Assurant 2014 Annual Report Download - page 33

ASSURANT, INC. – 2014 Form 10-K 19
PART I
ITEM 1A Risk Factors
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
intermediaries in certain other countries to maintain their
licenses and product approvals, satisfy local regulatory
requirements and continue in business.
For information on the signifi cant 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 fi nancial 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 fl uctuations. 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 fl uctuations
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 $841,239 of our $31,562,466 in total
assets as of December 31, 2014. 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 signifi cant decline in our share price, a decline
in our actual or expected future cash fl ows or income, a
signifi cant 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 profi tability and book
value per share. For more information on our annual goodwill
impairment testing and the goodwill of our segments, please
see “Item 7—MD&A—Critical Factors Affecting Results—Value
and Recoverability of Goodwill.” In addition, other intangible
assets collectively represented $381,960 of our total assets
as of December 31, 2014, and an impairment of these other
intangible assets could have a material adverse effect on
our profi tability and book value per share.
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,
profi tability 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.
Unfavorable conditions in the capital and
credit markets may signifi cantly 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 signifi cantly, they could again deteriorate. Our
ability to borrow or raise money is important if our operating
cash fl ow is insuffi cient 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 fl ow
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 profi tability and
reducing our fi nancial fl exibility. Our results of operations,
fi nancial condition, cash fl ows and statutory capital position
could be materially and adversely affected by disruptions in
the capital markets.