Assurant 2015 Annual Report Download - page 47

35ASSURANT, INC. – 2015 Form 10-K
PART II
ITEM 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations
Critical Factors Affecting Results
Our results depend on the appropriateness of our product
pricing, underwriting and the accuracy of our methodology
for the establishment of reserves for future policyholder
benets and claims, returns on and values of invested assets
and our ability to manage our expenses� Factors affecting
these items, including unemployment, difcult conditions
in nancial markets and the global economy, may have
a material adverse effect on our results of operations or
nancial condition. For more information on these factors,
see “Item 1A—Risk Factors�”
Management believes the Company will have sufcient liquidity
to satisfy its needs over the next twelve months including
the ability to pay interest on our senior notes and dividends
on our common stock�
For Twelve Months 2015, net cash provided by operating
activities, including the effect of exchange rate changes and
the reclassication of assets held for sale on cash and cash
equivalents, totaled $192,483; net cash provided by investing
activities totaled $264,293 and net cash used in nancing
activities totaled $487,127� We had $1,288,305 in cash and
cash equivalents as of December 31, 2015� Please see “—
Liquidity and Capital Resources,” below for further details�
Revenues
We generate revenues primarily from the sale of our insurance
policies and service contracts and from investment income
earned on our investments� Sales of insurance policies are
recognized in revenue as earned premiums while sales of
administrative services are recognized as fee income�
Under the universal life insurance guidance, income earned
on preneed life insurance policies sold after January 1, 2009
are presented within policy fee income net of policyholder
benets. Under the limited pay insurance guidance, the
consideration received on preneed policies sold prior to
January 1, 2009 is presented separately as net earned
premiums, with policyholder benets expense being shown
separately�
Our premium and fee income is supplemented by income
earned from our investment portfolio� We recognize revenue
from interest payments, dividends and sales of investments�
Currently, our investment portfolio is primarily invested
in xed maturity securities. Both investment income
and realized capital gains on these investments can be
signicantly affected by changes in interest rates.
Interest rate volatility can increase or reduce unrealized
gains or losses in our investment 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�
Fluctuations in interest rates affect our returns on, and the
market value of, xed maturity and short-term investments.
The fair market value of the xed maturity securities in
our investment portfolio and the investment income from
these securities uctuate depending on general economic
and market conditions� The fair market value generally
increases or decreases in an inverse relationship with
uctuations in interest rates, while net investment income
realized by us from future investments in xed maturity
securities will generally increase or decrease with interest
rates� We also have investments that carry pre-payment
risk, such as mortgage-backed and asset-backed securities�
Interest rate uctuations may cause actual net investment
income and/or cash ows from such investments to differ
from estimates made at the time of investment� In periods
of declining interest rates, mortgage prepayments generally
increase and mortgage-backed securities, commercial
mortgage obligations and bonds are more likely to be
prepaid or redeemed as borrowers seek to borrow at lower
interest rates� Therefore, in these circumstances we may be
required to reinvest those funds in lower-interest earning
investments�
Expenses
Our expenses are primarily policyholder benets, underwriting,
general and administrative expenses and interest expense�
Policyholder benets are affected by our claims management
programs, reinsurance coverage, contractual terms and
conditions, regulatory requirements, economic conditions, and
numerous other factors. Benets paid or reserves required for
future benets could substantially exceed our expectations,
causing a material adverse effect on our business, results of
operations and nancial condition.
Underwriting, general and administrative expenses consist
primarily of commissions, premium taxes, licenses, fees,
amortization of deferred costs, general operating expenses
and income taxes�
We incur interest expense related to our debt�
Critical Accounting Estimates
Certain items in our consolidated nancial statements are
based on estimates and judgment� Differences between
actual results and these estimates could in some cases have
material impacts on our consolidated nancial statements.
The following critical accounting policies require signicant
estimates� The actual amounts realized in these areas could
ultimately be materially different from the amounts currently
provided for in our consolidated nancial statements.