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ASSURANT, INC.2012 Form10-K F-21
4 Investments
Credit quality indicators for commercial mortgage loans are loan-to-
value and debt-service coverage ratios. Loan-to-value and debt-service
coverage ratios are measures commonly used to assess the credit quality
of commercial mortgage loans.  e loan-to-value ratio compares the
principal amount of the loan to the fair value of the underlying property
collateralizing the loan, and is commonly expressed as a percentage.
e debt-service coverage ratio compares a property’s net operating
income to its debt-service payments and is commonly expressed as a
ratio.  e loan-to-value and debt-service coverage ratios are generally
updated annually in the third quarter.
e following summarizes our loan-to-value and average debt-service coverage ratios as of the dates indicated:
Loan-to-Value
December31, 2012
Carrying Value % of Gross Mortgage Loans Debt-Service Coverage ratio
70% and less $ 1,141,564 86.6% 1.95
71 – 80% 103,152 7.8% 1.30
81 – 95% 57,413 4.3% 1.04
Greater than 95% 16,550 1.3% 1.02
Gross commercial mortgage loans 1,318,679 100.0% 1.85
Less valuation allowance (6,997)
Net commercial mortgage loans $ 1,311,682
Loan-to-Value
December31, 2011
Carrying Value % of Gross Mortgage Loans Debt-Service Coverage ratio
70% and less $ 1,018,927 77.1% 2.09
71 – 80% 188,816 14.3% 1.37
81 – 95% 74,657 5.7% 1.16
Greater than 95% 37,697 2.9% 0.76
Gross commercial mortgage loans 1,320,097 100.0% 1.90
Less valuation allowance (10,410)
Net commercial mortgage loans $ 1,309,687
All commercial mortgage loans that are individually impaired have an
established mortgage loan valuation allowance for losses. Changing
economic conditions a ect our valuation of commercial mortgage loans.
Changing vacancies and rents are incorporated into the discounted cash
ow analysis that we perform for monitored loans and may contribute
to the establishment of (or an increase or decrease in) a commercial
mortgage loan valuation allowance for losses. In addition, we continue
to monitor the entire commercial mortgage loan portfolio to identify
risk. Areas of emphasis are properties that have exposure to earthquakes,
have deteriorating credits or have experienced a reduction in debt-service
coverage ratio. Where warranted, we have established or increased a
valuation allowance based upon this analysis.
e commercial mortgage loan valuation allowance for losses was $6,997
and $10,410 at December31, 2012 and 2011, respectively. In 2012,
the loan valuation allowance was decreased $3,413, due to changing
economic conditions and geographic concentrations. In 2011, the loan
valuation allowance was decreased $22,428, primarily due to the direct
write down of one 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, 2012, the Company had mortgage loan commitments
outstanding of approximately $9,900.
e Company has short term investments and  xed maturities of
$580,953 and $562,553 at December31, 2012 and 2011, 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, 2012 and 2011, the CPI CAPs included in other
assets on the consolidated balance sheet amounted to $5,886 and
$8,521, respectively.  e loss recorded in the results of operations totaled
$2,635, $1,304, and $3,130 for the years ended December31,2012,
2011 and 2010, respectively.
Collateralized Transactions
e Company engages in transactions in which  xed maturity securities,
primarily 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, 2012 and 2011, our collateral held under securities
lending, of which its use is unrestricted, was $94,729 and $95,221,
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 $94,714 and $95,494, respectively,
and is included in the consolidated balance sheets under the obligation