
determine that payment of an ordinary dividend or any other
payments by the Company’s insurance subsidiaries to the
Company (such as payments under a tax sharing agreement or
payments for employee or other services) would be adverse
to policyholders or creditors, the regulators may block such
payments that would otherwise be permitted without prior
approval. Based on the dividend restrictions under applicable
laws and regulations, the maximum amount of dividends that
the Company’s U.S domiciled insurance subsidiaries could
pay to the Company in 2016 without regulatory approval is
approximately $564,000. No assurance can be given that there
will not be further regulatory actions restricting the ability
of the Company’s insurance subsidiaries to pay dividends.
F-52
ASSURANT, INC. – 2015 Form 10-K
21 Retirement and Other Employee Benefits
State regulators require insurance companies to meet minimum
capitalization standards designed to ensure that they can fulfill
obligations to policyholders. Minimum capital requirements
are expressed as a ratio of a company’s total adjusted capital
(“TAC”) to its risk-based capital (“RBC”) (the “RBC Ratio”).
TAC is equal to statutory surplus adjusted to exclude certain
statutory liabilities. RBC is calculated by applying specified
factors to various asset, premium, expense, liability, and
reserve items.
Generally, if a company’s RBC Ratio is below 100% (the
“Authorized Control Level”), the insurance commissioner of
the company’s state of domicile is authorized to take control
of the company, to protect the interests of policyholders.
If the RBC Ratio is greater than 100% but less than 200%
(the “Company Action Level”), the company must submit
a RBC plan to the commissioner of the state of domicile.
Corrective actions may also be required if the RBC Ratio is
greater than the Company Action Level but the company
fails certain trend tests.
As of December 31, 2015, the TAC of each of our insurance
subsidiaries exceeded the Company Action Level and no trend
tests that would require regulatory action were violated.
As of December 31, 2015, the TAC of our life and health
entities subject to RBC requirements was $1,218,018. The
corresponding Authorized Control Level was $214,611. As
of December 31, 2015, the TAC of our P&C entities subject
to RBC requirements was $1,137,978. The corresponding
Authorized Control Level was $233,544.
21. Retirement and Other Employee Benefits
Defined Benefit Plans
The Company and its subsidiaries participate in a non-
contributory, qualified defined benefit pension plan (“Assurant
Pension Plan”) covering substantially all employees. The
Assurant Pension Plan is considered “qualified” because it meets
the requirements of Internal Revenue Code Section 401(a)
(“IRC 401(a)”) and the Employee Retirement Income Security
Act of 1974 (“ERISA”). The Assurant Pension Plan is a pension
equity plan with a grandfathered final average earnings plan
for a certain group of employees. Benefits are based on
certain years of service and the employee’s compensation
during certain such years of service. The Company’s funding
policy is to contribute amounts to the Assurant Pension Plan
sufficient to meet the minimum funding requirements in ERISA,
plus such additional amounts as the Company may determine
to be appropriate from time to time up to the maximum
permitted. The funding policy considers several factors to
determine such additional amounts, including items such as
the amount of service cost plus 15% of the Assurant Pension
Plan deficit and the capital position of the Company. During
2015, we contributed $10,750 in cash to the Assurant Pension
Plan. Due to the Plan’s current funding status, no cash is
expected to be contributed to the Assurant Pension Plan over
the course of 2016. Contributions are intended to provide not
only for benefits attributed to service to date, but also for
those expected to be earned in the future. Assurant Pension
Plan assets are maintained in a separate trust and as such
are not included in the consolidated balance sheets of the
Company. Plan assets and benefit obligations are measured
as of December 31, 2015.
The Company also has various non-contributory, non-qualified
supplemental plans covering certain employees. Since these
plans are “non-qualified” they are not subject to the laws and
regulations of IRC 401(a) and ERISA. As such, the Company is
not required, and does not, fund these plans. The qualified
and nonqualified plans are referred to as “Pension Benefits”
unless otherwise noted. The Company has the right to modify
or terminate these benefits; however, the Company will not
be relieved of its obligation to plan participants for their
vested benefits.
As of January 1, 2014, the Assurant Pension Plan and Executive
Pension Plans are no longer offered to new hires. Subsequently,
effective January 1, 2016, the Assurant Pension Plan was
amended and split into two separate plans (Plan No. 1 and
Plan No. 2). The new Plan No. 2 will include a subset of
the terminated vested population and the total in-payment
population as of January 1, 2016. Assets for both plans will
remain in the Assurant, Inc. Pension Plan Trust, however
separate accounting entities will be maintained for Plan No. 1
and Plan No. 2.
Effective March 1, 2016, the Assurant Pension Plan and various
non-qualified pension plans (including an Executive Pension
Plan) were frozen. No additional benefits will be earned after
February 29, 2016.
In addition, the Company provides certain life and health care
benefits (“Retirement Health Benefits”) for retired employees
and their dependents. On July 1, 2011, the Company terminated
certain health care benefits for employees who did not qualify
for “grandfathered” status and no longer offers these benefits
to new hires. The Company contribution, plan design and
other terms of the remaining benefits will not change for
those grandfathered employees. The Company has the right
to modify or terminate these benefits.
F-53
ASSURANT, INC. – 2015 Form 10-K 21 Retirement and Other Employee Benefits
Summarized information on the Company’s Pension Benefits and Retirement Health Benefits plans (together the “Plans”) for
the years ended December 31 is as follows:
Pension Benefits
2015
2014
2013
Retirement Health Benefits
2015
2014
2013
Change in projected benefit obligation
Projected benefit obligation at beginning of
year
Service cost
Interest cost
Actuarial (loss) gain, including curtailments
and settlements
Benefits paid
Projected benefit obligation at end of year
Change in plan assets
Fair value of plan assets at beginning of year
Actual return on plan assets
Employer contributions
Benefits paid (including administrative
expenses)
Fair value of plan assets at end of year
Funded status at end of year
$ (1,064,042) $ (905,943) $ (956,172)
(38,580)
(38,243)
(36,609)
(43,613)
(41,989)
(41,766)
52,201
77,002
89,029
38,023
$ (1,018,594) $ (1,064,042) $ (905,943)
(127,940)
50,063
$ (96,306) $ (79,046) $ (86,237)
(2,863)
(3,473)
(2,188)
(3,868)
(2,429)
(3,834)
5,938
3,121
11,213
2,314
$ (93,510) $ (96,306) $ (79,046)
(13,910)
2,706
$
$
879,211
(5,458)
37,664
786,750
102,628
41,384
$
704,976
64,641
56,217
$
$
50,068
(291)
200
46,971
5,403
400
$
45,651
3,234
400
(78,731)
832,686
(39,084)
$
786,750
$ (185,908) $ (184,831) $ (119,193)
(51,551)
879,211
$
$
(3,121)
46,856
(2,314)
$
46,971
$ (46,654) $ (46,238) $ (32,075)
(2,706)
50,068
$
$
In accordance with the guidance on retirement benefits, the Company aggregates the results of the qualified and non-
qualified plans as “Pension Benefits” and is required to disclose the aggregate projected benefit obligation, accumulated
benefit obligation and fair value of plan assets, if the obligations within those plans exceed plan assets.
For the years ended December 31, 2015, 2014 and 2013, the projected benefit obligations, the accumulated benefit obligations
of Pension Benefits, and fair value of plan assets are as follows:
Qualified Pension Benefits
2015
2014
2013
Non-Qualified Pension Benefits
2015
2014
2013
Total Pension Benefits
2015
2014
2013
Fair value of
plan assets
Projected benefit
obligation
Funded status at
end of year
Accumulated
benefit obligation
$ 832,686 $ 879,211 $ 786,750
$
— $
— $
—
$
832,686 $ 879,211 $ 786,750
(884,659)
(908,167)
(768,672)
(133,935)
(155,875)
(137,271)
(1,018,594)
(1,064,042)
(905,943)
$ (51,973) $ (28,956) $ 18,078
$ (133,935) $(155,875) $(137,271)
$ (185,908) $ (184,831) $ (119,193)
$ 764,654 $ 761,802 $ 645,431
$ 113,712 $ 133,185
$ 115,286
$
878,366 $ 894,987 $ 760,717
The Pension Protection Act of 2006 (“PPA”) requires certain
qualified plans, like the Assurant Pension Plan, to meet
specified funding thresholds. If these funding thresholds are
not met, there are negative consequences to the plan and
participants. If the funded percentage falls below 80%, full
payment of lump sum benefits as well as implementation of
amendments improving benefits are restricted.
As of January 1, 2015, the Assurant Pension Plan funded
percentage was 136% on a PPA calculated basis (based on an
actuarial average value of assets compared to the funding
target). Therefore, benefit and payment restrictions did not
occur during 2015. The 2015 funded measure will also be
used to determine restrictions, if any, that can occur during
the first nine months of 2016. Due to the funding status of
the Assurant Pension Plan in 2015, no restrictions will exist
before October 2016 (the time that the January 1, 2016
actuarial valuation needs to be completed). Also, based
on the estimated funded status as of January 1, 2016, the
Company does not anticipate any restrictions on benefits for
the remainder of 2016.
Amounts recognized in the consolidated balance sheets consist of:
Pension Benefits
2014
2015
Assets
Liabilities
$
$
— $
(185,908) $
— $
(184,831) $
Retirement Health Benefits
2013
18,078
(137,271)
$
$
2015
— $
(46,654) $
2014
— $
(46,238) $
2013
—
(32,075)
F-54
ASSURANT, INC. – 2015 Form 10-K
21 Retirement and Other Employee Benefits
Amounts recognized in accumulated other comprehensive income consist of:
Net (loss) gain
Prior service (cost)
credit
$
$
2015
(201,578) $
Pension Benefits
2014
(210,859) $
2013
(147,288)
(2,339)
(203,917) $
(3,272)
(214,131) $
(4,119)
(151,407)
Retirement Health Benefits
$
$
2015
1,987
4,236
6,223
$
$
2014
(394) $
5,169
4,775
$
2013
11,710
6,102
17,812
Components of net periodic benefit cost and other amounts recognized in accumulated other comprehensive income for the
years ended December 31 were as follows:
Pension Benefits
2015
2014
2013
Retirement Health Benefits
2015
2014
2013
Net periodic benefit cost
Service cost
Interest cost
Expected return on plan assets
Amortization of prior service cost
Amortization of net loss (gain)
Curtailment/settlement charge
Net periodic benefit cost
Other changes in plan assets and benefit obligations
recognized in accumulated other comprehensive
income
Net loss (gain)
Amortization of prior service cost, and effects of
curtailments/settlements
Amortization of net (loss) gain
Total recognized in accumulated other comprehensive
income
TOTAL RECOGNIZED IN NET PERIODIC BENEFIT COST
AND OTHER COMPREHENSIVE INCOME LOSS
$ 41,989
41,766
(53,868)
787
16,660
1,622
$ 48,956
$
$
36,609
43,613
(49,552)
836
11,921
871
44,298
$
$
38,580
38,243
(44,222)
856
26,816
—
60,273
$ 2,429
3,834
(3,267)
(933)
—
—
$ 2,063
$
$
2,188
3,868
(3,081)
(933)
(516)
—
1,526
$ 2,863
3,473
(2,998)
(933)
—
—
$ 2,405
$
9,099
$
75,909
$ (108,387)
$ (2,382)
$ 11,588
$ (11,449)
(933)
(18,381)
(847)
(12,338)
(856)
(26,816)
933
—
933
516
933
—
$ (10,215) $
62,724
$ (136,059)
$ (1,449)
$ 13,037
$ (10,516)
$ 38,741 $ 107,022
$ (75,786)
$
614
$ 14,563
$ (8,111)
The Company uses a five-year averaging method to determine
the market-related value of Pension Benefits plan assets,
which is used to calculate the expected return of plan assets
component of the Plans’ expense. Under this methodology,
asset gains/losses that result from actual returns which differ
from the Company’s expected long-term rate of return on
assets assumption are recognized in the market-related value
of assets on a level basis over a five year period. The difference
between actual as compared to expected asset returns for
the Plans will be fully reflected in the market-related value
of plan assets over the next five years using the methodology
described above. Other post-employment benefit assets under
the Retirement Health Benefits are valued at fair value.
The estimated net loss and prior service cost of Pension Benefits
that will be amortized from accumulated other comprehensive
income into net periodic benefit cost over the next fiscal year
are $8,699 and $435, respectively. The prior service credit
of Retirement Health Benefits that will be amortized from
accumulated other comprehensive income into net periodic
credit over the next fiscal year is $933. There was no estimated
net gain (loss) of Retirement Health Benefits that will be
amortized from accumulated other comprehensive income
into net periodic cost over the next fiscal year.
Determination of the projected benefit obligation was based on the following weighted-average assumptions for the years
ended December 31:
Discount rate
Qualified Pension Benefits
2014
4.09%
2015
4.55%
2013
4.98%
Nonqualified Pension Benefits
2015
2014
4.25%
3.77%
2013
4.64%
Retirement Health Benefits
2014
2015
4.07%
4.53%
2013
4.99%
F-55
ASSURANT, INC. – 2015 Form 10-K
21 Retirement and Other Employee Benefits
Determination of the net periodic benefit cost was based on the following weighted-average assumptions for the years
ended December 31:
Qualified Pension Benefits
2014
2015
4.98%
4.09%
2013
4.12%
Nonqualified Pension Benefits
2015
3.77%
2013
3.71%
2014
4.64%
Retirement Health Benefits
2014
2015
4.99%
4.07%
2013
4.12%
Discount rate
Expected long-term return on plan
assets
* Assumed rates of compensation increases are also used to determine net periodic benefit cost. Assumed rates varied by age and ranged from 3.25%
6.75%
6.75%
6.75%
6.75%
6.75%
6.75%
—
—
—
to 9.30% for the Pension Benefits for the years ended December 31, 2015, 2014 and 2013.
The selection of our discount rate assumption reflects the
rate at which the Plans’ obligations could be effectively settled
at December 31, 2015, 2014 and 2013. The methodology for
selecting the discount rate was to match each Plan’s cash flows
to that of a yield curve that provides the equivalent yields on
zero-coupon corporate bonds for each maturity. The yield curve
utilized in the cash flow analysis was comprised of 281 bonds
rated AA by either Moody’s or Standard & Poor’s with maturities
between zero and thirty years. The discount rate for each Plan
is the single rate that produces the same present value of cash
flows. As of December 31, 2015, we have chosen to implement
a split rate approach for purposes of determining the benefit
obligations and service cost as well as a spot rate approach for
the calculation of interest on these items in the determination
of the net periodic benefit cost. This change is a refinement
in the methodology used to determine these amounts in the
accounting for defined benefit retirement plans under U.S. GAAP.
Due to the new spot rate approach, the rates shown above as
of December 31, 2015 are the single equivalent rates for the
projected benefit obligations based on the December 31, 2015
yield curve spot rates.
To develop the expected long-term rate of return on assets
assumption, the Company considered the current level of
expected returns on risk free investments (primarily government
bonds), the historical level of the risk premium associated with
the other asset classes in which the portfolio is invested and
the expectations for future returns of each asset class. The
expected long-term rate of return on plan assets reflects the
average rate of earnings expected on the funds invested or to
be invested. The expected return for each asset class was then
weighted based on the targeted asset allocation to develop the
expected long-term rate of return on asset assumptions for the
portfolio. The Company believes the current assumption reflects
the projected return on the invested assets, given the current
market conditions and the modified portfolio structure. Actual
return on plan assets was (0.6)% and 13.0% for the years ended
December 31, 2015 and 2014, respectively.
The assumed health care cost trend rates used in measuring the accumulated postretirement benefit obligation and net
periodic benefit cost were as follows:
Health care cost trend rate assumed for next year:
Pre-65 Non-reimbursement Plan
Post-65 Non-reimbursement Plan (Medical)
Post-65 Non-reimbursement Plan (Rx)
Pre-65 Reimbursement Plan
Post-65 Reimbursement Plan
Rate to which the cost trend rate is assumed to decline
(the ultimate trend rate)
Year that the rate reaches the ultimate trend rate
Pre-65 Non-reimbursement Plan
Post-65 Non-reimbursement Plan (Medical & Rx)
Pre-65 Reimbursement Plan
Post-65 Reimbursement Plan
Retirement Health Benefits
2015
2014
2013
9.3%
5.7%
10.2%
8.1%
8.1%
4.5%
2030
2030
2030
2030
8.1%
8.0%
8.0%
8.1%
8.1%
4.5%
2028
2028
2028
2028
8.7%
8.5%
8.5%
8.7%
8.7%
4.5%
2028
2028
2028
2028
Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plans. A one-
percentage point change in assumed health care cost trend rates would have the following effects:
One percentage point increase in health care cost trend rate
Effect on total of service and interest cost components
Effect on postretirement benefit obligation
One percentage point decrease in health care cost trend rate
Effect on total of service and interest cost components
Effect on postretirement benefit obligation
F-56
Retirement Health Benefits
2015
2014
2013
$
$
$
38
622
(59) $
(908)
$
39
646
(60) $
(933)
43
601
(66)
(884)
ASSURANT, INC. – 2015 Form 10-K
21 Retirement and Other Employee Benefits
The assets of the Plans are managed to maximize their long-
term pre-tax investment return, subject to the following
dual constraints: minimization of required contributions and
maintenance of solvency requirements. It is anticipated that
periodic contributions to the Plans will, for the foreseeable
future, be sufficient to meet benefit payments thus allowing
the balance to be managed according to a long-term approach.
The Investment Committee for the Plans meets on a quarterly
basis and reviews the re-balancing of existing fund assets and
the asset allocation of new fund contributions.
The goal of our asset strategy is to ensure that the growth
in the value of the fund over the long-term, both in real and
nominal terms, manages (controls) risk exposure. Risk is
managed by investing in a broad range of asset classes, and
within those asset classes, a broad range of individual securities.
Diversification by asset classes stabilizes total fund results
over short-term time periods. Each asset class is externally
managed by outside investment managers appointed by the
Investment Committee. Derivatives may be used consistent with
the Plan’s investment objectives established by the Investment
Committee. All securities must be U.S. dollar denominated.
In 2015, 7% of the Plans’ assets were allocated to Meisirow
Institutional Multi-Strategy Fund, L.P. (“MIMSF”). MIMSF
is a multi-strategy product for U.S. tax-exempt investors
subject to ERISA. MIMSF allocates to five primary sub-strategies
including hedged equity, credit, event, relative value and
multi-strategy. Allocations to these sub-strategies will shift
over time depending upon MIMSF’s investment outlook. MIMSF
is managed to be broadly diversified in terms of both strategy
and manager exposures.
The Investment Committee that oversees the investment of
the plan assets conducts an annual review of the investment
strategies and policies of the Plans. This includes a review
of the strategic asset allocation, including the relationship
of the Plans’ liabilities and portfolio structure. As a result of
this review, the Investment Committee adopted the current
target asset allocation. The allocation is consistent with 2014.
Financial Assets(1)
Equity securities:
Common stock- U.S. listed small cap
Mutual fund- U.S. listed large cap
Common/collective trust- foreign listed
Fixed maturity securities:
U.S. & foreign government and government agencies and authorities
Corporate- U.S. & foreign investment grade
Corporate- U.S. & foreign high yield
The Plans’ Asset Allocation Percentages
Low
Target(2)
5.0%
10.0%
5.0%
6.5%
31.0%
5.0%
7.5%
15.0%
7.5%
9.0%
33.5%
7.5%
High
10.0%
20.0%
10.0%
11.5%
36.0%
10.0%
Alternative investment fund:
Multi-strategy hedge fund
Commingled real estate fund
Private equity fund
10.5%
8.5%
8.5%
(1) The Plans’ long-term asset allocation targets are 30% equity, 50% fixed income and 20% investment funds. The Company invests certain plan assets
in investment funds, examples of which include real estate investment funds and private equity funds. Amounts allocated for these investments
are included in the alternative investment funds caption of the asset allocation at December 31, 2015, provided in the section above.
8.0%
6.0%
6.0%
5.5%
3.5%
—%
(2) It is understood that these guidelines are targets and that deviations may occur periodically as a result of cash flows, market impact or short-term
decisions implemented by either the Investment Committee or their investment managers.
The assets of the Plans are primarily invested in fixed maturity
and equity securities. While equity risk is fully retained,
interest rate risk is hedged by aligning the duration of the
fixed maturity securities with the duration of the liabilities.
Specifically, interest rate swaps are used to synthetically
extend the duration of fixed maturity securities to match
the duration of the liabilities, as measured on a projected
benefit obligation basis. In addition, the Plans’ fixed income
securities have exposure to credit risk. In order to adequately
diversify and limit exposure to credit risk, the Investment
Committee established parameters which include a limit on
the asset types that managers are permitted to purchase,
maximum exposure limits by sector and by individual issuer
(based on asset quality) and minimum required ratings on
individual securities. As of December 31, 2015, 49% of plan
assets were invested in fixed maturity securities and 15%, 12%
and 9% of those securities were concentrated in the financial,
communications and consumer non-cyclical industries, with
no exposure to any single creditor in excess of 4%, 6% and 7%
of those industries, respectively. As of December 31, 2015,
33% of plan assets were invested in equity securities and
52% of the Plans’ equity securities were invested in a mutual
fund that attempts to replicate the return of the Standard &
Poor’s 500 index (“S&P 500”) by investing its assets in large
capitalization stocks that are included in the S&P 500 using
a weighting similar to the S&P 500.
F-57
ASSURANT, INC. – 2015 Form 10-K
21 Retirement and Other Employee Benefits
The fair value hierarchy for the Company’s qualified pension plan and other post retirement benefit plan assets at December 31,
2015 by asset category, is as follows:
Qualified Pension Benefits
Financial Assets
Cash and cash equivalents:
Short-term investment funds
Equity securities:
Common stock- U.S. listed small cap
Preferred stock
Mutual funds- U.S. listed large cap
Common/collective trust- foreign listed
Fixed maturity securities:
U.S. & foreign government and government agencies and authorities
Corporate- U.S. & foreign investment grade
Corporate- U.S. & foreign high yield
Investment fund:
Multi-strategy hedge fund
Commingled real estate fund
Private equity fund
Derivatives:
December 31, 2015
Total
Level 1
Level 2
Level 3
$
30,628
$
— $
30,628 $
66,948
4,420
141,580
57,948
126,531
221,766
57,238
61,761
49,643
6,210
66,948
4,420
141,580
—
—
—
—
—
—
—
—
—
—
57,948
126,531
221,766
57,238
—
49,643
—
—
—
—
—
—
—
—
—
61,761
—
6,210
Interest rate swap
—
TOTAL FINANCIAL ASSETS
67,971
(1) The difference between the fair value of plan assets above and the amount used in determining the funded status is due to interest receivable
838,697(1) $ 212,948 $ 557,778 $
14,024
14,024
—
$
which is not required to be included in the fair value hierarchy.
Retirement Health Benefits
Financial Assets
Cash and cash equivalents:
Short-term investment funds
Equity securities:
Common stock- U.S. listed small cap
Preferred stock
Mutual funds- U.S. listed large cap
Common/collective trust- foreign listed
Fixed maturity securities:
U.S. & foreign government and government agencies and authorities
Corporate- U.S. & foreign investment grade
Corporate- U.S. & foreign high yield
Investment fund:
Multi-strategy hedge fund
Commingled real estate fund
Private equity fund
Derivatives:
December 31, 2015
Total
Level 1
Level 2
Level 3
$
1,723
$
— $
1,723 $
3,767
249
7,967
3,261
7,120
12,479
3,221
3,475
2,794
350
3,767
249
7,967
—
—
—
—
—
—
—
—
—
—
3,261
7,120
12,479
3,221
—
2,794
—
—
—
—
—
—
—
—
—
3,475
—
350
Interest rate swap
—
TOTAL FINANCIAL ASSETS
3,825
(1) The difference between the fair value of plan assets above and the amount used in determining the funded status is due to interest receivable
789
47,195(1) $
789
31,387 $
11,983 $
—
$
which is not required to be included in the fair value hierarchy.
F-58
ASSURANT, INC. – 2015 Form 10-K 21 Retirement and Other Employee Benefits
The fair value hierarchy for the Company’s qualified pension plan and other post retirement benefit plan assets at December 31,
2014 by asset category, is as follows:
Qualified Pension Benefits
Financial Assets
Cash and cash equivalents:
Short-term investment funds
Equity securities:
Common stock- U.S. listed small cap
Preferred stock
Mutual funds- U.S. listed large cap
Common/collective trust- foreign listed
Fixed maturity securities:
U.S. & foreign government and government agencies and authorities
Corporate- U.S. & foreign investment grade
Corporate- U.S. & foreign high yield
Investment fund:
Multi-strategy hedge fund
Commingled real estate fund
Private equity fund
Derivatives:
December 31, 2014
Total
Level 1
Level 2
Level 3
$
41,165
$
— $
41,165 $
63,761
4,209
191,240
59,249
121,694
226,078
55,759
63,132
43,471
4,614
63,761
4,209
191,240
—
—
—
—
—
—
—
—
—
—
59,249
121,694
226,078
55,759
—
43,471
—
—
—
—
—
—
—
—
—
63,132
—
4,614
Interest rate swap
—
TOTAL FINANCIAL ASSETS
67,746
(1) The difference between the fair value of plan assets above and the amount used in determining the funded status is due to interest receivable
14,242
561,658 $
14,242
888,614(1)
259,210 $
—
$
$
which is not required to be included in the fair value hierarchy.
Retirement Health Benefits
Financial Assets
Cash and cash equivalents:
Short-term investment funds
Equity securities:
Common stock- U.S. listed small cap
Preferred stock
Mutual funds- U.S. listed large cap
Common/collective trust- foreign listed
Fixed maturity securities:
U.S. & foreign government and government agencies and authorities
Corporate- U.S. & foreign investment grade
Corporate- U.S. & foreign high yield
Investment fund:
Multi-strategy hedge fund
Commingled real estate fund
Private equity fund
Derivatives:
December 31, 2014
Total
Level 1
Level 2
Level 3
$
2,344
$
— $
2,344 $
3,631
240
10,890
3,374
6,930
12,874
3,175
3,595
2,476
263
3,631
240
10,890
—
—
—
—
—
—
—
—
—
—
3,374
6,930
12,874
3,175
—
2,476
—
—
—
—
—
—
—
—
—
3,595
—
263
Interest rate swap
—
TOTAL FINANCIAL ASSETS
3,858
(1) The difference between the fair value of plan assets above and the amount used in determining the funded status is due to interest receivable
811
50,603(1) $
811
31,984 $
14,761 $
—
$
which is not required to be included in the fair value hierarchy.
F-59
ASSURANT, INC. – 2015 Form 10-K
22 Segment Information
The following table for the Company’s qualified pension plan and retirement health benefit plan summarizes the change in
fair value associated with the MIMSF and Private Equity Partners XI Limited Partnership, the only Level 3 financial assets.
Beginning balance at December 31, 2014
Purchases
Refund of capital
Actual return on plan assets and plan expenses still held at the reporting date
ENDING BALANCE AT DECEMBER 31, 2015
Pension Benefit
67,746
$
1,403
(86)
(1,092)
67,971 $
$
Retirement
Health Benefit
3,858
$
79
(5)
(107)
3,825
For all the financial assets included in the above hierarchy,
the market valuation technique is used. For the year ended
December 31, 2015, the application of the valuation technique
applied to similar assets has been consistent.
Level 1 and Level 2 securities are valued using various
observable market inputs obtained from a pricing service. The
pricing service prepares estimates of fair value measurements
for our Level 2 securities using proprietary valuation models
based on techniques such as matrix pricing which include
observable market inputs. Observable market inputs for
Level 1 and 2 securities are consistent with the observable
market inputs described in Note 6—Fair Value Disclosures. The
MIFSF utilizes all three levels of inputs to price its holdings.
Since unobservable inputs may have been significant to the
fair value measurement, it was classified as Level 3.
The Company obtains one price for each investment. A
quarterly analysis is performed to assess if the evaluated
prices represent a reasonable estimate of their fair value.
This process involves quantitative and qualitative analysis
and is overseen by benefits, investment and accounting
professionals. Examples of procedures performed include, but
are not limited to, initial and on-going review of pricing service
methodologies, review of pricing statistics and trends, and
comparison of prices for certain securities with two different
appropriate price sources for reasonableness. Following this
analysis, the Company uses the best estimate of fair value
based upon all available inputs. The pricing service provides
information regarding their pricing procedures so that the
Company can properly categorize the Plans’ financial assets
in the fair value hierarchy.
Due to the Plan’s current funding status, no contributions are
expected to be made to its qualified pension plan in 2016.
No contributions are expected to be made to the retirement
health benefit plan in 2016.
The following pension benefits, which reflect expected future service, as appropriate, are expected to be paid:
2016
2017
2018
2019
2020
2021-2025
TOTAL
Pension Benefits
60,555 $
58,245
57,881
60,056
75,144
394,654
706,535 $
$
$
Retirement Health
Benefits
4,000
4,361
4,708
5,066
5,446
32,844
56,425
Defined Contribution Plan
The Company and its subsidiaries participate in a defined contribution plan covering substantially all employees. The defined
contribution plan provides benefits payable to participants on retirement or disability and to beneficiaries of participants
in the event of the participant’s death. The amounts expensed by the Company related to this plan were $44,455, $44,796
and $39,263 in 2015, 2014, and 2013, respectively.
22. Segment Information
The Company has five reportable segments, which are defined
based on the nature of the products and services offered:
Assurant Solutions, Assurant Specialty Property, Assurant
Health, Assurant Employee Benefits, and Corporate & Other.
Assurant Solutions provides mobile device protection products
and services; debt protection administration; credit insurance;
extended service products and related services for consumer
electronics, appliances and vehicles; and pre-funded funeral
insurance. Assurant Specialty Property provides lender-placed
homeowners insurance; property preservation and valuation
services; flood insurance; renters insurance and related
products; and manufactured housing homeowners insurance.
Assurant Health provides individual health and small employer
group health insurance. Assurant Employee Benefits primarily
F-60
ASSURANT, INC. – 2015 Form 10-K 22 Segment Information
provides group dental insurance, group disability insurance
and group life insurance. Corporate & Other includes activities
of the holding company, financing and interest expenses, net
realized gains (losses) on investments and interest income
earned from short-term investments held. Corporate & Other
also includes the amortization of deferred gains associated
with the sales of Fortis Financial Group and Long-Term Care
through reinsurance agreements. Beginning January 1, 2015,
segment assets for Assurant Solutions and Assurant Specialty
Property include their proportionate share of goodwill.
As previously announced, the Company concluded a
comprehensive review of its portfolio and decided to sharpen
its focus on specialty housing and lifestyle protection products
and services. As a result, the Company will exit the health
insurance market and has signed a definitive agreement to
sell its Assurant Employee Benefits segment. See Note 3 and
Note 4, respectively, for more information.
The Company evaluates performance of the operating segments
based on segment income (loss) after-tax excluding realized
gains (losses) on investments. The Company determines
reportable segments in a manner consistent with the way the
Chief Operating Decision Maker makes operating decisions
and assesses performance. The accounting policies of the
reportable segments are the same as those described in the
summary of significant accounting policies. See Note 2 for
further information.
The following tables summarize selected financial information by segment:
Revenues
Net earned premiums
Net investment income
Net realized gains on investments
Amortization of deferred gain on disposal of
businesses
Fees and other income
Total revenues
Benefits, losses and expenses
Policyholder benefits
Amortization of deferred acquisition costs and
value of business acquired
Underwriting, general and administrative
expenses
Interest expense
Total benefits, losses and expenses
Segment income (loss) before provision
(benefit) for income taxes
Provision (benefit) for income taxes
Year Ended December 31, 2015
Solutions
Specialty
Property
Health
Employee
Benefits
Corporate
& Other Consolidated
$ 3,015,846 $ 2,044,701 $2,223,696 $ 1,066,754 $
376,683
—
92,859
—
24,487
—
110,998
—
—
785,611
4,178,140
—
405,545
—
54,622
2,543,105 2,302,805
—
25,006
1,202,758
—
21,190
31,826
12,988
32,682
98,686
$ 8,350,997
626,217
31,826
12,988
1,303,466
10,325,494
919,403
788,549 2,301,241
730,192
3,150
4,742,535
1,078,551
280,492
10,694
32,836
—
1,402,573
1,903,712
—
3,901,666
1,010,445
—
516,726
—
2,079,486 2,828,661
365,921
—
1,128,949
127,285
55,116
185,551
3,924,089
55,116
10,124,313
276,474
79,291
463,619
155,914
(525,856)
(157,949)
73,809
26,487
(86,865)
(44,117)
201,181
59,626
Segment income (loss) after taxes
Net income
Segment assets(1):
(1) Beginning January 1, 2015, goodwill is included on the respective segment balance sheets. Prior to January 1, 2015, all goodwill on Assurant’s
$ 14,356,484 $ 3,648,738 $1,437,032 $ 2,190,808 $ 8,410,066
141,555
$ 30,043,128
307,705 $ (367,907) $
197,183 $
47,322 $
(42,748)
$
$
balance sheet was held in the Corporate & Other segment.
F-61
ASSURANT, INC. – 2015 Form 10-K
22 Segment Information
(1) As of December 31, 2014, all goodwill on Assurant’s balance sheet was held in the Corporate & Other segment. Beginning
January 1, 2015, goodwill is included on the respective segment balance sheets.
Revenues
Net earned premiums
Net investment income
Net realized gains on investments
Amortization of deferred gain on disposal of
businesses
Fees and other income
Total revenues
Benefits, losses and expenses
Policyholder benefits
Amortization of deferred acquisition costs and
value of business acquired
Underwriting, general and administrative
expenses
Interest expense
Total benefits, losses and expenses
Segment income (loss) before provision
(benefit) for income taxes
Provision (benefit) for income taxes
Segment income (loss) after taxes
Net income
Segment assets:
Segment assets, excluding goodwill
Goodwill
TOTAL ASSETS
Revenues
Net earned premiums
Net investment income
Net realized gains on investments
Amortization of deferred gain on disposal of
businesses
Fees and other income
Total revenues
Benefits, losses and expenses
Policyholder benefits
Amortization of deferred acquisition costs and
value of business acquired
Underwriting, general and administrative expenses
Interest expense
Total benefits, losses and expenses
Segment income (loss) before provision
(benefit) for income taxes
Provision (benefit) for income taxes
Segment income (loss) after taxes
Net income
Segment assets:
Segment assets, excluding goodwill
Goodwill
TOTAL ASSETS
Year Ended December 31, 2014
Solutions
Specialty
Property
Health
Employee
Benefits
Corporate
& Other Consolidated
$ 3,128,868 $ 2,506,097 $1,945,452 $ 1,051,725 $
382,640
—
101,908
—
35,369
—
117,192
—
—
19,320
60,783
$ 8,632,142
656,429
60,783
—
667,852
4,179,360
—
301,048
—
40,016
2,909,053 2,020,837
—
24,204
1,193,121
(1,506)
685
79,282
(1,506)
1,033,805
10,381,653
1,027,469
1,085,339 1,575,633
716,892
1,106,889
343,314
4,570
30,785
—
—
1,723,169
—
3,857,527
961,972
—
491,248
—
2,390,625 2,071,451
368,763
—
1,116,440
143,078
58,395
201,473
4,405,333
1,485,558
3,688,230
58,395
9,637,516
321,833
102,885
518,428
176,671
(50,614)
13,134
76,681
28,000
(122,191)
(47,460)
744,137
273,230
$
218,948 $ 341,757 $ (63,748) $
48,681 $ (74,731)
$
470,907
$ 14,260,609 $ 4,010,393 $1,210,615 $ 2,242,145 $ 8,997,465
$ 30,721,227
841,239
$ 31,562,466
Year Ended December 31, 2013
Solutions
Specialty
Property
Health
Employee
Benefits
Corporate
& Other
Consolidated
$ 2,783,758 $ 2,380,044 $ 1,581,407 $ 1,014,587 $
376,245
—
98,935
—
36,664
—
117,853
—
— $ 7,759,796
650,296
34,525
20,599
34,525
—
400,370
3,560,373
—
133,135
2,612,114
—
29,132
1,647,203
—
23,434
1,155,874
16,310
659
72,093
16,310
586,730
9,047,657
895,504
890,409
1,169,075
715,656
4,888
3,675,532
1,132,298
1,341,961
—
3,369,763
309,332
758,941
—
1,958,682
801
434,749
—
1,604,625
27,856
360,303
—
1,103,815
—
138,450
77,735
221,073
190,610
65,458
125,152 $
653,432
229,846
423,586 $
$
42,578
36,721
5,857 $
(148,980)
52,059
(48,739)
17,506
34,553 $ (100,241)
1,470,287
3,034,404
77,735
8,257,958
789,699
300,792
$
488,907
$ 13,321,648 $ 3,858,314 $ 884,077 $ 2,298,698 $ 8,567,391 $ 28,930,128
784,561
$ 29,714,689
F-62
ASSURANT, INC. – 2015 Form 10-K
The Company operates primarily in the U.S. and Canada, but also in select international markets.
The following table summarizes selected financial information by geographic location for the years ended or as of December 31:
22 Segment Information
Location
2015
United States
Foreign countries
TOTAL
2014
United States
Foreign countries
TOTAL
2013
United States
Foreign countries
TOTAL
Revenues
Long-lived
assets
$
8,917,732 $
1,407,762
$ 10,325,494 $
$
8,874,820 $
1,506,833
$ 10,381,653 $
$
$
7,792,728 $
1,254,929
9,047,657 $
293,915
4,499
298,414
272,555
5,090
277,645
248,331
5,299
253,630
Revenue is based in the country where the product was sold and long-lived assets, which are primarily property and equipment,
are based on the physical location of those assets. There are no reportable major customers that account for 10% or more
of the Company’s consolidated revenues.
The Company’s net earned premiums by segment and product are as follows:
Solutions:
Credit
Service contracts
Preneed
Other
TOTAL
Specialty Property:
Homeowners (lender-placed and voluntary)
Manufactured housing (lender-placed and voluntary)
Other
TOTAL
Health:
Individual
Small employer group
TOTAL
Employee Benefits:
Group disability
Group dental
Group life
Group supplemental and vision products
TOTAL
2015
2014
2013
386,341 $
478,898 $
2,446,829
60,403
122,273
3,015,846 $
2,481,793
61,093
107,084
3,128,868 $
547,100
2,057,353
66,523
112,782
2,783,758
1,425,799 $
165,657
453,245
2,044,701 $
1,743,965 $
237,576
524,556
2,506,097 $
1,678,172
226,058
475,814
2,380,044
1,895,970 $
327,726
2,223,696 $
1,544,968 $
400,484
1,945,452 $
1,174,141
407,266
1,581,407
398,172 $
396,925
204,526
67,131
1,066,754 $
409,028 $
392,502
200,285
49,910
1,051,725 $
403,286
383,223
192,392
35,686
1,014,587
$
$
$
$
$
$
$
$
F-63
ASSURANT, INC. – 2015 Form 10-K
24 Quarterly Results of Operations (Unaudited)
23. Earnings per common share
The following table presents net income, the weighted average common shares used in calculating basic earnings per common
share and those used in calculating diluted earnings per common share for each period presented below.
Numerator
Net income
Deduct dividends paid
Undistributed earnings
Denominator
Weighted average shares outstanding used in basic earnings per share
calculations
Incremental common shares from:
SARs
PSUs
ESPP
Weighted average shares used in diluted earnings per share calculations
Earnings per common share — Basic
Distributed earnings
Undistributed earnings
Net income
Earnings per common share — Diluted
Distributed earnings
Undistributed earnings
Net income
Years Ended December 31,
2015
2014
2013
141,555
(94,168)
47,387
$
$
470,907
(77,495)
393,412
$
$
488,907
(74,128 )
414,779
68,163,825
72,181,447
76,648,688
—
789,547
63,837
69,017,209
—
905,648
64,915
73,152,010
65,712
864,572
75,792
77,654,764
1.38
0.70
2.08
1.36
0.69
2.05
$
$
$
$
1.06
5.46
6.52
1.06
5.38
6.44
$
$
$
$
0.96
5.42
6.38
0.95
5.35
6.30
$
$
$
$
$
$
There were no anti-dilutive SARs or PSUs outstanding for the years ended December 31, 2015, 2014 and 2013.
24. Quarterly Results of Operations (Unaudited)
The Company’s quarterly results of operations for the years ended December 31, 2015 and 2014 are summarized in the tables below:
2015
Total revenues
Income (loss) before provision (benefit) for income taxes
Net income (loss)
Basic per share data:
Income (loss) before provision (benefit) for income taxes
Net income (loss)
Diluted* per share data:
Income (loss) before provision (benefit) for income taxes
Net income (loss)
2014
Total revenues
Income before provision for income taxes
Net income
Basic per share data:
Income before provision for income taxes
Net income
Diluted per share data:
Three Month Periods Ended
March 31
June 30
September 30
December 31
2,598,610 $
83,193
50,044
2,644,894 $
40,025
32,789
2,534,156 $
(32,251)
(7,022)
2,547,834
110,214
65,744
1.19 $
0.72 $
1.18 $
0.71 $
0.58 $
0.48 $
0.58 $
0.47 $
(0.48) $
(0.10) $
(0.48) $
(0.10) $
1.65
0.99
1.63
0.97
March 31
June 30
September 30
December 31
2,448,372 $
235,253
137,245
2,608,101 $
193,787
143,610
2,702,488 $
224,751
140,297
2,622,692
90,346
49,755
3.23 $
1.88 $
2.67 $
1.98 $
3.11 $
1.94 $
1.27
0.70
$
$
$
$
$
$
$
$
Income before provision for income taxes
Net income
1.25
0.69
In accordance with earnings per share guidance, diluted per share amounts are computed in the same manner as basic per share amounts when a
loss from operations exists.
2.63 $
1.95 $
3.08 $
1.92 $
3.18 $
1.86 $
$
$
*
F-64
ASSURANT, INC. – 2015 Form 10-K
25 Commitments and Contingencies
Third quarter 2015 results reflect adverse claims development on 2015 individual major medical policies, premium deficiency
reserve strengthening and severance and other exit-related charges associated with our exit from the health insurance market.
Fourth quarter 2014 results were primarily affected by increased claims in the Assurant Health segment, decreased net income
in the Assurant Specialty Property segment due to normalization of our lender-placed business and a previously disclosed
$19,400 net loss on the sale of ARIC.
25. Commitments and Contingencies
The Company and its subsidiaries lease office space and equipment under operating lease arrangements. Certain facility
leases contain escalation clauses based on increases in the lessors’ operating expenses. At December 31, 2015, the aggregate
future minimum lease payments under these operating lease agreements that have initial or non-cancelable terms in excess
of one year are:
2016
2017
2018
2019
2020
Thereafter
Total minimum future lease payments(a)
(a) Minimum future lease payments exclude $14,031 of sublease rental income.
$
$
24,590
20,069
16,457
11,407
8,171
14,944
95,638
Rent expense was $31,784, $30,260 and $27,271 for 2015,
2014 and 2013, respectively. Sublease income was $2,380
in 2015.
In the normal course of business, letters of credit are issued
primarily to support reinsurance arrangements in which
the Company is the reinsurer. These letters of credit are
supported by commitments under which the Company is
required to indemnify the financial institution issuing the
letter of credit if the letter of credit is drawn. The Company
had $19,809 and $17,871 of letters of credit outstanding as
of December 31, 2015 and 2014, respectively.
On January 16, 2015, at the request of the Indiana
Department of Insurance, the National Association of Insurance
Commissioners (the “NAIC”) authorized a multistate targeted
market conduct examination regarding the Company’s lender
placed insurance products. Various underwriting companies,
including American Security Insurance Company, are subject to
the examination. At present, 43 jurisdictions are participating.
During the course of 2015, the Company has cooperated in
responding to requests for information and documents and has
engaged in various communications with the examiners. The
examination continues and no final report has been issued.
In addition, as previously disclosed, the Company is involved
in a variety of litigation relating to its current and past
business operations and, from time to time, it may become
involved in other such actions. In particular, the Company
is a defendant in class actions in a number of jurisdictions
regarding its lender-placed insurance programs. These cases
assert a variety of claims under a number of legal theories.
The plaintiffs seek premium refunds and other relief. The
Company continues to defend itself vigorously in these
class actions. We have participated and may participate in
settlements on terms that we consider reasonable given the
strength of our defenses and other factors.
In July 2007 an Assurant subsidiary acquired Swansure Group,
a privately held U.K. company, which owned D&D Homecare
Limited (“D&D”). D&D was a packager of mortgages and certain
insurance products, including Payment Protection Insurance
(“PPI”) policies that, for a period of time, were underwritten
by an Assurant subsidiary and sold by various alleged agents,
including Carrington Carr Home Finance Limited (“CCHFL”), which
is now in administration. In early 2014, as a result of consumer
complaints alleging that CCHFL missold certain D&D-packaged
PPI policies between August 8, 2003 and November 1, 2004,
the U.K. Financial Ombudsman Service (“FOS”) requested that
an Assurant subsidiary, Assurant Intermediary Limited (“AIL”),
review complaints relating to CCHFL’s sale of such PPI policies.
In late 2015, the FOS issued a provisional decision in favor of
AIL’s challenge to the FOS’s jurisdiction on the CCHF population
of cases. The provisional decision also provided the parties
with the opportunity to provide further submissions before a
final decision would be confirmed. In February 2016, the FOS
confirmed the provisional decision in favor of AIL.
The Company has established an accrued liability for the legal
and regulatory proceedings discussed above. However, the
possible loss or range of loss resulting from such litigation and
regulatory proceedings, if any, in excess of the amounts accrued
is inherently unpredictable and uncertain. Consequently, no
estimate can be made of any possible loss or range of loss in
excess of the accrual. Although the Company cannot predict
the outcome of any pending legal or regulatory action, or the
potential losses, fines, penalties or equitable relief, if any,
that may result, it is possible that such outcome could have
a material adverse effect on the Company’s consolidated
results of operations or cash flows for an individual reporting
period. However, based on currently available information,
management does not believe that the pending matters are
likely to have a material adverse effect, individually or in the
aggregate, on the Company’s financial condition.
F-65
ASSURANT, INC. – 2015 Form 10-K 26 Acquisitions
26. Acquisitions
There were no material acquisitions in 2015.
On October 31, 2014, the Company acquired CWI Group,
a mobile insurance administrator in France, for €56,937
($71,393) in cash. In connection with the acquisition, the
Company recorded €26,485 ($33,399) of customer and market
based intangible assets, all of which are amortizable over 1
to 8 year periods, and €37,369 ($47,123) of goodwill, none of
which is tax-deductible. The acquisition agreement also calls
for a potential earnout based on future performance. The
primary factor contributing to the recognition of goodwill is
the future expected growth of this business within Assurant
Solutions.
On September 3, 2014, the Company acquired eMortgage
Logic, LLC, a national provider of residential valuation
products and valuation technology services. The acquisition-
date fair value of the consideration transferred totaled
$28,263, which primarily consists of an initial cash payment of
$17,000 and a contingent payment of $10,231. The contingent
consideration arrangement is based on future expected
revenue. In connection with the acquisition, the Company
recorded $11,270 of customer and technology based intangible
assets, all of which are amortizable over 3 to 11 year periods,
and $14,058 of goodwill, all of which is tax- deductible. The
primary factor contributing to the recognition of goodwill is
the future expected growth of this business within Assurant
Specialty Property.
On April 16, 2014, the Company acquired StreetLinks, LLC, a
leading independent appraisal management company, from
Novation Companies, Inc. The acquisition-date fair value of the
consideration transferred totaled $65,905, which consists of an
initial cash payment of $60,905 and a contingent payment of
$5,000. The contingent consideration arrangement is based on
future expected revenue. In connection with the acquisition,
the Company recorded $47,970 of customer and technology
based intangible assets, all of which are amortizable over 2
to 12 year periods, and $14,738 of goodwill, none of which
is tax-deductible. The primary factor contributing to the
recognition of goodwill is the future expected growth of this
business within Assurant Specialty Property.
F-66
ASSURANT, INC. – 2015 Form 10-K Schedule I—Summary of Investments Other–Than–
Investments in Related Parties
ASSURANT, INC. AT DECEMBER 31, 2015
(in thousands)
Fixed maturity securities:
United States Government and government agencies and authorities
States, municipalities and political subdivisions
Foreign governments
Asset-backed
Commercial mortgage-backed
Residential mortgage-backed
Corporate
TOTAL FIXED MATURITY SECURITIES
Equity securities:
Common stocks
Non-redeemable preferred stocks
TOTAL EQUITY SECURITIES
Commercial mortgage loans on real estate, at amortized cost
Policy loans
Short-term investments
Other investments
TOTAL INVESTMENTS
Cost or
Amortized Cost
Fair Value
Amount at which
shown in balance
sheet
$
$
150,681 $
647,335
497,785
3,499
22,169
953,247
7,196,079
9,470,795
13,048
437,515
450,563
1,151,256
43,858
508,950
575,323
12,200,745 $
154,035 $
695,630
562,250
4,662
22,521
998,514
7,777,716
10,215,328
19,664
480,393
500,057
1,201,806
43,858
508,950
575,323
13,045,322 $
154,035
695,630
562,250
4,662
22,521
998,514
7,777,716
10,215,328
19,664
480,393
500,057
1,151,256
43,858
508,950
575,323
12,994,772
F-67
ASSURANT, INC. – 2015 Form 10-K
Schedule II—Condensed Balance Sheet (Parent Only)
ASSURANT, INC.
(in thousands except number of shares)
Assets
Investments:
Equity investment in subsidiaries
Fixed maturity securities available for sale, at fair value (amortized cost—$143,069 in 2015 and
$265,433 in 2014)
Equity securities available for sale, at fair value (amortized cost—$4,694 in 2015 and $13,014
in 2014)
Short-term investments
Other investments
Total investments
Cash and cash equivalents
Receivable from subsidiaries, net
Income tax receivable
Accrued investment income
Property and equipment, at cost less accumulated depreciation
Other intangible assets, net
Other assets
TOTAL ASSETS
Liabilities
Accounts payable and other liabilities
Debt
TOTAL LIABILITIES
Commitments and Contingencies
Stockholders’ equity
Common stock, par value $0.01 per share, 800,000,000 shares authorized, 65,850,386 and
69,299,559 shares outstanding at December 31, 2015 and 2014, respectively
Additional paid-in capital
Retained earnings
Accumulated other comprehensive income
Treasury stock, at cost; 83,523,031 and 79,338,142 shares at December 31, 2015 and 2014,
respectively
TOTAL STOCKHOLDERS’ EQUITY
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
See Accompanying Notes to Condensed Financial Information of Registrant
December 31,
2015
2014
$ 5,125,524
$ 5,620,192
140,748
269,889
5,389
(1,810)
93,012
5,362,863
354,146
24,688
23,438
1,328
126,271
—
66,396
$ 5,959,130
23,605
7,349
92,594
6,013,629
392,189
40,952
16,457
2,055
148,046
9,282
139,208
$ 6,761,818
$
263,781
1,171,382
1,435,163
$
409,432
1,171,079
1,580,511
1,497
3,148,409
4,856,674
118,549
1,490
3,131,274
4,809,287
555,767
(3,601,162)
4,523,967
$ 5,959,130
(3,316,511)
5,181,307
$ 6,761,818
F-68
ASSURANT, INC. – 2015 Form 10-K
Schedule II—Condensed Income Statement (Parent Only)
ASSURANT, INC.
(in thousands)
Revenues
Net investment income
Net realized gains on investments
Fees and other income
Equity in net income of subsidiaries
TOTAL REVENUES
Expenses
General and administrative expenses
Interest expense
TOTAL EXPENSES
Income before benefit for income taxes
Benefit for income taxes
NET INCOME
See Accompanying Notes to Condensed Financial Information of Registrant
Years Ended December 31,
2015
2014
2013
$
$
7,298
12,507
95,986
227,805
343,596
223,953
55,116
279,069
64,527
77,028
141,555
$
$
7,212
4,288
90,217
584,464
686,181
197,341
58,394
255,735
430,446
40,461
470,907
$
7,684
1,713
89,889
628,894
728,180
216,623
77,735
294,358
433,822
55,085
$ 488,907
F-69
ASSURANT, INC. – 2015 Form 10-K
Schedule II—Condensed Statements of Comprehensive Income
(Parent Only)
ASSURANT, INC.
(in thousands)
Net income
Other comprehensive (loss) income:
Change in unrealized gains on securities, net of taxes of $8,787,
$(3,273), and $1,863, respectively
Change in foreign currency translation, net of taxes of $(45),
$(68), and $32, respectively
Amortization of pension and postretirement unrecognized net
periodic benefit cost and change in funded status, net of taxes
of $(4,082), $26,516, and $(51,301), respectively
Change in subsidiary other comprehensive income
TOTAL OTHER COMPREHENSIVE (LOSS) INCOME
TOTAL COMPREHENSIVE (LOSS) INCOME
See Accompanying Notes to Condensed Financial Information of Registrant
Years Ended December 31,
2015
141,555
$
2014
470,907
$
2013
488,907
$
(7,876)
84
6,078
126
(3,459)
(59)
7,580
(437,006)
(437,218)
$ (295,663)
(49,244)
171,977
128,937
599,844
$
95,274
(495,329)
(403,573)
85,334
$
F-70
ASSURANT, INC. – 2015 Form 10-K Schedule II—Condensed Cash Flows (Parent Only)
ASSURANT, INC.
(in thousands)
Operating Activities
Net cash provided by operating activities
Investing Activities
Sales of:
Fixed maturity securities available for sale
Equity securities available for sale
Other invested assets
Property and equipment and other
Subsidiary
Maturities, calls, prepayments, and scheduled redemption of:
Fixed maturity securities available for sale
Purchases of:
Fixed maturity securities available for sale
Equity securities available for sale
Other invested assets
Property and equipment and other
Capital contributed to subsidiaries
Return of capital contributions from subsidiaries
Change in short-term investments
NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES
Financing Activities
Issuance of debt
Repurchase of debt
Repayment of debt
Change in tax benefit from share-based payment arrangements
Acquisition of common stock
Dividends paid
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES
Effect of exchange rate changes on cash and cash equivalents
Cash included in held for sale assets
Change in cash and cash equivalents
Cash and cash equivalents at beginning of period
CASH AND CASH EQUIVALENTS AT END OF PERIOD
See Accompanying Notes to Condensed Financial Information of Registrant
Years Ended December 31,
2015
2014
2013
$
649,345
$
397,665
$
440,598
442,777
32,297
447
35
3
444,589
8,895
—
—
—
394,997
19,315
—
41
—
20,167
45,145
69,156
(461,709)
(13,288)
(2,649)
(47,542)
(439,476)
172,391
4,977
(291,570)
(253,866)
(9,433)
(4,134)
(49,569)
(453,700)
205,250
115,856
49,033
(314,864 )
(15,557)
(152)
(29,635)
(323,600)
174,277
(118,123)
(144,145)
—
—
—
(4,067)
(292,906)
(94,168)
(391,141)
—
(4,677)
(38,043)
392,189
$ 354,146
—
—
(467,330)
14,900
(215,183)
(77,495)
(745,108)
50
—
(298,360)
690,549
$ 392,189
698,093
(33,634)
—
(1,112)
(393,012)
(74,128)
196,207
(49)
—
492,611
197,938
$ 690,549
F-71
ASSURANT, INC. – 2015 Form 10-K
Notes to Condensed Financial Information of Registrant
Assurant, Inc.’s (the Registrant) investments in consolidated subsidiaries are stated at cost plus equity in income of
consolidated subsidiaries. The accompanying condensed financial statements of the Registrant should be read in conjunction
with the consolidated financial statements and notes thereto of Assurant, Inc. and subsidiaries included in the Registrant’s
2015 Annual Report on Form 10-K for the year ended December 31, 2015 (2015 Annual Report on Form 10-K) filed with
the Securities and Exchange Commission on February 16, 2016.
F-72
ASSURANT, INC. – 2015 Form 10-K Schedule III—Supplementary Insurance Information
ASSURANT, INC. FOR THE YEARS ENDED DECEMBER 31, 2015, 2014 & 2013
Deferred
Acquisition
costs
Segment
(in thousands)
2015
Future
policy
benefits
and
expenses
Unearned
premiums
Claims and
benefits
payable
Premium
revenue
Net
investment
income
Benefits
claims,
losses and
settlement
expenses
Amortization
of deferred
acquisition
costs
Other
operating
expenses(1)
Property
and
Casualty
Premiums
Written
134,035
Solutions $ 3,148,081 $ 5,234,257 $ 5,086,399 $ 283,236 $ 3,015,846 $ 376,683 $
Specialty
Property
Employee
Benefits
Health
Corporate
and other
1,432,045
552,950
1,066,754
2,223,696
(164,657) 4,118,862
(84,285) 1,103,082
110,998
24,487
33,475
—
9,331
29,607
32,763
78,723
1,382,668
2,044,701
525,406
92,859
21,190
2,089
—
919,403 $ 1,070,237 $1,912,026 $ 566,991
788,549
280,492
1,010,445
1,855,051
730,192
2,301,241
32,836
10,694
365,921
516,726
3,150
—
127,285
—
—
—
TOTAL
SEGMENTS $ 3,150,934 $9,466,694 $ 6,423,720 $ 3,896,719 $8,350,997 $ 626,217 $ 4,742,535 $ 1,394,259 $3,932,403 $ 2,422,042
2014
170,973
Solutions $ 3,032,315 $ 5,208,223 $ 4,957,688 $ 296,545 $ 3,128,868 $ 382,640 $ 1,027,469 $ 1,098,911 $ 1,731,147 $
Specialty
Property
Employee
Benefits
Health
Corporate
and other
1,474,805 1,051,725
391,611 1,945,452
716,892
1,575,633
(172,333) 1,009,891
(290,869) 4,152,893
525,754 2,506,097
8,876
137,546
117,192
35,369
368,763
491,248
30,786
4,570
25,669
19,652
31,788
88,411
1,085,339
1,597,898
343,314
143,078
101,908
961,971
19,320
2,357
—
—
—
760,878
2,369,440
—
—
—
TOTAL
SEGMENTS $ 2,957,740 $9,483,672 $ 6,529,675 $ 3,698,606 $ 8,632,142 $ 656,429 $ 4,405,333 $ 1,477,581 $3,696,207 $ 3,130,318
2013
190,331
Solutions $ 2,902,868 $5,076,507 $ 4,801,495 $ 295,970 $ 2,783,758 $ 376,245 $
Specialty
Property
Employee
Benefits
Health
Corporate
and other
1,513,013 1,014,587
239,733 1,581,407
490,422 2,380,044
12,296
136,376
117,853
36,664
23,247
12,485
32,025
95,380
— 3,440,003
1,682,960
850,233
29,545
20,599
98,935
2,657
—
895,504 $ 1,123,856 $1,350,403 $ 621,543
890,409
309,332
758,941
2,581,696
715,656
1,169,075
27,856
801
360,303
434,749
4,888
—
138,450
—
—
—
TOTAL
SEGMENTS $ 3,128,931 $8,646,572 $ 6,662,672 $ 3,389,371 $ 7,759,796 $650,296 $ 3,675,532 $ 1,461,845 $3,042,846 $ 3,203,239
(1) Includes amortization of value of business acquired and underwriting, general and administration expenses.
F-73
ASSURANT, INC. – 2015 Form 10-K
$
$
$
$
93,926,136 $
664,738 $
3,677,759
7,258,227
$ 11,600,724 $
Ceded to other
Companies
26,786,323 $
Assumed from
other Companies
1,397,236 $
Net amount
68,537,049
316,533 $
630,083
2,829,099
3,775,715 $
16,788 $
177,510
331,690
525,988 $
364,993
3,225,186
4,760,818
8,350,997
$
$
667,984 $
3,536,448
2,757,925
6,962,357 $
295,528 $
774,591
1,460,576
2,530,695 $
20,008 $
153,912
136,953
310,873 $
392,464
2,915,769
1,434,302
4,742,535
97,410,319 $
720,478 $
3,429,376
7,101,095
$ 11,250,949 $
Ceded to other
Companies
29,365,216 $
Assumed from
other Companies
1,642,259 $
Net amount
69,687,362
361,860 $
629,062
2,115,541
3,106,463 $
27,588 $
175,768
284,300
487,656 $
386,206
2,976,082
5,269,854
8,632,142
$
$
736,430 $
364,064 $
3,450,893
2,759,798
6,947,121 $
1,410,856
1,097,144
2,872,064 $
23,812 $
153,621
152,843
330,276 $
396,178
2,193,658
1,815,497
4,405,333
Ceded to other
Companies
34,445,475 $
Assumed from
other Companies
8,162,720 $
Net amount
72,313,973
98,596,728 $
729,519 $
3,089,192
6,029,945
9,848,656 $
373,641 $
674,640
1,355,676
2,403,957 $
39,218 $
170,848
105,031
315,097 $
395,096
2,585,400
4,779,300
7,759,796
736,349 $
1,995,860
1,907,749
4,639,958 $
361,592 $
345,806
491,318
1,198,716 $
27,262 $
147,460
59,568
234,290 $
402,019
1,797,514
1,475,999
3,675,532
Percentage of amount
assumed to net
2.0%
4.6%
5.5%
7.0%
6.3%
5.1%
5.3%
9.5%
6.6%
Percentage of amount
assumed to net
2.4%
7.1%
5.9%
5.4%
5.6%
6.0%
7.0%
8.4%
7.5%
Percentage of amount
assumed to net
11.3%
9.9%
6.6%
2.2%
4.1%
6.8%
8.2%
4.0%
6.4%
Schedule IV—Reinsurance
ASSURANT, INC. FOR THE YEAR ENDED DECEMBER 31, 2015
Direct amount
Life Insurance in Force
Premiums:
Life insurance
Accident and health insurance
Property and liability insurance
TOTAL EARNED PREMIUMS
Benefits:
Life insurance
Accident and health insurance
Property and liability insurance
TOTAL POLICYHOLDER BENEFITS
Life Insurance in Force
Premiums:
Life insurance
Accident and health insurance
Property and liability insurance
TOTAL EARNED PREMIUMS
Benefits:
Life insurance
Accident and health insurance
Property and liability insurance
TOTAL POLICYHOLDER BENEFITS
ASSURANT, INC. FOR THE YEAR ENDED DECEMBER 31, 2014
Direct amount
ASSURANT, INC. FOR THE YEAR ENDED DECEMBER 31, 2013
Direct amount
Life Insurance in Force
Premiums:
Life insurance
Accident and health insurance
Property and liability insurance
TOTAL EARNED PREMIUMS
Benefits:
Life insurance
Accident and health insurance
Property and liability insurance
TOTAL POLICYHOLDER BENEFITS
$
$
$
$
$
F-74
ASSURANT, INC. – 2015 Form 10-K
Schedule V—Valuation and Qualifying Accounts
ASSURANT, INC. AS OF DECEMBER 31, 2015, 2014 AND 2013
2015
Valuation allowance for foreign NOL deferred
tax carryforward
Valuation allowance for mortgage loans on
real estate
Valuation allowance for uncollectible agents
balances
Valuation allowance for uncollectible accounts
Valuation allowance for reinsurance
recoverables
TOTAL
2014
Balance at
Beginning of Year
Charged to Costs
and Expenses
Charged to
Other Accounts
Deductions
Balance at End
of Year
Additions
$
18,164 $
(4,946)
$
— $
— $
13,218
3,399
15,698
15,870
(816)
(206)
6,633
—
1
(59)
(1,179)
1,686
7,375
10,820
63,951 $
$
—
665
$
—
(1,238) $
—
9,062 $
2,582
13,747
13,949
10,820
54,316
$
Valuation allowance for foreign NOL deferred
tax carryforward
Valuation allowance for mortgage loans on
real estate
Valuation allowance for uncollectible agents
balances
Valuation allowance for uncollectible accounts
Valuation allowance for reinsurance
recoverables
TOTAL
2013
$
$
Valuation allowance for foreign NOL deferred
tax carryforward
Valuation allowance for mortgage loans on
real estate
Valuation allowance for uncollectible agents
balances
Valuation allowance for uncollectible accounts
Valuation allowance for reinsurance
recoverables
TOTAL
$
16,474 $
1,690
$
— $
— $
18,164
4,482
(1,086)
3
—
3,399
19,822
16,824
10,820
68,422 $
(1,894)
6,229
52
(655)
2,282
6,528
—
4,939
$
—
(600) $
—
8,810 $
15,698
15,870
10,820
63,951
13,091 $
3,383
$
— $
— $
16,474
6,997
(2,515)
—
4,482
14,753
16,618
10,633
62,092 $
5,870
765
—
238
672
1,039
1,231
187
7,690
$
—
910
$
—
2,270 $
19,822
16,824
10,820
68,422
F-75
ASSURANT, INC. – 2015 Form 10-K
Other Information
CORPORATE HEADQUARTERS
INVESTOR INFORMATION
Assurant, Inc.
28 Liberty Street
41st Floor
New York, NY 10005
Telephone: 212.859.7000
www.assurant.com
INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
PricewaterhouseCoopers LLP
300 Madison Avenue
New York, NY 10017
Telephone: 646.471.3000
Fax: 813.286.6000
www.pwc.com
STOCK LISTING
Assurant is traded on the New York Stock Exchange (NYSE)
under the symbol AIZ.
SHAREHOLDER INQUIRIES
Computershare is the stock transfer agent. All questions on
issuance of stock certificates, changes of ownership, lost
stock certificates, changes of address and other similar
matters should be addressed to:
Computershare
P.O. Box 30170
College Station, TX 77842-3170
www.computershare.com
Domestic Shareholders: 800.522.6645
TDD for Hearing Impaired: 312.588.4110
Foreign Shareholders: 201.680.6578
For additional copies of the Assurant Annual Report
or Assurant news releases, please visit our website:
http://ir.assurant.com
Suzanne Shepherd
Assistant Vice President, Investor Relations
Assurant, Inc.
28 Liberty Street, 41st Floor
New York, NY 10005
212.859.7062
suzanne.shepherd@assurant.com
FORM 10-K AND OTHER REPORTS
Copies of the 2015 Annual Report on Form 10-K and
other reports filed with the U.S. Securities and Exchange
Commission (SEC) also are available, without charge,
from the Assurant Investor Relations website at
http://ir.assurant.com.
SEC AND NYSE CERTIFICATIONS
Assurant has included as Exhibits 31 and 32 to its 2015
Annual Report on Form 10-K filed with the SEC certificates
of Assurant’s Chief Executive Officer and Chief Financial
Officer, as required under the Sarbanes-Oxley Act of 2002,
as amended, regarding the quality of the company’s public
disclosures. In 2015, Assurant’s Chief Executive Officer also
certified to the NYSE that he is not aware of any violations
by Assurant of the NYSE corporate governance listing
standards.
FORWARD-LOOKING STATEMENTS
Some of the statements included in this Annual Report are
forward-looking statements within the meaning of the U.S.
Private Securities Litigation Reform Act of 1995. Please see
the “Risk Factors” section in our 2015 Annual Report on
Form 10-K for a detailed discussion of the risk factors that
could cause our actual results to differ from expectations
or estimates reflected in these forward-looking statements.
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Assurant, Inc.
28 Liberty Street
41st Floor
New York, NY 10005
Telephone: 212.859.7000
www.assurant.com