Assurant 2010 Annual Report Download - page 58

52 ASSURANT, INC.  2010 Form 10K
PART II
ITEM 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations
 e Pension Protection Act of 2006 (“PPA”) requires certain qualifi ed
plans, like the Assurant Pension Plan, to meet specifi ed 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 benefi ts as well
as implementation of amendments improving benefi ts are restricted.
As of January 1, 2010, the Assurant Pension Plan’s funded percentage
was 113% on a PPA calculated basis.  erefore, benefi t and payment
restrictions did not occur during 2010.  e 2010 funded measure
will also be used to determine restrictions, if any, that can occur
during the fi rst nine months of 2011. Due to the funding status of
the Assurant Pension Plan in 2010, no restrictions will exist before
October 2011 (the time that the January 1, 2011 actuarial valuation
needs to be completed). Also, based on the estimated funded status as
of January 1, 2011, we do not anticipate any restrictions on benefi ts
for the remainder of 2011.
 e Assurant Pension Plan was under-funded by $96,278 and $87,977
(based on the fair value of the assets compared to the projected
benefi t obligation) on a GAAP basis at December 31, 2010 and
2009, respectively.  is equates to an 85% and 84% funded status
at December 31, 2010 and 2009, respectively.  e change in under-
funded status is mainly due to a decrease in the discount rate used to
determine the projected benefi t obligation, which is partially off set by
better than expected asset performance.
In prior years we established a funding policy in which service cost
plus 15% of the Assurant Pension Plan defi cit is contributed annually.
During 2010, we contributed $40,000 in cash to the Assurant Pension
Plan. We expect to contribute at least $40,000 in cash to the Assurant
Pension Plan over the course of 2011. See Note 22 to the Consolidated
Financial Statements included elsewhere in this report for the components
of the net periodic benefi t cost.
 e impact of a 25 basis point change in the discount rate on the 2011
projected benefi t expense would result in a change of $2,300 for the
Assurant Pension Plan and the various non-qualifi ed pension plans and
$300 for the retirement health benefi t plan.  e impact of a 25 basis
point change in the expected return on assets assumption on the 2011
projected benefi t expense would result in a change of $1,400 for the
Assurant Pension Plan and the various non-qualifi ed pension plans
and $100 for the retirement health benefi ts plan.
Commercial Paper Program
 e Company’s commercial paper program requires the Company
to maintain liquidity facilities either in an available amount equal to
any outstanding notes from the program or in an amount suffi cient to
maintain the ratings assigned to the notes issued from the program. Our
commercial paper is rated AMB-2 by A.M. Best, P-2 by Moody’s and
A2 by S&P.  e Company’s subsidiaries do not maintain commercial
paper or other borrowing facilities at their level.  is program is
currently backed up by a $350,000 senior revolving credit facility,
of which $325,604 was available at December 31, 2010, due to
outstanding letters of credit.
On December 18, 2009, the Company entered into a three-year
unsecured revolving credit agreement (“2009 Credit Facility”) with a
syndicate of banks arranged by JP Morgan Chase Bank, Inc. and Bank
of America, Inc.  e 2009 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 $350,000
and is available until December 2012, provided the Company is in
compliance with all covenants.  e agreement has a sublimit for letters
of credit issued under the agreement of $50,000.  e proceeds of these
loans may be used for the Company’s commercial paper program or
for general corporate purposes.
 e Company did not use the commercial paper program during the
twelve months ended December 31, 2010 and 2009 and there were
no amounts relating to the commercial paper program outstanding
at December 31, 2010 and December 31, 2009.  e Company
made no borrowings using the 2009 Credit Facility and no loans are
outstanding at December 31, 2010.  e Company does have $24,396
of letters of credit outstanding under the 2009 Credit Facility as of
December 31, 2010.
 e 2009 Credit Facility contains restrictive covenants, all of which
were met as of December 31, 2010.  ese covenants include (but are
not limited to):
(i) Maintenance of a maximum debt to total capitalization ratio on
the last day of any fi scal 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 $3,352,474 plus (b) 50% of
consolidated net income for each fi scal quarter (if positive) ending
after December 31, 2009, plus (c) 50% of the net proceeds of
any issuance of Capital Stock or Hybrid Securities received after
September 30, 2009.
At December 31, 2010, our ratio of debt to total capitalization was
18%, the consolidated Minimum Amount described in (ii) above
was $3,588,159 and our actual consolidated adjusted net worth as
calculated under the covenant was $4,500,013.
In the event of the breach of certain covenants all obligations under the
facility, including unpaid principal and accrued interest and outstanding
letters of credit, may become immediately due and payable.
Senior Notes
We have two series of senior notes outstanding in an aggregate principal
amount of $975,000.  e fi rst series is $500,000 in principal amount,
bears interest at 5.625% per year and is due February 15, 2014.
 e second series is $475,000 in principal amount, bears interest at
6.750% per year and is due February 15, 2034. Our senior notes are
rated bbb by A.M. Best, Baa2 by Moody’s and BBB by S&P, as of
December 31, 2010.
Interest on our senior notes is payable semi-annually on February 15
and August 15 of each year.  e interest expense incurred related to the
Senior Notes was $60,188 for the years ended December 31, 2010, 2009
and 2008, respectively.  e senior notes are unsecured obligations and
rank equally with all of our other senior unsecured indebtedness.  e
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
suffi cient liquidity to meet our needs in the ordinary course of business.