Assurant 2014 Annual Report Download - page 109

ASSURANT, INC. – 2014 Form 10-K F-21
5 Investments
Other-Than-Temporary Impairments
The Company follows the OTTI guidance which requires entities
to separate an OTTI of a debt security into two components
when there are credit related losses associated with the
impaired debt security for which the Company asserts that it
does not have the intent to sell, and it is more likely than not
that it will not be required to sell before recovery of its cost
basis. Under the OTTI guidance, the amount of the OTTI related
to a credit loss is recognized in earnings, and the amount of
the OTTI related to other, non-credit factors (e.g., interest
rates, market conditions, etc.) is recorded as a component
of other comprehensive income. In instances where no
credit loss exists but the Company intends to sell the security
or it is more likely than not that the Company will have to
sell the debt security prior to the anticipated recovery, the
decline in market value below amortized cost is recognized
as an OTTI in earnings. In periods after the recognition of
an OTTI on debt securities, the Company accounts for such
securities as if they had been purchased on the measurement
date of the OTTI at an amortized cost basis equal to the
previous amortized cost basis less the OTTI recognized in
earnings. For debt securities for which OTTI was recognized
in earnings, the difference between the new amortized cost
basis and the cash fl ows expected to be collected will be
accreted or amortized into net investment income.
For the twelve months ended December 31, 2014 and 2013,
the Company recorded $69 and $4,516, respectively, of OTTI,
of which $30 and $4,387 was related to credit losses and
recorded as net OTTI losses recognized in earnings, with the
remaining amounts of $39 and $129, respectively, related
to all other factors and was recorded as an unrealized loss
component of AOCI.
The following table sets forth the amount of credit loss impairments recognized within the results of operations on fi xed
maturity securities held by the Company as of the dates indicated, for which a portion of the OTTI loss was recognized in
AOCI, and the corresponding changes in such amounts.
Years Ended December 31,
2014 2013 2012
Balance, beginning of year $ 45,278 $ 95,589 $ 103,090
Additions for credit loss impairments recognized in the current period on securities
previously impaired 30 107 56
Reductions for increases in cash fl ows expected to be collected that are recognized over
the remaining life of the security (5,248) (1,851) (1,590)
Reductions for credit loss impairments previously recognized on securities which matured,
paid down, prepaid or were sold during the period (4,636) (48,567) (5,967)
BALANCE, END OF YEAR $ 35,424 $ 45,278 $ 95,589
We regularly monitor our investment portfolio to ensure
investments that may be other-than-temporarily impaired are
identifi ed in a timely fashion, properly valued, and charged
against earnings in the proper period. The determination
that a security has incurred an other-than-temporary decline
in value requires the judgment of management. Assessment
factors include, but are not limited to, the length of time
and the extent to which the market value has been less
than cost, the fi nancial condition and rating of the issuer,
whether any collateral is held, the intent and ability of
the Company to retain the investment for a period of time
suffi cient to allow for recovery for equity securities and the
intent to sell or whether it is more likely than not that the
Company will be required to sell for fi xed maturity securities.
Inherently, there are risks and uncertainties involved in
making these judgments. Changes in circumstances and
critical assumptions such as a continued weak economy, a
more pronounced economic downturn or unforeseen events
which affect one or more companies, industry sectors, or
countries could result in additional impairments in future
periods for other-than-temporary declines in value. Any
equity security whose price decline is deemed other-than-
temporary is written down to its then current market value
with the amount of the impairment reported as a realized
loss in that period. The impairment of a fi xed maturity
security that the Company has the intent to sell or that it
is more likely than not that the Company will be required
to sell is deemed other-than-temporary and is written
down to its market value at the balance sheet date with
the amount of the impairment reported as a realized loss in
that period. For all other-than-temporarily impaired fi xed
maturity securities that do not meet either of these two
criteria, the Company is required to analyze its ability to
recover the amortized cost of the security by calculating
the net present value of projected future cash fl ows. For
these other-than-temporarily impaired fi xed maturity
securities, the net amount recognized in earnings is equal
to the difference between the amortized cost of the fi xed
maturity security and its net present value.
The Company considers different factors to determine the
amount of projected future cash fl ows and discounting
methods for corporate debt and residential and commercial
mortgage-backed or asset-backed securities. For corporate
debt securities, the split between the credit and non-credit
losses is driven principally by assumptions regarding the
amount and timing of projected future cash fl ows. The net
present value is calculated by discounting the Company’s
best estimate of projected future cash fl ows at the effective
interest rate implicit in the security at the date of acquisition.
For residential and commercial mortgage-backed and asset-
backed securities, cash fl ow estimates, including prepayment
assumptions, are based on data from widely accepted third-
party data sources or internal estimates. In addition to
prepayment assumptions, cash fl ow estimates vary based
on assumptions regarding the underlying collateral including