Assurant 2015 Annual Report Download - page 66

54 ASSURANT, INC. – 2015 Form 10-K
PART II
ITEM 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations
Major categories of net investment income were as follows:
Years Ended December 31,
2015
2014 2013
Fixed maturity securities $ 486,165 $ 522,309 $ 530,144
Equity securities 29,957 28,014 27,013
Commercial mortgage loans on real estate 72,658 73,959 76,665
Policy loans 2,478 2,939 3,426
Short-term investments 2,033 1,950 2,156
Other investments 37,759 34,527 20,573
Cash and cash equivalents 18,416 18,556 14,679
Total investment income 649,466 682,254 674,656
Investment expenses (23,249) (25,825) (24,360)
NET INVESTMENT INCOME $ 626,217 $ 656,429 $ 650,296
Net investment income decreased $30,212, or 5%, to $626,217
for Twelve Months 2015 from $656,429 for Twelve Months
2014� The decrease is primarily due to a decrease in invested
assets as well as lower investment yields, partially offset by
an increase of $5,747 in investment income from real estate
joint venture partnerships�
Net investment income increased $6,133, or 1%, to $656,429
for Twelve Months 2014 from $650,296 for Twelve Months
2013� The increase for the period was primarily related to
$12,353 in additional investment income from real estate
joint venture partnerships and $3,195 in additional investment
income related to the loss recovery on certain mortgage-
backed securities as a result of a trust settlement agreement�
Excluding the investment income from the real estate joint
venture partnerships and the trust settlement agreement,
net investment income decreased $9,415, primarily reecting
lower investment yields�
As of December 31, 2015, the Company owned $170,552
of securities guaranteed by nancial guarantee insurance
companies� Included in this amount was $158,274 of municipal
securities, whose credit rating was A+ with the guarantee,
but would have had a rating of A without the guarantee�
The Company’s states, municipalities and political subdivisions
holdings are highly diversied across the U.S. and Puerto
Rico, with no individual state’s exposure (including both
general obligation and revenue securities) exceeding 0�5%
of the overall investment portfolio as of December 31, 2015
and 2014� At December 31, 2015 and 2014, the securities
include general obligation and revenue bonds issued by
states, cities, counties, school districts and similar issuers,
including $319,654 and $270,107, respectively, of advance
refunded or escrowed-to-maturity bonds (collectively referred
to as “pre-refunded bonds”), which are bonds for which an
irrevocable trust has been established to fund the remaining
payments of principal and interest� As of December 31,
2015 and 2014, revenue bonds account for 50% and 51% of
the holdings, respectively� Excluding pre-refunded revenue
bonds, the activities supporting the income streams of
the Company’s revenue bonds are across a broad range
of sectors, primarily highway, water, airport and marina,
higher education, specically pledged tax revenues, and
other miscellaneous sources such as bond banks, nance
authorities and appropriations�
The Company’s investments in foreign government xed
maturity securities are held mainly in countries and currencies
where the Company has policyholder liabilities, which allow
the assets and liabilities to be more appropriately matched�
At December 31, 2015, approximately 79%, 8%, and 5% of
the foreign government securities were held in the Canadian
government/provincials and the governments of Brazil and
Germany, respectively� At December 31, 2014, approximately
76%, 10% and 5% of the foreign government securities were
held in the Canadian government/provincials and the
governments of Brazil and Germany, respectively� No other
country represented more than 3% of the Company’s foreign
government securities as of December 31, 2015 and 2014�
The Company has European investment exposure in its
corporate xed maturity and equity securities of $888,923
with a net unrealized gain of $67,957 at December 31, 2015
and $1,060,655 with a net unrealized gain of $116,975 at
December 31, 2014� Approximately 25% and 22% of the
corporate European exposure is held in the nancial industry
at December 31, 2015 and 2014, respectively� The Company’s
largest European country exposure represented approximately
5% of the fair value of the Company’s corporate securities
as of December 31, 2015 and 2014� Approximately 6% of the
fair value of the corporate European securities are pound
and euro-denominated and are not hedged to U�S� dollars,
but held to support those foreign-denominated liabilities�
The Company’s international investments are managed as
part of the overall portfolio with the same approach to risk
management and focus on diversication.
The Company has exposure to the energy sector in its
corporate xed maturity securities of $779,720 with a net
unrealized loss of $6,985 at December 31, 2015 and $992,012
with a net unrealized gain of $89,590 at December 31,
2014� Approximately 89% of the energy exposure is rated as
investment grade as of December 31, 2015 and 2014�
The Company has exposure to sub-prime and related mortgages
within the Company’s xed maturity security portfolio. At
December 31, 2015, approximately 2% of the residential
mortgage-backed holdings had exposure to sub-prime mortgage
collateral. This represented less than 1% of the total xed
income portfolio and approximately 2% of the total unrealized
gain position� Of the securities with sub-prime exposure,
approximately 9% are rated as investment grade� All residential