Assurant 2014 Annual Report Download - page 69

55ASSURANT, INC. – 2014 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:
Years Ended December 31,
2014
2013 2012
Fixed maturity securities $ 522,309 $ 530,144 $ 553,668
Equity securities 28,014 27,013 24,771
Commercial mortgage loans on real estate 73,959 76,665 79,108
Policy loans 2,939 3,426 3,204
Short-term investments 1,950 2,156 4,889
Other investments 34,527 20,573 54,581
Cash and cash equivalents 18,556 14,679 15,323
Total investment income 682,254 674,656 735,544
Investment expenses (25,825) (24,360) (22,416)
NET INVESTMENT INCOME $ 656,429 $ 650,296 $ 713,128
Net investment income increased $6,133, or 1%, to $656,429
for 2014 from $650,296 for 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 refl ecting lower investment yields.
Net investment income decreased $62,832, or 9%, to $650,296
for 2013 from $713,128 for 2012. The decrease is primarily
due to $29,549 less investment income from real estate joint
venture partnerships. Excluding the investment income from
real estate joint venture partnerships, net investment income
decreased $33,283, primarily refl ecting lower investment
yields.
The net unrealized gain position increased to $1,279,606 as of
December 31, 2014, compared to $812,388 as of December 31,
2013 primarily due to a decrease in Treasury yields offset by
an increase in credit spreads.
As of December 31, 2014, the Company owned $184,860
of securities guaranteed by fi nancial guarantee insurance
companies. Included in this amount was $174,850 of municipal
securities, whose credit rating was A+ with the guarantee,
but would have had a rating of A without the guarantee.
Our states, municipalities and political subdivisions holdings
are highly diversifi ed 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, 2014 and
2013. At December 31, 2014 and 2013, the securities include
general obligation and revenue bonds issued by states,
cities, counties, school districts and similar issuers, including
$270,107 and $234,640, 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,
2014 and 2013, revenue bonds account for 51% and 53% 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, specifi cally pledged tax revenues, and other
miscellaneous sources such as bond banks, fi nance authorities
and appropriations.
The Company’s investments in foreign government fi xed
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, 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. At December 31, 2013,
approximately 70%, 15% and 6% 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 our foreign
government securities as of December 31, 2014 and 2013,
respectively.
The Company has European investment exposure in its
corporate fi xed maturity and equity securities of $1,060,655
with a net unrealized gain of $116,975 at December 31,
2014 and $1,082,129 with a net unrealized gain of $78,126
at December 31, 2013. Approximately 22% and 25% of the
corporate European exposure is held in the fi nancial industry
at December 31, 2014 and 2013, respectively. Our largest
European country exposure represented approximately 5%
and 6% of the fair value of our corporate securities as of
December 31, 2014 and 2013, respectively. Approximately
5% 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. Our international investments are managed as
part of our overall portfolio with the same approach to risk
management and focus on diversifi cation.
The Company has exposure to the energy sector in its corporate
fi xed maturity securities of $992,012 with a net unrealized
gain of $89,590 at December 31, 2014 and $996,901 with
a net unrealized gain of $78,667 at December 31, 2013.
Approximately 89% and 87% of the energy exposure is rated
as investment grade as of December 31, 2014 and 2013,
respectively.