Assurant 2015 Annual Report Download - page 33

ASSURANT, INC. – 2015 Form 10-K 21
PART I
ITEM 1A Risk Factors
provide higher expected returns but present greater risk
and can be less liquid than investment grade securities. A
signicant increase in defaults and impairments on our xed
maturity investment portfolio could materially adversely
affect our results of operations and nancial condition. See
“Item 7A — Quantitative and Qualitative Disclosures About
Market Risk — Credit Risk” for additional information on
the composition of our xed maturity investment portfolio.
We currently invest in a small amount of equity securities
(approximately 4% of the fair value of our total investments
as of December 31, 2015). However, we have had higher
percentages in the past and may make more such investments
in the future. Investments in equity securities generally provide
higher expected total returns but present greater risk to
preservation of capital than our xed maturity investments.
If treasury rates or credit spreads were to increase, the
Company may have additional realized and unrealized
investment losses and increases in other-than-temporary
impairments� The determination that a security has incurred
an other-than-temporary decline in value requires the
judgment of management. Inherently, there are risks and
uncertainties involved in making these judgments. Changes
in facts, circumstances, or critical assumptions could cause
management to conclude that further impairments have
occurred. This could lead to additional losses on investments.
For further details on net investment losses and other-than-
temporary-impairments, please see Note 5 to the Consolidated
Financial Statements included elsewhere in this report.
Derivative instruments generally present greater risk than
xed maturity investments or equity investments because of
their greater sensitivity to market uctuations. Since August 1,
2003, we have been using derivative instruments to manage
the exposure to ination risk created by our preneed insurance
policies that are tied to the CPI. The protection provided
by these derivative instruments begins at higher levels of
ination. However, exposure can still exist due to potential
differences in the amount of business and the notional amount
of the protection. This could have a material adverse effect
on our results of operations and nancial condition.
Our commercial mortgage loans and real estate
investments subject us to liquidity risk.
Our commercial mortgage loans on real estate investments
(which represented approximately 9% of the fair value of our
total investments as of December 31, 2015) are relatively
illiquid. If we require extremely large amounts of cash on
short notice, we may have difculty selling these investments
at attractive prices and in a timely manner.
The risk parameters of our investment
portfolio may not assume an appropriate level
of risk, thereby reducing our protability and
diminishing our ability to compete and grow.
In pricing our products and services, we incorporate
assumptions regarding returns on our investments. Accordingly,
our investment decisions and objectives are a function of
the underlying risks and product proles of each of our
operating segments. Market conditions may not allow us to
invest in assets with sufciently high returns to meet our
pricing assumptions and prot targets over the long term. If,
in response, we choose to increase our product prices, our
ability to compete and grow may be diminished.
Environmental liability exposure may result
from our commercial mortgage loan portfolio
and real estate investments.
Liability under environmental protection laws resulting from
our commercial mortgage loan portfolio and real estate
investments may weaken our nancial strength and reduce
our protability. For more information, please see Item 1,
“Business — Regulation — Environmental Regulation.”
Unanticipated changes in tax provisions,
changes in tax laws or exposure to additional
income tax liabilities could materially and
adversely affect our results.
In accordance with applicable income tax guidance, the
Company must determine whether its ability to realize
the value of its deferred tax asset is “more likely than
not�” Under the income tax guidance, a deferred tax asset
should be reduced by a valuation allowance if, based on
the weight of all available evidence, it is more likely than
not that some portion of the deferred tax asset will not be
realized� The realization of deferred tax assets depends
upon the existence of sufcient taxable income of the same
character during the carryback or carryforward periods.
In determining the appropriate valuation allowance,
management made certain judgments relating to
recoverability of deferred tax assets, use of tax loss
and tax credit carryforwards, levels of expected future
taxable income and available tax planning strategies.
The assumptions in making these judgments are updated
periodically on the basis of current business conditions
affecting the Company and overall economic conditions.
These management judgments are therefore subject to
change due to factors that include, but are not limited
to, changes in our ability to realize sufcient taxable
income of the same character in the same jurisdiction or
in our ability to execute other tax planning strategies�
Management will continue to assess and determine the
need for, and the amount of, the valuation allowance in
subsequent periods. Any change in the valuation allowance
could have a material impact on our results of operations
and nancial condition.
Changes in tax laws could increase our corporate taxes or
reduce our deferred tax assets� Certain proposed changes
could have the effect of increasing our effective tax rate
by reducing deductions or increasing income inclusions�
Conversely, other changes, such as lowering the corporate
tax rate, could reduce the value of our deferred tax assets.