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ASSURANT, INC.2011 Form10-K 59
PARTII
ITEM 7A Quantitative and Qualitative Disclosures About Market Risk
e 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
As of December31,2011 -100 -50 0 50 100
Portfolio yield 5.52% 5.58% 5.63% 5.68% 5.74%
Basis point change in portfolio yield (0.11)% (0.05)% —% 0.05% 0.11%
As of December31,2010 -100 -50 0 50 100
Portfolio yield 5.63% 5.69% 5.76% 5.83% 5.89%
Basis point change in portfolio yield (0.13)% (0.07)% —% 0.07% 0.13%
Credit Risk
We have exposure to credit risk primarily from customers, as a holder
of  xed 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  xed 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+.  ese 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.
e following table presents our  xed maturity investment portfolio by ratings of the nationally recognized securities rating organizations as of
the dates indicated:
Rating
December31,2011 December31,2010
Fair Value Percentageof Total Fair Value Percentageof Total
Aaa/Aa/A $ 6,620,808 59% $ 6,488,208 61%
Baa 3,692,709 33% 3,227,216 30%
Ba 648,817 6% 618,465 6%
B and lower 230,265 2% 278,663 3%
TOTAL $ 11,192,599 100% $ 10,612,552 100%
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.”
e Company had $5,411,064 and $4,997,316 of reinsurance
recoverables as of December31,2011 and 2010, 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 modi ed coinsurance or co-funds-withheld
arrangement. For example, reserves of $1,153,681 and $2,471,225
as of December31,2011 and $1,185,687 and $2,303,221 as of
December31,2010, relating to two large coinsurance arrangements
with  e Hartford and John Hancock (a subsidiary of Manulife
Financial Corporation), respectively, related to sales of businesses are
held in trusts. If the value of the assets in these trusts falls below the
value of the associated liabilities,  e 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  nancial condition of  e Hartford and John
Hancock, whose A.M. Best ratings are currently A and A+, respectively.
As of December31,2011, A.M. Best maintained a stable outlook on
the  nancial strength ratings of John Hancock and  e Hartford.
For recoverables that are not protected by these mechanisms, we are
dependent solely on the credit of the reinsurer. Occasionally, the credit
worthiness of the reinsurer becomes questionable. 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  nancial 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.