Assurant 2015 Annual Report Download - page 108

ASSURANT, INC. – 2015 Form 10-KF-22
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 ows expected to be collected will be accreted or
amortized into net investment income�
For the twelve months ended December 31, 2015 and 2014,
the Company recorded $7,212 and $69, respectively, of OTTI,
of which $5,024 and $30 was related to credit losses and
recorded as net OTTI losses recognized in earnings, with the
remaining amounts of $2,188 and $39, 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 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,
2015 2014 2013
Balance, beginning of year $ 35,424 $ 45,278 $ 95,589
Additions for credit loss impairments recognized in the current period on securities
previously impaired —30 107
Additions for credit loss impairments recognized in the current period on securities not
previously impaired 2,621 — —
Reductions for increases in cash ows expected to be collected that are recognized over
the remaining life of the security (2,398) (5,248) (1,851)
Reductions for credit loss impairments previously recognized on securities which matured,
paid down, prepaid or were sold during the period (3,270) (4,636) (48,567)
BALANCE, END OF YEAR $32,377 $35,424 $45,278
The Company regularly monitors its investment portfolio
to ensure investments that may be other-than-temporarily
impaired are timely identied, 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 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
suf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 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 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 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 ows. For
these other-than-temporarily impaired xed maturity
securities, the net amount recognized in earnings is equal
to the difference between the amortized cost of the xed
maturity security and its net present value�
The Company considers different factors to determine the
amount of projected future cash 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 ows.
The net present value is calculated by discounting the
Company’s best estimate of projected future cash 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 ow
estimates, including prepayment assumptions, are based
on data from widely accepted third-party data sources or