Assurant 2011 Annual Report Download - page 97

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ASSURANT, INC.2011 Form10-K F-21
4 Investments
e commercial mortgage loan valuation allowance for losses was $10,410
and $32,838 at December31, 2011 and 2010, respectively. In 2010,
an overall expense of $16,709 was recorded primarily to increase the
valuation allowance on one individually impaired commercial mortgage
loan with a loan valuation allowance of $22,092 and a net loan value
of $0 at December31, 2010. In 2011, the loan valuation allowance
was decreased $22,428, primarily due to the direct write down of the
same individually impaired mortgage loan resulting in no impact to
realized capital gains and losses on commercial mortgage loans.  e
remaining decrease was due to changing economic conditions and
geographic concentrations.
At December31, 2011, the Company had mortgage loan commitments
outstanding of approximately $15,760 and is committed to fund
additional capital contributions of $555 to real estate joint ventures.
Furthermore, the Company has a $100,000 commitment to fund a
revolving credit facility with one of its customers.
e Company has short term investments and  xed maturities of
$562,553 and $553,722 at December31, 2011 and 2010, respectively,
on deposit with various governmental authorities as required by law.
e Company utilizes derivative instruments in managing the Assurant
Solutions segment preneed life insurance business exposure to in ation
risk.  e derivative instruments, Consumer Price Index Caps (the “CPI
CAPs”), limits the in ation risk on certain policies.  e CPI CAPs do
not qualify under GAAP as e ective hedges; therefore, they are marked-
to-market on a quarterly basis and the gain or loss is recognized in the
statement of operations in fees and other income. As of December31,
2011 and 2010, the CPI CAPs included in other assets amounted to
$8,521 and $9,825, respectively.  e (loss) gain recorded in the results
of operations totaled $(1,304), $(3,130), and $6,174 for the years
ended December31, 2011, 2010 and 2009, respectively.
Collateralized Transactions
e Company engages in transactions in which  xed maturity securities,
especially bonds issued by the U.S. government and government
agencies and authorities, and U.S. corporations, are loaned to selected
broker/dealers. Collateral, greater than or equal to 102% of the fair
value of the securities lent, plus accrued interest, is received in the form
of cash and cash equivalents held by a custodian bank for the bene t
of the Company.  e use of cash collateral received is unrestricted.
e Company reinvests the cash collateral received, generally in
investments of high credit quality that are designated as available-for-
sale.  e Company monitors the fair value of securities loaned and
the collateral received, with additional collateral obtained, as necessary.
e 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, 2011 and 2010, our collateral held under securities
lending, of which its use is unrestricted, was $95,221 and $122,219,
respectively, 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 $95,494 and $122,931,
respectively, and is included in the consolidated balance sheets under
the obligation under securities agreements.  e di erence between the
collateral held and obligations under securities lending is recorded as
an unrealized loss and is included as part of AOCI. All securities with
unrealized losses have been in a continuous loss position for twelve
months or longer as of December31, 2011 and December31, 2010.
e Company has actively reduced the size of its securities lending to
mitigate counter-party exposure.  e 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  ows from  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  ows from investing activities.
e Company has engaged in transactions in which securities issued
by the U.S. government and government agencies and authorities, are
purchased under agreements to resell (“reverse repurchase agreements”).
However, as of December31, 2011, the Company has no open
transactions.  e Company may take possession of the securities
purchased under reverse repurchase agreements. Collateral, greater
than or equal to 100% of the fair value of the securities purchased,
plus accrued interest, is pledged to selected broker/dealers in the
form of cash and cash equivalents or other securities, as provided for
in the underlying agreement.  e use of the cash collateral pledged
is unrestricted. Interest earned on the collateral pledged is recorded
as investment income. As of December31, 2010, the Company had
$14,370 of receivables under securities loan agreements which is
included on the consolidated balance sheets under the collateral held/
pledged under securities agreements.
e Company entered into these reverse repurchase agreements in order
to initiate short positions in its investment portfolio.  e borrowed
securities are sold to a third party in the marketplace.  e Company
records obligations to return the securities that we no longer hold as
a liability.  e nancial liabilities resulting from these borrowings are
carried at fair value with the changes in value reported as realized gains
or losses.  e Company had $0 and $14,281 of obligations to return
borrowed securities which is included in the consolidated balance sheets
under the obligation under securities agreements as of December31,
2011 and 2010, respectively.
Cash payments for the collateral pledged, subsequent cash adjustments
to receivables under securities loan agreements and obligations to
return borrowed securities, and the return of the cash collateral from
the secured parties is regarded by the Company as cash  ows from
nancing activities, since the cash payments and receipts relate to
borrowing of securities under  nancing arrangements.