Assurant 2011 Annual Report Download - page 63

ASSURANT, INC.2011 Form10-K 55
PARTII
ITEM 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations
which is not changed by minor short-term market  uctuations, but
does change when large interim deviations occur.  e assumptions we
use may di er 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.
 e Pension Protection Act of 2006 (“PPA”) requires certain quali ed
plans, like the Assurant Pension Plan, to meet speci 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 bene ts as well
as implementation of amendments improving bene ts are restricted.
As of January1,2011, the Assurant Pension Plan’s funded percentage
was 106% on a PPA calculated basis.  erefore, bene t and payment
restrictions did not occur during 2011.  e 2011 funded measure
will also be used to determine restrictions, if any, that can occur
during the  rst nine months of 2012. Due to the funding status of
the Assurant Pension Plan in 2011, no restrictions will exist before
October2012 (the time that the January1,2012 actuarial valuation
needs to be completed). Also, based on the estimated funded status as
of January1,2012, we do not anticipate any restrictions on bene ts
for the remainder of 2012.
 e Assurant Pension Plan was under-funded by $125,517 and
$96,278 (based on the fair value of the assets compared to the projected
bene t obligation) on a GAAP basis at December31,2011 and
2010, respectively.  is equates to an 83% and 85% funded status
at December31,2011 and 2010, respectively.  e change in under-
funded status is mainly due to a decrease in the discount rate used to
determine the projected bene t obligation, which is partially o set by
better than expected asset performance.
 e Company’s funding policy is to contribute amounts to the plan
su cient 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.  e
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 de cit and the capital position of
the Company. During 2011, we contributed $40,000 in cash to the
Assurant Pension Plan. We expect to contribute $50,000 in cash to
the Assurant Pension Plan over the course of 2012. See Note21 to the
Consolidated Financial Statements included elsewhere in this report
for the components of the net periodic bene t cost.
 e impact of a 25 basis point change in the discount rate on the
2012 projected bene t expense would result in a change of $2,900
for the Assurant Pension Plan and the various non-quali ed pension
plans and $50 for the retirement health bene t plan.  e impact of a
25 basis point change in the expected return on assets assumption on
the 2012 projected bene t expense would result in a change of $1,500
for the Assurant Pension Plan and the various non-quali ed pension
plans and $100 for the retirement health bene 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 su 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 separate
commercial paper or other borrowing facilities.  is program is currently
backed up by a $350,000 senior revolving credit facility, of which
$325,704 was available at December31,2011, due to outstanding
letters of credit.
On September21,2011, we entered into a four-year unsecured $350,000
revolving credit agreement (“2011 Credit Facility”) with a syndicate of
banks arranged by JP Morgan Chase Bank, N.A. and Bank of America,
N.A.  e 2011 Credit Facility replaces the Company’s prior three-year
$350,000 revolving credit facility (“2009 Credit Facility”), which was
entered into on December18,2009 and was scheduled to expire in
December2012.  e 2009 Credit Facility terminated upon the e ective
date of the 2011 Credit Facility. Due to the termination, the Company
wrote o $1,407 of unamortized upfront arrangement fees.  e 2011
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
September2015, provided we are in compliance with all covenants.  e
2011 Credit Facility has a sublimit for letters of credit issued thereunder
of $50,000.  e proceeds of these loans may be used for our commercial
paper program or for general corporate purposes.  e Company may
increase the total amount available under the 2011 Credit Facility to
$525,000 subject to certain conditions. No bank is obligated to provide
commitments above their current share of the $350,000 facility.
 e Company did not use the commercial paper program during the
twelve months ended December31,2011 and 2010 and there were
no amounts relating to the commercial paper program outstanding
at December31,2011 and December31,2010.  e Company made
no borrowings using either the 2009 or 2011 Credit Facility and
no loans were outstanding at December31,2011. We had $24,296
of letters of credit outstanding under the 2011 Credit Facility as of
December31,2011.
 e 2011 Credit Facility contains restrictive covenants, all of which
were met as of December31,2011.  ese covenants include (but are
not limited to):
(i) Maintenance of a maximum debt to total capitalization ratio on
the last day of any  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 $3,146,292 plus (b)50%
of consolidated net income for each  scal quarter (if positive)
ending after June30,2011, plus (c)50% of the net proceeds of
any issuance of Capital Stock or Hybrid Securities received after
June30,2011.
At December31,2011, our ratio of debt to total capitalization was
18%, the consolidated Minimum Amount described in (ii)above
was $3,267,148 and our actual consolidated adjusted net worth as
calculated under the covenant was $4,472,069.
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.