Assurant 2015 Annual Report Download - page 32

ASSURANT, INC. – 2015 Form 10-K20
PART I
ITEM 1A Risk Factors
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 82% of the fair value of our total
investments as of December 31, 2015.
The fair market value of the xed maturity securities in our
portfolio and the investment income from these securities
fluctuate depending on general economic and market
conditions. Because all of our xed maturity securities
are classied as available for sale, changes in the market
value of these securities are reected in our consolidated
balance sheets. Their fair market value generally increases
or decreases in an inverse relationship with uctuations
in interest rates, while net investment income from xed
maturity investments increases or decreases directly with
interest rates. In addition, actual net investment income and
cash 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 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 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
signicant uctuations in the level of interest rates may require
us to liquidate investments prior to maturity at a signicant
loss to pay claims and policyholder benets. This could have
a material adverse effect on our results of operations and
nancial condition.
Our preneed insurance policies are generally whole life
insurance policies with increasing death benets. In extended
periods of declining interest rates or rising ination, there
may be compression in the spread between the death bene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 ination rates may have a
material adverse effect on our results of operations and our
overall nancial condition. See “Item 7A — Quantitative and
Qualitative Disclosures About Market Risk — Ination Risk”
for additional information�
Assurant Employee Bene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 speci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 Bene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 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 nd suitable
acquisition candidates at attractive prices
or integrate them effectively.
We expect acquisitions and new ventures to play a signi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 nance or complete such
transactions on acceptable terms� Additionally, the integration
of acquired businesses may result in signi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 benets that we anticipate. Acquisitions entail a number
of risks including, among other things, inaccurate assessment
of liabilities; difculties in realizing projected efciencies;
synergies and cost savings; difculties in integrating systems
and personnel; failure to achieve anticipated revenues,
earnings or cash 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 nancial condition.
Our investment portfolio is subject to
various risks that may result in realized
investment losses.
We are subject to credit risk in our investment portfolio,
primarily from our investments in corporate bonds, preferred
stocks, leveraged loans, municipal bonds, and commercial
mortgages� Defaults by third parties in the payment or
performance of their obligations could reduce our investment
income and realized investment gains or result in the continued
recognition of investment losses. The value of our investments
may be materially adversely affected by increases in interest
rates, downgrades in the corporate bonds included in the
portfolio and by other factors that may result in the continued
recognition of other-than-temporary impairments. Each of
these events may cause us to reduce the carrying value of
our investment portfolio.
Further, the value of any particular xed maturity security
is subject to impairment based on the creditworthiness
of a given issuer. As of December 31, 2015, xed maturity
securities represented 78% of the fair value of our total
invested assets. Our xed maturity portfolio also includes
below investment grade securities (rated “BB” or lower by
nationally recognized statistical rating organizations)� These
investments comprise approximately 5% of the fair value of
our total investments as of December 31, 2015 and generally