Assurant 2014 Annual Report Download - page 34

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ASSURANT, INC. – 2014 Form 10-K20
PART I
ITEM 1A Risk Factors
The value of our investments could decline,
affecting our profi tability and fi nancial
strength.
Investment returns are an important part of our profi tability.
Signifi cant fl uctuations in the fi xed maturity market could
impair our profi tability, fi nancial condition and cash fl ows. Our
investments are subject to market-wide risks and fl uctuations,
as well as to risks inherent in particular securities. In addition,
certain factors affecting our business, such as volatility of
claims experience, could force us to liquidate securities
prior to maturity, causing us to incur capital losses. See
“Item 7A—Quantitative and Qualitative Disclosures About
Market Risk—Interest Rate Risk.”
Market conditions, changes in interest rates,
and prolonged periods of low interest rates
may materially affect our results.
Recent periods have been characterized by low interest rates.
A prolonged period during which interest rates remain at
historically low levels may result in lower-than-expected net
investment income and larger required reserves. In addition,
certain statutory capital requirements are based on formulas
or models that consider interest rates and a prolonged period
of low interest rates may increase the statutory capital we
are required to hold.
Changes in interest rates may materially adversely affect
the performance of some of our investments. Interest rate
volatility may increase or reduce unrealized gains or unrealized
losses in our portfolios. Interest rates are highly sensitive
to many factors, including governmental monetary policies,
domestic and international economic and political conditions
and other factors beyond our control. Fixed maturity and
short-term investments represented 81% of the fair value of
our total investments as of December 31, 2014.
The fair market value of the fi xed maturity securities in our
portfolio and the investment income from these securities
fl uctuate depending on general economic and market
conditions. Because all of our fi xed maturity securities
are classifi ed as available for sale, changes in the market
value of these securities are refl ected in our consolidated
balance sheets. Their fair market value generally increases
or decreases in an inverse relationship with fl uctuations in
interest rates, while net investment income from fi xed-
maturity investments increases or decreases directly with
interest rates. In addition, actual net investment income and
cash fl ows from investments that carry prepayment risk, such
as mortgage-backed and other asset-backed securities may
differ from those anticipated at the time of investment as
a result of interest rate fl uctuations. An increase in interest
rates will also decrease the net unrealized gains in our current
investment portfolio.
We employ asset/liability management strategies to manage
the adverse effects of interest rate volatility and the likelihood
that cash fl ows are unavailable to pay claims as they become
due. Our asset/liability management strategies do not
completely eliminate the adverse effects of interest rate
volatility, and signifi cant fl uctuations in the level of interest
rates may require us to liquidate investments prior to maturity
at a signifi cant loss to pay claims and policyholder benefi ts.
This could have a material adverse effect on our results of
operations and fi nancial condition.
Our preneed insurance policies are generally whole life
insurance policies with increasing death benefi ts. In extended
periods of declining interest rates or rising infl ation, there
may be compression in the spread between the death benefi t
growth rates on these policies and the investment income
that we can earn, resulting in a negative spread. As a result,
declining interest rates or high infl ation rates may have a
material adverse effect on our results of operations and our
overall fi nancial condition. See “Item 7A—Quantitative and
Qualitative Disclosures About Market Risk—Infl ation Risk” for
additional information.
Assurant Employee Benefi ts calculates reserves for long-
term disability and life waiver of premium claims using net
present value calculations based on interest rates at the time
reserves are established and expectations regarding future
interest rates. Waiver of premium refers to a provision in
a life insurance policy pursuant to which an insured with
a disability that lasts for a specifi ed period no longer has
to pay premiums for the duration of the disability or for a
stated period, during which time the life insurance coverage
continues. If interest rates decline, reserves for open and
new claims in Assurant Employee Benefi ts may need to be
calculated using lower discount rates, thereby increasing the
net present value of those claims and the required reserves.
Depending on the magnitude of the decline, such changes could
have a material adverse effect on our results of operations
and fi nancial condition. In addition, investment income may
be lower than that assumed in setting premium rates.
We may be unable to grow our business as
we would like if we cannot fi nd suitable
acquisition candidates at attractive prices
or integrate them effectively.
We expect acquisitions and new ventures to play a signifi cant
role in the growth of some of our businesses. We may not,
however, be able to identify suitable acquisition candidates
or new venture opportunities or to fi nance or complete such
transactions on acceptable terms. Additionally, the integration
of acquired businesses may result in signifi cant challenges, and
we may be unable to accomplish such integration smoothly
or successfully.
Acquired businesses and new ventures may not provide us with
the benefi ts that we anticipate. Acquisitions entail a number
of risks including, among other things, inaccurate assessment
of liabilities; diffi culties in realizing projected effi ciencies,
synergies and cost savings; diffi culties in integrating systems
and personnel; failure to achieve anticipated revenues,
earnings or cash fl ow; an increase in our indebtedness; and
a limitation in our ability to access additional capital when
needed. Our failure to adequately address these acquisition
risks could materially adversely affect our results of operations
and fi nancial condition.