Assurant 2012 Annual Report Download - page 116

ASSURANT, INC.2012 Form10-KF-40
14 Debt
Business Divestitures
 e Company has used reinsurance to exit certain businesses, such as
the disposals of FFG and LTC. Reinsurance was used in these cases to
facilitate the transactions because the businesses shared legal entities
with operating segments that the Company retained. Assets supporting
liabilities ceded relating to these businesses are mainly held in trusts and
the separate accounts relating to FFG are still re ected in the Company’s
balance sheet. If the reinsurers became insolvent, we would be exposed
to the risk that the assets in the trusts and/or the separate accounts
would be insu cient to support the liabilities that would revert back
to us.  e reinsurance recoverable from  e Hartford was $1,125,472
and $1,153,681 as of December31, 2012 and 2011, respectively.
 e reinsurance recoverable from John Hancock was $2,494,275 and
$2,471,225 as of December31, 2012 and 2011, respectively.
 e reinsurance agreement associated with the FFG sale also stipulates
that  e Hartford contribute funds to increase the value of the separate
account assets relating to Modi ed Guaranteed Annuity business sold
if such value declines below the value of the associated liabilities. If
 e Hartford fails to ful ll these obligations, the Company will be
obligated to make these payments.
In addition, the Company would be responsible for administering this
business in the event of reinsurer insolvency. We do not currently have
the administrative systems and capabilities to process this business.
Accordingly, we would need to obtain those capabilities in the event
of an insolvency of one or more of the reinsurers of these businesses.
We might be forced to obtain such capabilities on unfavorable terms
with a resulting material adverse e ect on our results of operations
and  nancial condition.
As of December31, 2012, we were not aware of any regulatory actions
taken with respect to the solvency of the insurance subsidiaries of
 e Hartford or John Hancock that reinsure the FFG and LTC
businesses, and the Company has not been obligated to ful ll any of
such reinsurers’ obligations.
John Hancock and  e Hartford have paid their obligations when due
and there have been no disputes.
Segment Client Risk and Profi t Sharing
 e Assurant Solutions and Assurant Specialty Property segments
write business produced by their clients, such as mortgage lenders and
servicers,  nancial institutions and reinsures all or a portion of such
business to insurance subsidiaries of some clients. Such arrangements
allow signi cant  exibility in structuring the sharing of risks and pro ts
on the underlying business.
A substantial portion of Assurant Solutions and Assurant Specialty
Property’s reinsurance activities are related to agreements to reinsure
premiums and risks related to business generated by certain clients
to the clients’ own captive insurance companies or to reinsurance
subsidiaries in which the clients have an ownership interest.  rough
these arrangements, our insurance subsidiaries share some of the
premiums and risk related to client-generated business with these clients.
When the reinsurance companies are not authorized to do business in
our insurance subsidiary’s domiciliary state, the Company’s insurance
subsidiary generally obtains collateral, such as a trust or a letter of credit,
from the reinsurance company or its a liate in an amount equal to
the outstanding reserves to obtain full statutory  nancial credit in the
domiciliary state for the reinsurance.
 e Company’s reinsurance agreements do not relieve the Company
from its direct obligation to its insureds.  us, a credit exposure exists to
the extent that any reinsurer is unable to meet the obligations assumed
in the reinsurance agreements. To mitigate its exposure to reinsurance
insolvencies, the Company evaluates the  nancial condition of its
reinsurers and holds substantial collateral (in the form of funds, trusts,
and letters of credit) as security under the reinsurance agreements.
14. Debt
In February2004, the Company issued two series of senior notes with
an aggregate principal amount of $975,000 (the “Senior Notes”).  e
Company received net proceeds of $971,537 from this transaction,
which represents the principal amount less the discount.  e discount
of $3,463 is being amortized over the life of the Senior Notes and is
included as part of interest expense on the statement of operations.  e
 rst series is $500,000 in principal amount, bears interest at 5.63%per
year and is payable in a single installment due February15, 2014 and
was issued at a 0.11% discount.  e second series is $475,000 in
principal amount, bears interest at 6.75%per year and is payable in a
single installment due February15, 2034 and was issued at a 0.61%
discount. Interest on the senior notes is payable semi-annually on
February15 and August15 of each year.  e senior notes are unsecured
obligations and rank equally with all of the Company’s other senior
unsecured indebtedness.  e senior notes are not redeemable prior
to maturity. All of the holders of the senior notes exchanged their
notes in May2004 for new notes registered under the Securities Act
of 1933, as amended.
 e interest expense incurred related to the Senior Notes was $60,306,
$60,360 and $60,646 for the years ended December31, 2012, 2011
and 2010, respectively.  ere was $22,570 of accrued interest at
December31, 2012 and 2011, respectively.  e Company made
interest payments of $30,094 on February15, 2012 and 2011 and
August15, 2012 and 2011, respectively.
Credit Facility
 e Company’s commercial paper program requires the Company
to maintain liquidity facilities either in an available amount equal to
any outstanding notes from the commercial paper program or in an
amount su cient to maintain the ratings assigned to the notes issued
from the commercial paper program.  e Company’s subsidiaries do not
maintain commercial paper or other borrowing facilities at their level.
 is program is currently backed up by a $350,000 senior revolving
credit facility, of which $330,240 was available at December31, 2012,
due to outstanding letters of credit.