Assurant 2014 Annual Report Download - page 71

57ASSURANT, INC. – 2014 Form 10-K
PART II
ITEM 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations
The use of cash collateral received is unrestricted. The Company
reinvests the cash collateral received, generally in investments
of high credit quality that are designated as available-for-sale.
The Company monitors the fair value of securities loaned and
the collateral received, with additional collateral obtained,
as necessary. The Company is subject to the risk of loss to the
extent there is a loss on the re-investment of cash collateral.
As of December 31, 2014 and 2013, our collateral held under
securities lending, of which its use is unrestricted, was $95,985
and $95,215, and is included in the consolidated balance
sheets under the collateral held/pledged under securities
agreements. Our liability to the borrower for collateral
received was $95,986 and $95,206, respectively, and is included
in the consolidated balance sheets under the obligation under
securities agreements. The difference between the collateral
held and obligations under securities lending is recorded as
an unrealized gain (loss) and is included as part of AOCI. All
securities with unrealized losses have been in a continuous
loss position for less than 12 months as of December 31,
2014. All securities were in an unrealized gain position as
of December 31, 2013. The Company includes the available-
for-sale investments purchased with the cash collateral in
its evaluation of other-than-temporary impairments.
Cash proceeds that the Company receives as collateral for
the securities it lends and subsequent repayment of the cash
are regarded by the Company as cash fl ows from fi nancing
activities, since the cash received is considered a borrowing.
Since the Company reinvests the cash collateral generally
in investments that are designated as available-for-sale,
the reinvestment is presented as cash fl ows from investing
activities.
Liquidity and Capital Resources
Regulatory Requirements
Assurant, Inc. is a holding company and, as such, has limited
direct operations of its own. Our holding company’s assets consist
primarily of the capital stock of our subsidiaries. Accordingly,
our holding company’s future cash fl ows depend upon the
availability of dividends and other statutorily permissible
payments from our subsidiaries, such as payments under our
tax allocation agreement and under management agreements
with our subsidiaries. The ability to pay such dividends and to
make such other payments will be limited by applicable laws
and regulations of the states in which our subsidiaries are
domiciled, which subject our subsidiaries to signifi cant regulatory
restrictions. The dividend requirements and regulations vary
from state to state and by type of insurance provided by the
applicable subsidiary. These laws and regulations require, among
other things, our insurance subsidiaries to maintain minimum
solvency requirements and limit the amount of dividends
these subsidiaries can pay to the holding company. For further
information on pending amendments to state insurance holding
company laws, including the NAIC’s “Solvency Modernization
Initiative,” see “Item 1A — Risk Factors — Risks Related to Our
Industry — Changes in regulation may reduce our profi tability
and limit our growth.” Along with solvency regulations, the
primary driver in determining the amount of capital used for
dividends is the level of capital needed to maintain desired
fi nancial strength ratings from A.M. Best.
It is possible that regulators or rating agencies could become
more conservative in their methodology and criteria, including
increasing capital requirements for our insurance subsidiaries
which, in turn, could negatively affect our capital resources.
On November 21, 2014, A.M. Best affi rmed the fi nancial
strength ratings for the legal entities of Assurant’s businesses
with a stable outlook. At that time, A.M. Best also affi rmed
the Company’s debt rating of bbb with a positive outlook.
On July 31, 2014, Moody’s Investor Services (“Moody’s”)
affi rmed the Senior Debt rating of Baa2 with a stable outlook
for Assurant, Inc. At that time, Moody’s also affi rmed the
fi nancial strength ratings of A2 with a stable outlook for
American Security Insurance Company and American Bankers
Insurance Company of Florida. In addition, Moody’s also
affi rmed American Bankers Life Assurance Company of Florida
and Union Security Insurance Company’s fi nancial strength
ratings of A3 with a stable outlook. Moody’s downgraded the
fi nancial strength ratings from Baa1 to Baa2 for Time Insurance
Company and John Alden Life Insurance Company due to
pressures on earnings and concerns about the impact of the
Affordable Care Act but, revised their outlook from negative
to stable for these two entities. On July 1, 2014, Standard and
Poor’s (“S&P”) affi rmed the Senior Debt rating of BBB+ with
a stable outlook for Assurant, Inc. In addition, S&P affi rmed
the fi nancial strength ratings of Assurant’s rated entities with
a stable outlook. For further information on our ratings and
the risks of ratings downgrades, see “Item 1 — Business” and
“Item 1A — Risk Factors – Risks Related to Our Company — A.M.
Best, Moody’s and S&P rate the fi nancial strength of our
insurance company subsidiaries, and a decline in these
ratings could affect our standing in the insurance industry
and cause our sales and earnings to decrease.” For 2015, the
maximum amount of dividends our U.S. domiciled insurance
subsidiaries could pay, under applicable laws and regulations
without prior regulatory approval, is approximately $476,000.
Liquidity
As of December 31, 2014, we had $561,456 in holding
company capital. We use the term “holding company capital”
to represent cash and other liquid marketable securities
held at Assurant, Inc., out of a total of $785,626, that we
are not otherwise holding for a specifi c purpose as of the
balance sheet date, but can be used for stock repurchases,
stockholder dividends, acquisitions, and other corporate
purposes. $250,000 of the $561,456 of holding company
capital is intended to serve as a buffer against remote risks