Edgar Filing: ASSURANT INC

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Form 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

x	Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended September 30, 2013

¨	Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from to

Assurant, Inc.

(Exact name of registrant as specified in its charter)

Delaware

001-31978

39-1126612

(State or other jurisdiction

of incorporation)

(Commission

File Number)

(I.R.S. Employer

Identification No.)

One Chase Manhattan Plaza, 41st Floor

New York, New York 10005

(212) 859-7000

(Address, including zip code, and telephone number, including area code, of Registrant’s Principal Executive Offices)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES x NO ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YES x NO ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES ¨ NO x

The number of shares of the registrant’s Common Stock outstanding at October 24, 2013 was 72,716,952.

ASSURANT, INC.

QUARTERLY REPORT ON FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2013

TABLE OF CONTENTS


Item Number		Page Number
	PART I FINANCIAL INFORMATION

1.	Financial Statements of Assurant, Inc.:

	Consolidated Balance Sheets (unaudited) at September 30, 2013 and December 31, 2012		2

	Consolidated Statements of Operations (unaudited) for the three and nine months ended September 30, 2013 and 2012		4

	Consolidated Statements of Comprehensive Income (unaudited) for the three and nine months ended September 30, 2013 and 2012		5

	Consolidated Statement of Changes in Stockholders’ Equity (unaudited) from December 31, 2012 through September 30, 2013		6

	Consolidated Statements of Cash Flows (unaudited) for the nine months ended September 30, 2013 and 2012		7

	Notes to Consolidated Financial Statements (unaudited) for the three and nine months ended September 30, 2013 and 2012		8

2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		45

3.	Quantitative and Qualitative Disclosures About Market Risk		69

4.	Controls and Procedures		69

	PART II OTHER INFORMATION

1.	Legal Proceedings		70

1A.	Risk Factors		70

2.	Unregistered Sales of Equity Securities and Use of Proceeds		71

6.	Exhibits		72

	Signatures		73

Amounts are presented in United States of America (“U.S.”) dollars and all amounts are in thousands, except number of shares, per share amounts and number of loans.

Assurant, Inc.

Consolidated Balance Sheets (unaudited)

At September 30, 2013 and December 31, 2012


	September 30, 2013		December 31, 2012
	(in thousands except number of shares and per share amounts)

Assets

Investments:
Fixed maturity securities available for sale, at fair value (amortized cost - $10,645,077 in 2013 and $10,728,714 in 2012)	$	11,447,578	$	12,171,638
Equity securities available for sale, at fair value (cost - $419,904 in 2013 and $422,703 in 2012)		464,636		475,806
Commercial mortgage loans on real estate, at amortized cost		1,268,056		1,311,682
Policy loans		51,997		52,938
Short-term investments		972,684		300,925
Collateral held/pledged under securities agreements		95,768		94,729
Other investments		573,243		568,600

Total investments		14,873,962		14,976,318

Cash and cash equivalents		1,286,697		909,404
Premiums and accounts receivable, net		983,166		830,027
Reinsurance recoverables		5,684,585		6,141,737
Accrued investment income		156,793		149,032
Deferred acquisition costs		3,090,637		2,861,163
Property and equipment, at cost less accumulated depreciation		253,870		250,796
Tax receivable		0		32,740
Goodwill		672,233		640,714
Value of business acquired		55,698		62,109
Other intangible assets, net		294,003		262,994
Other assets		138,242		97,700
Assets held in separate accounts		1,858,699		1,731,873

Total assets	$	29,348,585	$	28,946,607

See the accompanying notes to the consolidated financial statements

Assurant, Inc.

Consolidated Balance Sheets (unaudited)

At September 30, 2013 and December 31, 2012


	September 30, 2013			December 31, 2012
	(in thousands except number of shares and per share amounts)

Liabilities

Future policy benefits and expenses	$	8,621,692		$	8,513,505
Unearned premiums		6,455,337			6,192,260
Claims and benefits payable		3,429,420			3,960,590
Commissions payable		361,518			339,680
Reinsurance balances payable		111,665			103,808
Funds held under reinsurance		70,881			61,413
Deferred gain on disposal of businesses		103,382			115,620
Obligation under securities agreements		95,761			94,714
Accounts payable and other liabilities		1,753,086			1,514,091
Deferred income taxes, net		44,878			161,288
Tax payable		20,959			0
Debt		1,638,388			972,399
Liabilities related to separate accounts		1,858,699			1,731,873

Total liabilities		24,565,666			23,761,241


Commitments and contingencies (Note 14)

Stockholders’ equity
Common stock, par value $0.01 per share, 800,000,000 shares authorized, 73,319,550 and 78,664,029 shares outstanding at September 30, 2013 and December 31, 2012, respectively		1,482			1,474
Additional paid-in capital		3,075,444			3,052,454
Retained earnings		4,325,410			4,001,096
Accumulated other comprehensive income		386,306			830,403
Treasury stock, at cost; 74,505,476 and 68,332,638 shares at September 30, 2013 and December 31, 2012, respectively		(3,005,723	)		(2,700,061	)

Total stockholders’ equity		4,782,919			5,185,366

Total liabilities and stockholders’ equity	$	29,348,585		$	28,946,607

See the accompanying notes to the consolidated financial statements

Assurant, Inc.

Consolidated Statements of Operations (unaudited)

Three and Nine Months Ended September 30, 2013 and 2012


	Three Months Ended September 30,					Nine Months Ended September 30,
	2013			2012		2013			2012
	(in thousands except number of shares and per share amounts)

Revenues
Net earned premiums	$	1,947,431		$	1,838,481	$	5,714,293		$	5,407,778
Net investment income		159,209			169,433		489,118			541,042
Net realized (losses) gains on investments, excluding other-than-temporary impairment losses		(2,429	)		8,460		31,573			36,018
Total other-than-temporary impairment losses		(1,230	)		0		(1,409	)		(1,936	)
Portion of net loss recognized in other comprehensive (loss) income, before taxes		28			0		100			97

Net other-than-temporary impairment losses recognized in earnings		(1,202	)		0		(1,309	)		(1,839	)
Amortization of deferred gain on disposal of businesses		4,074			4,600		12,238			13,817
Fees and other income		151,567			124,106		401,126			350,478

Total revenues		2,258,650			2,145,080		6,647,039			6,347,294

Benefits, losses and expenses
Policyholder benefits		933,832			895,480		2,708,143			2,623,865
Amortization of deferred acquisition costs and value of business acquired		372,750			363,996		1,101,998			1,040,616
Underwriting, general and administrative expenses		737,326			661,907		2,168,367			1,914,657
Interest expense		20,771			15,078		57,369			45,228

Total benefits, losses and expenses		2,064,679			1,936,461		6,035,877			5,624,366

Income before provision for income taxes		193,971			208,619		611,162			722,928
Provision for income taxes		65,183			82,331		231,071			264,210

Net income	$	128,788		$	126,288	$	380,091		$	458,718


Earnings Per Share
Basic	$	1.70		$	1.54	$	4.89		$	5.35
Diluted	$	1.68		$	1.52	$	4.84		$	5.30
Dividends per share	$	0.25		$	0.21	$	0.71		$	0.60

Share Data
Weighted average shares outstanding used in basic per share calculations		75,544,542			82,156,838		77,662,796			85,723,387
Plus: Dilutive securities		915,249			802,615		899,205			875,321

Weighted average shares used in diluted per share calculations		76,459,791			82,959,453		78,562,001			86,598,708

See the accompanying notes to the consolidated financial statements

Assurant, Inc.

Consolidated Statements of Comprehensive Income (unaudited)

Three and Nine Months Ended September 30, 2013 and 2012


	Three Months Ended September 30,					Nine Months Ended September 30,
	2013			2012		2013			2012
	(in thousands)

Net income	$	128,788		$	126,288	$	380,091		$	458,718


Other comprehensive (loss) income:

Change in unrealized gains on securities, net of taxes of $21,164, $(82,741), $220,190 and $(146,659), respectively		(43,305	)		160,592		(431,554	)		280,710

Change in other-than-temporary impairment gains, net of taxes of $(150), $(1,229), $(1,064) and $(3,307), respectively		279			2,283		1,976			6,142

Changes in foreign currency translation, net of taxes of $(1,627), $(4,657), $4,178 and $(4,436), respectively		5,578			15,712		(28,653	)		3,116

Amortization of pension and postretirement unrecognized net periodic benefit cost, net of taxes of $(1,748), $(2,068), $(7,610) and $(6,093), respectively		3,246			3,840		14,134			11,315

Total other comprehensive (loss) income		(34,202	)		182,427		(444,097	)		301,283


Total comprehensive income (loss)	$	94,586		$	308,715	$	(64,006	)	$	760,001

See the accompanying notes to the consolidated financial statements

Assurant, Inc.

Consolidated Statement of Stockholders’ Equity (unaudited)

From December 31, 2012 through September 30, 2013


	Common Stock		Additional Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Income			Treasury Stock			Total
	(in thousands)
Balance, December 31, 2012	$	1,474	$	3,052,454		$	4,001,096		$	830,403		$	(2,700,061	)	$	5,185,366
Stock plan exercises		8		(11,929	)		0			0			0			(11,921	)
Stock plan compensation expense		0		36,643			0			0			0			36,643
Change in tax benefit from share-based payment arrangements		0		(1,724	)		0			0			0			(1,724	)
Dividends		0		0			(55,777	)		0			0			(55,777	)
Acquisition of common stock		0		0			0			0			(305,662	)		(305,662	)
Net income		0		0			380,091			0			0			380,091
Other comprehensive loss		0		0			0			(444,097	)		0			(444,097	)

Balance, September 30, 2013	$	1,482	$	3,075,444		$	4,325,410		$	386,306		$	(3,005,723	)	$	4,782,919

See the accompanying notes to the consolidated financial statements

Assurant, Inc.

Consolidated Statements of Cash Flows (unaudited)

Nine Months Ended September 30, 2013 and 2012


	Nine Months Ended September 30,
	2013			2012
	(in thousands)

Net cash provided by operating activities	$	724,038		$	429,159


Investing activities
Sales of:
Fixed maturity securities available for sale		1,814,687			1,485,221
Equity securities available for sale		173,499			92,052
Other invested assets		42,312			66,359
Property and equipment and other		154			2,453
Maturities, prepayments, and scheduled redemption of:
Fixed maturity securities available for sale		695,398			784,708
Commercial mortgage loans on real estate		150,920			89,096
Purchases of:
Fixed maturity securities available for sale		(2,446,127	)		(2,529,934	)
Equity securities available for sale		(168,097	)		(130,171	)
Commercial mortgage loans on real estate		(109,504	)		(82,575	)
Other invested assets		(37,524	)		(24,076	)
Property and equipment and other		(33,519	)		(40,042	)
Subsidiary, net of cash transferred		(49,987	)		(3,500	)
Change in short-term investments		(673,579	)		190,257
Change in policy loans		823			391
Change in collateral held/pledged under securities agreements		(1,047	)		1,470

Net cash used in investing activities		(641,591	)		(98,291	)

Financing activities
Issuance of debt		698,093			0
Repurchase of debt		(32,310	)		0
Change in tax benefit from share-based payment arrangements		(1,724	)		2,464
Acquisition of common stock		(299,624	)		(370,469	)
Dividends paid		(55,777	)		(52,633	)
Change in obligation under securities agreements		1,047			(1,470	)

Net cash provided by (used in) financing activities		309,705			(422,108	)


Effect of exchange rate changes on cash and cash equivalents		(14,859	)		(2,967	)


Change in cash and cash equivalents		377,293			(94,207	)
Cash and cash equivalents at beginning of period		909,404			1,166,713

Cash and cash equivalents at end of period	$	1,286,697		$	1,072,506

See the accompanying notes to the consolidated financial statements

Assurant, Inc.

Notes to Consolidated Financial Statements (unaudited)

Three and Nine Months Ended September 30, 2013 and 2012

(In thousands, except number of shares and per share amounts)

1. Nature of Operations

Assurant, Inc. (the “Company”) is a holding company whose subsidiaries provide specialized insurance products and related services in North America and select worldwide markets.

The Company is traded on the New York Stock Exchange under the symbol AIZ.

Through its operating subsidiaries, the Company provides debt protection administration, credit-related insurance, warranties and service contracts, pre-funded funeral insurance, solar project insurance, lender-placed homeowners insurance, renters insurance and related products, manufactured housing homeowners insurance, individual health and small employer group health insurance, group dental insurance, group disability insurance and reinsurance, and group life insurance.

2. Basis of Presentation

The accompanying unaudited interim consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information. Accordingly, these statements do not include all of the information and footnotes required by GAAP for complete financial statements.

The interim financial data as of September 30, 2013 and December 31, 2012 and for the three and nine months ended September 30, 2013 and 2012 is unaudited; in the opinion of management, the interim data includes all adjustments, consisting only of normal recurring adjustments, necessary to a fair statement of the results for the interim periods. The unaudited interim consolidated financial statements include the accounts of the Company and all of its wholly owned subsidiaries. All inter-company transactions and balances are eliminated in consolidation. Certain prior period amounts have been reclassified to conform to the 2013 presentation.

Operating results for the three and nine months ended September 30, 2013 are not necessarily indicative of the results that may be expected for the year ending December 31, 2013. The accompanying unaudited interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2012.

3. Recent Accounting Pronouncements

Recent Accounting Pronouncements – Not Yet Adopted

In July 2013, the Financial Accounting Standards Board (“FASB”) issued new guidance on the presentation of an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists. The amendments in this guidance state that an unrecognized tax benefit, or a portion thereof, should be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward. An exception to this guidance would be where a net operating loss carryforward or similar tax loss or credit carryforward would not be available under the tax law to settle any additional income taxes that would result from the disallowance of a tax position, or the tax law does not require the entity to use, and the entity does not intend to use, the deferred tax asset for such purpose. In such a case, the unrecognized tax benefit should be presented in the financial statements as a liability and should not be combined with deferred tax assets. The guidance is effective for interim and annual periods beginning after December 15, 2013. The Company will be adopting this presentation as of the effective date and does not expect any net impact to the Company’s financial position and results of operations.

Assurant, Inc.

Notes to Consolidated Financial Statements (unaudited)

Three and Nine Months Ended September 30, 2013 and 2012

(In thousands, except number of shares and per share amounts)

In July 2011, the FASB issued amendments to the other expenses guidance to address how health insurers should recognize and classify in their statements of operations fees mandated by the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010 (the “Affordable Care Act”). The Affordable Care Act imposes an annual fee on health insurers for each calendar year beginning on or after January 1, 2014. The amendments specify that the liability for the fee should be estimated and recorded in full once the entity provides qualifying health insurance in the applicable calendar year in which the fee is payable with a corresponding deferred cost that is amortized to expense ratably over the calendar year during which it is payable. The guidance is effective for calendar years beginning after December 31, 2013, when the fee initially becomes effective. Therefore, the Company is required to adopt this guidance on January 1, 2014. The mandated fees may be material and will affect the results of our Assurant Health and Assurant Employee Benefits segments. This new accounting guidance will result in the recognition of this expense ratably over the calendar year beginning in 2014.

4. Business Combinations

On September 30, 2013, in an all cash transaction, the Company acquired Field Asset Services from FirstService Corporation for $54,636. In connection with the acquisition, the Company recorded $19,735 of marketing and technology based intangible assets, all of which are amortizable over a 5-9 year period, and $31,942 of goodwill, all of which is tax deductible. The primary factor contributing to the recognition of goodwill is the future expected growth of this business. This acquisition expands existing collateral protection service offerings for customers of the Assurant Specialty Property segment.

On August 31, 2013, the Company entered into a definitive agreement to purchase Lifestyle Services Group Limited, a mobile phone insurance provider. The completion of this transaction was subject to regulatory approval, which was received in October 2013. The acquisition-date fair value of the consideration transferred totaled £106,394 ($172,156), which consists of an initial cash payment of £87,081 ($140,906), a delayed payment of £3,000 ($4,854) and contingent consideration of an additional £16,313 ($26,395), payable no later than March 31, 2014. The contingent consideration arrangement is based on a client contract renewal. The initial accounting for this acquisition is incomplete due to the timing of the acquisition date, thus the estimated range of outcomes for the contingent consideration and the total amount of goodwill for Assurant Solutions is not yet available.

Assurant, Inc.

Notes to Consolidated Financial Statements (unaudited)

Three and Nine Months Ended September 30, 2013 and 2012

(In thousands, except number of shares and per share amounts)

5. Investments

The following tables show the cost or amortized cost, gross unrealized gains and losses, fair value and other-than-temporary impairment (“OTTI”) of our fixed maturity and equity securities as of the dates indicated:


	September 30, 2013
	Cost or Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value		OTTI in AOCI (a)
Fixed maturity securities:
United States Government and government agencies and authorities	$	438,435	$	5,136	$	(1,391	)	$	442,180	$	0
States, municipalities and political subdivisions		780,155		68,873		(2,078	)		846,950		0

Foreign governments		639,460		40,518		(8,758	)		671,220		0

Asset-backed		5,397		1,994		(79	)		7,312		1,834

Commercial mortgage-backed		61,692		3,310		(40	)		64,962		0

Residential mortgage-backed		899,150		44,065		(10,330	)		932,885		17,502

Corporate		7,820,788		715,266		(53,985	)		8,482,069		20,413


Total fixed maturity securities	$	10,645,077	$	879,162	$	(76,661	)	$	11,447,578	$	39,749


Equity securities:

Common stocks	$	18,262	$	8,960	$	(7	)	$	27,215	$	0

Non-redeemable preferred stocks		401,642		47,061		(11,282	)		437,421		0


Total equity securities	$	419,904	$	56,021	$	(11,289	)	$	464,636	$	0


	December 31, 2012
	Cost or Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value		OTTI in AOCI (a)
Fixed maturity securities:
United States Government and government agencies and authorities	$	633,329	$	8,722	$	(127	)	$	641,924	$	0
States, municipalities and political subdivisions		800,592		106,560		(96	)		907,056		0

Foreign governments		672,671		82,096		(1,359	)		753,408		0

Asset-backed		27,182		1,437		(422	)		28,197		1,159

Commercial mortgage-backed		64,344		5,539		0			69,883		0

Residential mortgage-backed		714,628		56,983		(554	)		771,057		14,259

Corporate		7,815,968		1,193,695		(9,550	)		9,000,113		21,291


Total fixed maturity securities	$	10,728,714	$	1,455,032	$	(12,108	)	$	12,171,638	$	36,709


Equity securities:

Common stocks	$	14,707	$	4,243	$	0		$	18,950	$	0

Non-redeemable preferred stocks		407,996		53,976		(5,116	)		456,856		0


Total equity securities	$	422,703	$	58,219	$	(5,116	)	$	475,806	$	0

Assurant, Inc.

Notes to Consolidated Financial Statements (unaudited)

Three and Nine Months Ended September 30, 2013 and 2012

(In thousands, except number of shares and per share amounts)

(a)	Represents the amount of other-than-temporary impairments recognized in accumulated other comprehensive income. Amount includes unrealized gains and losses on impaired securities relating to changes in the value of such securities subsequent to the impairment measurement date.

Our states, municipalities and political subdivisions holdings are highly diversified across the United States 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 September 30, 2013 and December 31, 2012. At September 30, 2013 and December 31, 2012, the securities include general obligation and revenue bonds issued by states, cities, counties, school districts and similar issuers, including $177,318 and $168,705, 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 September 30, 2013 and December 31, 2012, revenue bonds account for 53% and 52% 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, transit, airport and marina, higher education, specifically pledged tax revenues, and other miscellaneous sources such as bond banks, finance authorities and appropriations.

The Company’s investments in foreign government fixed 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 September 30, 2013, approximately 70%, 15% and 6% of the foreign government securities were held in the Canadian government/provincials and the governments of Brazil and Germany, respectively. At December 31, 2012, approximately 67%, 15%, and 6% 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% and 5% of our foreign government securities as of September 30, 2013 and December 31, 2012.

The Company has European investment exposure in its corporate fixed maturity and equity securities of $1,065,666 with an unrealized gain of $78,031 at September 30, 2013 and $1,054,820 with an unrealized gain of $122,420 at December 31, 2012. Approximately 26% and 28% of the corporate European exposure is held in the financial industry at September 30, 2013 and December 31, 2012, respectively. Our largest European country exposure represented approximately 6% and 5% of the fair value of our corporate securities as of September 30, 2013 and December 31, 2012, respectively. Approximately 5% 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. Our international investments are managed as part of our overall portfolio with the same approach to risk management and focus on diversification.

The cost or amortized cost and fair value of fixed maturity securities at September 30, 2013 by contractual maturity are shown below. Expected maturities may differ from contractual maturities because issuers of the securities may have the right to call or prepay obligations with or without call or prepayment penalties.


	Cost or Amortized Cost		Fair Value
Due in one year or less	$	618,040	$	624,889
Due after one year through five years		2,124,783		2,262,770
Due after five years through ten years		2,834,076		2,947,897
Due after ten years		4,101,939		4,606,863

Total		9,678,838		10,442,419
Asset-backed		5,397		7,312
Commercial mortgage-backed		61,692		64,962
Residential mortgage-backed		899,150		932,885

Total	$	10,645,077	$	11,447,578

Assurant, Inc.

Notes to Consolidated Financial Statements (unaudited)

Three and Nine Months Ended September 30, 2013 and 2012

(In thousands, except number of shares and per share amounts)

The following table summarizes the proceeds from sales of available-for-sale securities and the gross realized gains and gross realized losses that have been included in earnings as a result of those sales.


	Three Months Ended September 30,				Nine Months Ended September 30,
	2013		2012		2013		2012
Proceeds from sales	$	525,996	$	628,257	$	2,028,274	$	1,595,172
Gross realized gains		9,865		11,017		46,290		45,813
Gross realized losses		12,339		2,396		23,391		10,642

The following table sets forth the net realized (losses) gains, including OTTI, recognized in the statements of operations as follows:


	Three Months Ended September 30,						Nine Months Ended September 30,
	2013			2012			2013			2012

Net realized (losses) gains related to sales and other:
Fixed maturity securities	$	(2,232	)	$	9,306		$	20,215		$	38,511
Equity securities		82			(856	)		4,753			(3,165	)
Mortgage loans		0			0			0			(256	)
Other investments		(279	)		10			6,605			928

Total net realized (losses) gains related to sales and other		(2,429	)		8,460			31,573			36,018


Net realized losses related to other-than-temporary impairments:
Fixed maturity securities		(660	)		0			(767	)		(1,283	)
Equity securities		0			0			0			(226	)
Other investments		(542	)		0			(542	)		(330	)

Total net realized losses related to other-than-temporary impairments		(1,202	)		0			(1,309	)		(1,839	)

Total net realized (losses) gains	$	(3,631	)	$	8,460		$	30,264		$	34,179

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

Assurant, Inc.

Notes to Consolidated Financial Statements (unaudited)

Three and Nine Months Ended September 30, 2013 and 2012

(In thousands, except number of shares and per share amounts)

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 flows expected to be collected will be accreted or amortized into net investment income.

For the three and nine months ended September 30, 2013, the Company recorded $1,230 and $1,409 of OTTI, of which $1,202 and $1,309 was related to credit losses and recorded as net OTTI losses recognized in earnings, with the remaining $28 and $100 related to all other factors and recorded as an unrealized loss component of AOCI. For the nine months ended September 30, 2012, the Company recorded $1,936 of OTTI, of which $1,839 was related to credit losses and recorded as net OTTI losses recognized in earnings, with the remaining $97, related to all other factors and recorded as an unrealized loss component of AOCI. For the three months ended September 30, 2012, the Company did not incur any OTTI.

The following tables set forth the amount of credit loss impairments recognized within the results of operations on fixed 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.


	Three Months Ended September 30,
	2013			2012

Balance, June 30,	$	93,745		$	98,588

Reductions for increases in cash flows expected to be collected that are recognized over the remaining life of the security		(597	)		(187	)

Reductions for credit loss impairments previously recognized on securities which matured, paid down, prepaid or were sold during the period		(190	)		(816	)


Balance, September 30,	$	92,958		$	97,585


	Nine Months Ended September 30,
	2013			2012

Balance, January 1,	$	95,589		$	103,090

Additions for credit loss impairments recognized in the current period on securities previously impaired		107			56

Reductions for increases in cash flows expected to be collected that are recognized over the remaining life of the security		(1,465	)		(1,001	)

Reductions for credit loss impairments previously recognized on securities which matured, paid down, prepaid or were sold during the period		(1,273	)		(4,560	)


Balance, September 30,	$	92,958		$	97,585

We regularly monitor our investment portfolio to ensure investments that may be other-than-temporarily impaired are identified in a timely fashion, 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 financial 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 sufficient 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 fixed 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-

Assurant, Inc.

Notes to Consolidated Financial Statements (unaudited)

Three and Nine Months Ended September 30, 2013 and 2012

(In thousands, except number of shares and per share amounts)

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 fixed 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 fixed 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 flows. For these other-than-temporarily impaired fixed maturity securities, the net amount recognized in earnings is equal to the difference between the amortized cost of the fixed maturity security and its net present value.

The Company considers different factors to determine the amount of projected future cash flows 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 flows. The net present value is calculated by discounting the Company’s best estimate of projected future cash flows 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 flow estimates, including prepayment assumptions, are based on data from widely accepted third-party data sources or internal estimates. In addition to prepayment assumptions, cash flow estimates vary based on assumptions regarding the underlying collateral including default rates, recoveries and changes in value. The net present value is calculated by discounting the Company’s best estimate of projected future cash flows at the effective interest rate implicit in the fixed maturity security prior to impairment at the balance sheet date. The discounted cash flows become the new amortized cost basis of the fixed maturity security.

In periods subsequent to the recognition of an OTTI, the Company generally accretes the discount (or amortizes the reduced premium) into net investment income, up to the non-discounted amount of projected future cash flows, resulting from the reduction in cost basis, based upon the amount and timing of the expected future cash flows over the estimated period of cash flows.

The investment category and duration of the Company’s gross unrealized losses on fixed maturity securities and equity securities at September 30, 2013 and December 31, 2012 were as follows:


	September 30, 2013
	Less than 12 months					12 Months or More					Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
Fixed maturity securities:

United States Government and government agencies and authorities	$	51,485	$	(1,159	)	$	988	$	(232	)	$	52,473	$	(1,391	)
States, municipalities and political subdivisions		24,842		(2,078	)		0		0			24,842		(2,078	)

Foreign governments		173,218		(6,880	)		8,200		(1,878	)		181,418		(8,758	)

Asset-backed		0		0			1,391		(79	)		1,391		(79	)

Commercial mortgage-backed		5,082		(40	)		0		0			5,082		(40	)

Residential mortgage-backed		326,820		(10,310	)		1,931		(20	)		328,751		(10,330	)

Corporate		1,515,098		(52,691	)		17,229		(1,294	)		1,532,327		(53,985	)


Total fixed maturity securities	$	2,096,545	$	(73,158	)	$	29,739	$	(3,503	)	$	2,126,284	$	(76,661	)


Equity securities:

Common stocks	$	268	$	(7	)	$	0	$	0		$	268	$	(7	)

Non-redeemable preferred stocks		145,476		(8,449	)		18,173		(2,833	)		163,649		(11,282	)


Total equity securities	$	145,744	$	(8,456	)	$	18,173	$	(2,833	)	$	163,917	$	(11,289	)

Assurant, Inc.

Notes to Consolidated Financial Statements (unaudited)

Three and Nine Months Ended September 30, 2013 and 2012

(In thousands, except number of shares and per share amounts)


	December 31, 2012
	Less than 12 months					12 Months or More					Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
Fixed maturity securities:

United States Government and government agencies and authorities	$	233,559	$	(127	)	$	0	$	0		$	233,559	$	(127	)
States, municipalities and political subdivisions		0		0			4,575		(96	)		4,575		(96	)

Foreign governments		41,917		(204	)		8,925		(1,155	)		50,842		(1,359	)

Asset-backed		0		0			2,662		(422	)		2,662		(422	)

Residential mortgage-backed		56,674		(509	)		9,300		(45	)		65,974		(554	)

Corporate		459,797		(5,802	)		62,778		(3,748	)		522,575		(9,550	)


Total fixed maturity securities	$	791,947	$	(6,642	)	$	88,240	$	(5,466	)	$	880,187	$	(12,108	)


Equity securities:

Non-redeemable preferred stocks	$	52,508	$	(416	)	$	48,626	$	(4,700	)	$	101,134	$	(5,116	)

Total gross unrealized losses represent less than 4% and 2% of the aggregate fair value of the related securities at September 30, 2013 and December 31, 2012, respectively. Approximately 93% and 41% of these gross unrealized losses have been in a continuous loss position for less than twelve months at September 30, 2013 and December 31, 2012, respectively. The total gross unrealized losses are comprised of 662 and 238 individual securities at September 30, 2013 and December 31, 2012, respectively. In accordance with its policy described above, the Company concluded that for these securities an adjustment to its results of operations for other-than-temporary impairments of the gross unrealized losses was not warranted at September 30, 2013 and December 31, 2012. These conclusions are based on a detailed analysis of the underlying credit and expected cash flows of each security. As of September 30, 2013, the gross unrealized losses that have been in a continuous loss position for twelve months or more were concentrated in the Company’s foreign government and corporate fixed maturity securities, and in non-redeemable preferred stocks. Within the Company’s corporate fixed maturity securities, the majority of the loss position relates to securities in the consumer cyclical sector. The consumer cyclical sector’s gross unrealized losses of twelve months or more were $718, or 56%, of the corporate fixed maturity total. The non-redeemable preferred stocks are perpetual preferred securities that have characteristics of both debt and equity securities. To evaluate these securities, we apply an impairment model similar to that used for our fixed maturity securities. As of September 30, 2013, the Company did not intend to sell these securities and it was not more likely than not that the Company would be required to sell them and no underlying cash flow issues were noted. Therefore, we did not recognize an OTTI on those perpetual preferred securities that had been in a continuous unrealized loss position for twelve months or more. As of September 30, 2013, the Company did not intend to sell the fixed maturity securities and it was not more likely than not that the Company would be required to sell the securities before the anticipated recovery of their amortized cost basis. The gross unrealized losses are primarily attributable to widening credit spreads associated with an underlying shift in overall credit risk premium.

The Company has entered into commercial mortgage loans, collateralized by the underlying real estate, on properties located throughout the U.S. and Canada. At September 30, 2013, approximately 37% of the outstanding principal balance of commercial mortgage loans was concentrated in the states of California, New York, and Utah. Although the Company has a diversified loan portfolio, an economic downturn could have an adverse impact on the ability of its debtors to repay their loans. The outstanding balance of commercial mortgage loans range in size from $35 to $15,667 at September 30, 2013 and from $36 to $15,939 at December 31, 2012.

Credit quality indicators for commercial mortgage loans are loan-to-value and debt-service coverage ratios. Loan-to-value and debt-service coverage ratios are measures commonly used to assess the credit quality of commercial mortgage loans. The loan-to-value ratio compares the principal amount of the loan to the fair value of the underlying property collateralizing the loan, and is commonly expressed as a percentage. The debt-service coverage ratio compares a property’s net operating income to its debt-service payments and is commonly expressed as a ratio. The loan-to-value and debt-service coverage ratios are generally updated annually in the third quarter.

Assurant, Inc.

Notes to Consolidated Financial Statements (unaudited)

Three and Nine Months Ended September 30, 2013 and 2012

(In thousands, except number of shares and per share amounts)

The following summarizes our loan-to-value and average debt-service coverage ratios as of the dates indicated:


	September 30, 2013
Loan-to-Value	Carrying Value			% of Gross Mortgage Loans			Debt-Service Coverage Ratio
70% and less	$	1,107,492			86.8	%		2.00
71 – 80%		85,626			6.7	%		1.47
81 – 95%		65,867			5.2	%		1.19
Greater than 95%		16,068			1.3	%		0.87

Gross commercial mortgage loans		1,275,053			100.0	%		1.91

Less valuation allowance		(6,997	)

Net commercial mortgage loans	$	1,268,056


	December 31, 2012
Loan-to-Value	Carrying Value			% of Gross Mortgage Loans			Debt-Service Coverage Ratio
70% and less	$	1,141,564			86.6	%		1.95
71 – 80%		103,152			7.8	%		1.30
81 – 95%		57,413			4.3	%		1.04
Greater than 95%		16,550			1.3	%		1.02

Gross commercial mortgage loans		1,318,679			100.0	%		1.85

Less valuation allowance		(6,997	)

Net commercial mortgage loans	$	1,311,682

All commercial mortgage loans that are individually impaired have an established mortgage loan valuation allowance for losses. Changing economic conditions affect our valuation of commercial mortgage loans. Changing vacancies and rents are incorporated into the discounted cash flow analysis that we perform for monitored loans and may contribute to the establishment of (or an increase or decrease in) a commercial mortgage loan valuation allowance for losses. In addition, we continue to monitor the entire commercial mortgage loan portfolio to identify risk. Areas of emphasis are properties that have exposure to earthquakes, have deteriorating credits or have experienced a reduction in debt-service coverage ratio. Where warranted, we have established or increased a valuation allowance based upon this analysis.

Collateralized Transactions

The Company engages in transactions in which fixed maturity securities, primarily bonds issued by the U.S. government and government agencies and authorities, and U.S. corporations, are loaned to selected broker/dealers. Collateral, greater than or equal to 102% of the fair value of the securities lent, plus accrued interest, is received in the form of cash and cash equivalents held by a custodian bank for the benefit of the Company. The use of cash collateral received is unrestricted. The Company reinvests the cash collateral received, generally in investments of high credit quality that are designated as available-for-sale. The Company monitors the fair value of securities loaned and the collateral received, with additional collateral obtained, as necessary. The Company is subject to the risk of loss to the extent there is a loss on the re-investment of cash collateral.

As of September 30, 2013 and December 31, 2012, our collateral held under securities lending, of which its use is unrestricted, was $95,768 and $94,729, respectively, and is included in the consolidated balance sheets under the collateral held/pledged under securities agreements. Our liability to the borrower for collateral received was $95,761 and $94,714, respectively, and is included in the consolidated balance sheets under the obligation under securities agreements. The difference between the collateral held and obligations under securities lending is recorded as an unrealized gain and is included as part of AOCI. There was one security in an unrealized loss position as of September 30, 2013 and it has been in an unrealized loss position for less than 12 months. All securities were in an unrealized gain position as of December 31, 2012. The Company includes the available-for-sale investments purchased with the cash collateral in its evaluation of other-than-temporary impairments.

Assurant, Inc.

Notes to Consolidated Financial Statements (unaudited)

Three and Nine Months Ended September 30, 2013 and 2012

(In thousands, except number of shares and per share amounts)

Cash proceeds that the Company receives as collateral for the securities it lends and subsequent repayment of the cash are regarded by the Company as cash flows from financing activities, since the cash received is considered a borrowing. Since the Company reinvests the cash collateral generally in investments that are designated as available-for-sale, the reinvestment is presented as cash flows from investing activities.

6. Fair Value Disclosures

Fair Values, Inputs and Valuation Techniques for Financial Assets and Liabilities Disclosures

The fair value measurements and disclosures guidance defines fair value and establishes a framework for measuring fair value. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. In accordance with this guidance, the Company has categorized its recurring basis financial assets and liabilities into a three-level fair value hierarchy based on the priority of the inputs to the valuation technique.

The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the level in the fair value hierarchy within which the fair value measurement in its entirety falls has been determined based on the lowest level input that is significant to the fair value measurement in its entirety. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset or liability.

The levels of the fair value hierarchy are described below:

•

Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company can access.

•

Level 2 inputs utilize other than quoted prices included in Level 1 that are observable for the asset, either directly or indirectly, for substantially the full term of the asset. Level 2 inputs include quoted prices for similar assets in active markets, quoted prices for identical or similar assets in markets that are not active and inputs other than quoted prices that are observable in the marketplace for the asset. The observable inputs are used in valuation models to calculate the fair value for the asset.

•

Level 3 inputs are unobservable but are significant to the fair value measurement for the asset, and include situations where there is little, if any, market activity for the asset. These inputs reflect management’s own assumptions about the assumptions a market participant would use in pricing the asset.

A review of fair value hierarchy classifications is conducted on a quarterly basis. Changes in the observability of valuation inputs may result in a reclassification of levels for certain securities within the fair value hierarchy.

The following tables present the Company’s fair value hierarchy for assets and liabilities measured at fair value on a recurring basis as of September 30, 2013 and December 31, 2012. The amounts presented below for Collateral held/pledged under securities agreements, Other investments, Cash equivalents, Other assets, Assets and Liabilities held in separate accounts and Other liabilities differ from the amounts presented in the consolidated balance sheets because only certain investments or certain assets and liabilities within these line items are measured at estimated fair value. Other investments are comprised of investments in the Assurant Investment Plan, American Security Insurance Company Investment Plan, Assurant Deferred Compensation Plan, a modified coinsurance arrangement and other derivatives. Other liabilities are comprised of investments in the Assurant Investment Plan and other derivatives. The fair value amount and the majority of the associated levels presented for Other investments and Assets held in separate accounts are received directly from third parties.

Assurant, Inc.

Notes to Consolidated Financial Statements (unaudited)

Three and Nine Months Ended September 30, 2013 and 2012

(In thousands, except number of shares and per share amounts)


	September 30, 2013
	Total		Level 1			Level 2			Level 3
Financial Assets

Fixed maturity securities:
United States Government and government agencies and authorities	$	442,180	$	0		$	442,180		$	0
State, municipalities and political subdivisions		846,950		0			846,950			0
Foreign governments		671,220		681			649,942			20,597
Asset-backed		7,312		0			7,312			0
Commercial mortgage-backed		64,962		0			64,321			641
Residential mortgage-backed		932,885		0			922,100			10,785
Corporate		8,482,069		0			8,358,915			123,154
Equity securities:
Common stocks		27,215		26,531			684			0
Non-redeemable preferred stocks		437,421		0			431,304			6,117
Short-term investments		972,684		475,249	b		497,435	c		0
Collateral held/pledged under securities agreements		74,768		69,755	b		5,013	c		0
Other investments		240,679		52,283	a		177,653	c		10,743	d
Cash equivalents		600,252		535,429	b		64,823	c		0
Other assets		3,792		0			1,046	f		2,746	e
Assets held in separate accounts		1,802,307		1,611,236	a		191,071	c		0

Total financial assets	$	15,606,696	$	2,771,164		$	12,660,749		$	174,783


Financial Liabilities

Other liabilities	$	56,499	$	52,283	a	$	140	f	$	4,076	f
Liabilities related to separate accounts		1,802,307		1,611,236	a		191,071	c		0

Total financial liabilities	$	1,858,806	$	1,663,519		$	191,211		$	4,076

Assurant, Inc.

Notes to Consolidated Financial Statements (unaudited)

Three and Nine Months Ended September 30, 2013 and 2012

(In thousands, except number of shares and per share amounts)


	December 31, 2012
	Total		Level 1			Level 2			Level 3
Financial Assets
Fixed maturity securities:
United States Government and government agencies and authorities	$	641,924	$	0		$	637,749		$	4,175
State, municipalities and political subdivisions		907,056		0			907,056			0
Foreign governments		753,408		672			729,639			23,097
Asset-backed		28,197		0			28,197			0
Commercial mortgage-backed		69,883		0			68,109			1,774
Residential mortgage-backed		771,057		0			762,846			8,211
Corporate		9,000,113		0			8,842,110			158,003
Equity securities:
Common stocks		18,950		18,267			683			0
Non-redeemable preferred stocks		456,856		0			456,842			14
Short-term investments		300,925		201,803	b		99,122	c		0
Collateral held/pledged under securities agreements		74,729		68,939	b		5,790	c		0
Other investments		250,806		49,199	a		190,280	c		11,327	d
Cash equivalents		381,777		366,543	b		15,234	c		0
Other assets		6,609		0			723	f		5,886	e
Assets held in separate accounts		1,674,406		1,469,050	a		205,356	c		0

Total financial assets	$	15,336,696	$	2,174,473		$	12,949,736		$	212,487


Financial Liabilities
Other liabilities	$	51,828	$	49,199	a	$	69	f	$	2,560	f
Liabilities related to separate accounts		1,674,406		1,469,050	a		205,356	c		0

Total financial liabilities	$	1,726,234	$	1,518,249		$	205,425		$	2,560

a.	Mainly includes mutual funds.

b.	Mainly includes money market funds.

c.	Mainly includes fixed maturity securities.

d.	Mainly includes fixed maturity securities and other derivatives.

e.	Mainly includes the Consumer Price Index Cap Derivatives (“CPI Caps”).

f.	Mainly includes other derivatives.

Assurant, Inc.

Notes to Consolidated Financial Statements (unaudited)

Three and Nine Months Ended September 30, 2013 and 2012

(In thousands, except number of shares and per share amounts)

There were no transfers between Level 1 and Level 2 financial assets during either period. However, there were transfers between Level 2 and Level 3 financial assets during the period, which are reflected in the “Transfers in” and “Transfers out” columns below. Transfers between Level 2 and Level 3 most commonly occur when market observable inputs that were previously available become unavailable in the current period. The remaining unpriced securities are submitted to independent brokers who provide non-binding broker quotes or are priced by other qualified sources.

The following tables summarize the change in balance sheet carrying value associated with Level 3 financial assets and liabilities carried at fair value during the three and nine months ended September 30, 2013 and 2012:


	Three Months Ended September 30, 2013
	Balance, beginning of period			Total (losses) gains (realized/ unrealized) included in earnings (1)			Net unrealized (losses) gains included in other comprehensive income (2)			Purchases			Sales			Transfers in (3)		Transfers out (3)			Balance, end of period
Financial Assets
Fixed Maturity Securities
United States Government and government agencies and authorities	$	84		$	0		$	0		$	0		$	(84	)	$	0	$	0		$	0
Foreign governments		21,032			(2	)		(433	)		0			0			0		0			20,597
Commercial mortgage-backed		683			0			0			0			(42	)		0		0			641
Residential mortgage-backed		20,326			(18	)		64			0			(583	)		0		(9,004	)		10,785
Corporate		133,623			109			(2,070	)		0			(1,543	)		0		(6,965	)		123,154
Equity Securities
Non-redeemable preferred stocks		2,301			0			289			0			0			3,527		0			6,117
Other investments		10,601			85			693			0			(636	)		0		0			10,743
Other assets		2,963			(217	)		0			0			0			0		0			2,746
Financial Liabilities
Other liabilities		(1,590	)		(589	)		0			(1,897	)		0			0		0			(4,076	)

Total level 3 assets and liabilities	$	190,023		$	(632	)	$	(1,457	)	$	(1,897	)	$	(2,888	)	$	3,527	$	(15,969	)	$	170,707

Assurant, Inc.

Notes to Consolidated Financial Statements (unaudited)

Three and Nine Months Ended September 30, 2013 and 2012

(In thousands, except number of shares and per share amounts)


	Three Months Ended September 30, 2012
	Balance, beginning of period			Total gains (losses) (realized/ unrealized) included in earnings (1)			Net unrealized gains (losses) included in other comprehensive income (2)			Sales			Transfers in (3)		Transfers out (3)			Balance, end of period
Financial Assets
Fixed Maturity Securities
United States Government and government agencies and authorities	$	4,289		$	0		$	(1	)	$	(109	)	$	0	$	0		$	4,179
Foreign governments		23,367			83			1,091			(682	)		0		0			23,859
Commercial mortgage-backed		823			34			(30	)		(1,172	)		2,894		0			2,549
Residential mortgage-backed		8,535			(5	)		191			(211	)		0		0			8,510
Corporate		141,877			(104	)		5,124			(1,801	)		9,715		0			154,811
Equity Securities
Non-redeemable preferred stocks		1			0			0			0			0		0			1
Other investments		10,999			220			173			(248	)		0		(627	)		10,517
Other assets		6,274			33			0			0			0		0			6,307
Financial Liabilities
Other liabilities		(1,935	)		(155	)		0			0			0		0			(2,090	)

Total level 3 assets and liabilities	$	194,230		$	106		$	6,548		$	(4,223	)	$	12,609	$	(627	)	$	208,643

Assurant, Inc.

Notes to Consolidated Financial Statements (unaudited)

Three and Nine Months Ended September 30, 2013 and 2012

(In thousands, except number of shares and per share amounts)


	Nine Months Ended September 30, 2013
	Balance, beginning of period			Total (losses) gains (realized/ unrealized) included in earnings (1)			Net unrealized (losses) gains included in other comprehensive income (2)			Purchases			Sales			Transfers in (3)		Transfers out (3)			Balance, end of period
Financial Assets
Fixed Maturity Securities
United States Government and government agencies and authorities	$	4,175		$	0		$	(3	)	$	0		$	(4,172	)	$	0	$	0		$	0
Foreign governments		23,097			(4	)		(2,496	)		0			0			0		0			20,597
Commercial mortgage-backed		1,774			20			(30	)		0			(1,123	)		0		0			641
Residential mortgage-backed		8,211			(31	)		(1,145	)		29,938			(1,326	)		0		(24,862	)		10,785
Corporate		158,003			(390	)		(4,000	)		5,325			(25,045	)		4,997		(15,736	)		123,154
Equity Securities
Non-redeemable preferred stocks		14			12			309			4,308			(2,040	)		3,527		(13	)		6,117
Other investments		11,327			(813	)		1,275			8			(1,054	)		0		0			10,743
Other assets		5,886			(3,140	)		0			0			0			0		0			2,746
Financial Liabilities
Other liabilities		(2,560	)		381			0			(1,897	)		0			0		0			(4,076	)

Total level 3 assets and liabilities	$	209,927		$	(3,965	)	$	(6,090	)	$	37,682		$	(34,760	)	$	8,524	$	(40,611	)	$	170,707

Assurant, Inc.

Notes to Consolidated Financial Statements (unaudited)

Three and Nine Months Ended September 30, 2013 and 2012

(In thousands, except number of shares and per share amounts)


	Nine Months Ended September 30, 2012
	Balance, beginning of period			Total (losses) gains (realized/ unrealized) included in earnings (1)			Net unrealized gains (losses) included in other comprehensive income (2)			Purchases		Sales			Transfers in (3)		Transfers out (3)			Balance, end of period
Financial Assets
Fixed Maturity Securities
United States Government and government agencies and authorities	$	4,400		$	(2	)	$	(6	)	$	0	$	(213	)	$	0	$	0		$	4,179
Foreign governments		22,713			81			1,747			0		(682	)		0		0			23,859
Asset-backed		453			0			0			0		0			0		(453	)		0
Commercial mortgage-backed		904			34			(34	)		0		(1,249	)		2,894		0			2,549
Residential mortgage-backed		1,867			(9	)		241			1,930		(718	)		7,065		(1,866	)		8,510
Corporate		137,629			(290	)		9,337			2,155		(11,268	)		18,701		(1,453	)		154,811
Equity Securities
Non-redeemable preferred stocks		13			0			2			0		0			1		(15	)		1
Other investments		18,257			(693	)		592			0		(8,500	)		1,488		(627	)		10,517
Other assets		8,521			(2,214	)		0			0		0			0		0			6,307
Financial Liabilities
Other liabilities		(2,720	)		630			0			0		0			0		0			(2,090	)

Total level 3 assets and liabilities	$	192,037		$	(2,463	)	$	11,879		$	4,085	$	(22,630	)	$	30,149	$	(4,414	)	$	208,643

(1)	Included as part of net realized gains on investments in the consolidated statement of operations.

(2)	Included as part of change in unrealized gains on securities in the consolidated statement of comprehensive income.

(3)	Transfers are primarily attributable to changes in the availability of observable market information and re-evaluation of the observability of pricing inputs.

Three different valuation techniques can be used in determining fair value for financial assets and liabilities: the market, income or cost approaches. The three valuation techniques described in the fair value measurements and disclosures guidance are consistent with generally accepted valuation methodologies. The market approach valuation techniques use prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities. When possible, quoted prices (unadjusted) in

Assurant, Inc.

Notes to Consolidated Financial Statements (unaudited)

Three and Nine Months Ended September 30, 2013 and 2012

(In thousands, except number of shares and per share amounts)

active markets are used as of the period-end date (such as for mutual funds and money market funds). Otherwise, valuation techniques consistent with the market approach including matrix pricing and comparables are used. Matrix pricing is a mathematical technique employed principally to value debt securities without relying exclusively on quoted prices for those securities but rather by relying on the securities’ relationship to other benchmark quoted securities. Market approach valuation techniques often use market multiples derived from a set of comparables. Multiples might lie in ranges with a different multiple for each comparable. The selection of where within the range the appropriate multiple falls requires judgment, considering both qualitative and quantitative factors specific to the measurement.

Income approach valuation techniques convert future amounts, such as cash flows or earnings, to a single present amount, or a discounted amount. These techniques rely on current market expectations of future amounts as of the period-end date. Examples of income approach valuation techniques include present value techniques, option-pricing models, binomial or lattice models that incorporate present value techniques and the multi-period excess earnings method.

Cost approach valuation techniques are based upon the amount that would be required to replace the service capacity of an asset at the period-end date, or the current replacement cost. That is, from the perspective of a market participant (seller), the price that would be received for the asset is determined based on the cost to a market participant (buyer) to acquire or construct a substitute asset of comparable utility, adjusted for obsolescence.

While not all three approaches are applicable to all financial assets or liabilities, where appropriate, one or more valuation techniques may be used. For all the classes of financial assets and liabilities included in the above hierarchy, excluding the CPI Caps and certain privately placed corporate bonds, the market valuation technique is generally used. For certain privately placed corporate bonds and the CPI Caps, the income valuation technique is generally used. For the periods ended September 30, 2013 and December 31, 2012, the application of the valuation technique applied to the Company’s classes of financial assets and liabilities has been consistent.

Level 1 Securities

The Company’s investments and liabilities classified as Level 1 as of September 30, 2013 and December 31, 2012, consisted of mutual funds and money market funds, foreign government fixed maturities and common stocks that are publicly listed and/or actively traded in an established market.

Level 2 Securities

The Company’s Level 2 securities are valued using various observable market inputs obtained from a pricing service. The pricing service prepares estimates of fair value measurements for our Level 2 securities using proprietary valuation models based on techniques such as matrix pricing which include observable market inputs. The fair value measurements and disclosures guidance defines observable market inputs as the assumptions market participants would use in pricing the asset or liability developed on market data obtained from sources independent of the Company. The extent of the use of each observable market input for a security depends on the type of security and the market conditions at the balance sheet date. Depending on the security, the priority of the use of observable market inputs may change as some observable market inputs may not be relevant or additional inputs may be necessary. The following observable market inputs (“standard inputs”), listed in the approximate order of priority, are utilized in the pricing evaluation of Level 2 securities: benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers and reference data including market research data. Further details for level 2 investment types follow:

United States Government and government agencies and authorities: United States government and government agencies and authorities securities are priced by our pricing vendor utilizing standard inputs. Included in this category are U.S. Treasury securities which are priced using vendor trading platform data in addition to the standard inputs.

State, municipalities and political subdivisions: State, municipalities and political subdivisions securities are priced by our pricing service utilizing material event notices and new issue data inputs in addition to the standard inputs.

Assurant, Inc.

Notes to Consolidated Financial Statements (unaudited)

Three and Nine Months Ended September 30, 2013 and 2012

(In thousands, except number of shares and per share amounts)

Foreign governments: Foreign government securities are primarily fixed maturity securities denominated in Canadian dollars which are priced by our pricing service utilizing standard inputs. The pricing service also evaluates each security based on relevant market information including relevant credit information, perceived market movements and sector news.

Commercial mortgage-backed, residential mortgage-backed and asset-backed: Commercial mortgage-backed, residential mortgage-backed and asset-backed securities are priced by our pricing vendor utilizing monthly payment information and collateral performance information in addition to standard inputs. Additionally, commercial mortgage-backed securities and asset-backed securities utilize new issue data while residential mortgage-backed securities utilize vendor trading platform data.

Corporate: Corporate securities are priced by our pricing vendor utilizing standard inputs. Non-investment grade securities within this category are priced by our pricing vendor utilizing observations of equity and credit default swap curves related to the issuer in addition to standard inputs. Certain privately placed corporate bonds are priced by a non-pricing service source using a model with observable inputs including, but not limited to, the credit rating, credit spreads, sector add-ons, and issuer specific add-ons.

Non-redeemable preferred stocks: Non-redeemable preferred stocks are priced by our pricing vendor utilizing observations of equity and credit default swap curves related to the issuer in addition to standard inputs.

Short-term investments, collateral held/pledged under securities, other investments, cash equivalents, and assets/liabilities held in separate accounts: To price the fixed maturity securities in these categories, the pricing service utilizes the standard inputs.

Valuation models used by the pricing service can change period to period, depending on the appropriate observable inputs that are available at the balance sheet date to price a security. When market observable inputs are unavailable to the pricing service, the remaining unpriced securities are submitted to independent brokers who provide non-binding broker quotes or are priced by other qualified sources. If the Company cannot corroborate the non-binding broker quotes with Level 2 inputs, these securities are categorized as Level 3 securities.

Level 3 Securities

The Company’s investments classified as Level 3 as of September 30, 2013 and December 31, 2012, consisted of fixed maturity securities and derivatives. All of the Level 3 fixed maturity and equity securities are priced using non-binding broker quotes which cannot be corroborated with Level 2 inputs. Of our total Level 3 fixed maturity and equity securities, $91,974 and $102,586 were priced by a pricing service using single broker quotes due to insufficient information to provide an evaluated price as of September 30, 2013 and December 31, 2012, respectively. The single broker quotes are provided by market makers or broker-dealers who are recognized as market participants in the markets in which they are providing the quotes. The remaining $76,533 and $100,220 were priced internally using independent and non-binding broker quotes as of September 30, 2013 and December 31, 2012, respectively. The inputs factoring into the broker quotes include trades in the actual bond being priced, trades of comparable bonds, quality of the issuer, optionality, structure and liquidity. Significant changes in interest rates, issuer credit, liquidity, and overall market conditions would result in a significantly lower or higher broker quote. The prices received from both the pricing service and internally are reviewed for reasonableness by management and if necessary, management works with the pricing service or broker to further understand how they developed their price. Further details on Level 3 derivative investment types follow:

Other investments and other liabilities: Swaptions are priced using a Black-Scholes pricing model incorporating third-party market data, including swap volatility data.

Other assets: Non-pricing service source prices the CPI Cap derivatives using a model with inputs including, but not limited to, the time to expiration, the notional amount, the strike price, the forward rate, implied volatility and the discount rate.

Management evaluates the following factors in order to determine whether the market for a financial asset is inactive. The factors include, but are not limited to:

•

There are few recent transactions,

•

Little information is released publicly,

Assurant, Inc.

Notes to Consolidated Financial Statements (unaudited)

Three and Nine Months Ended September 30, 2013 and 2012

(In thousands, except number of shares and per share amounts)

•

The available prices vary significantly over time or among market participants,

•

The prices are stale (i.e., not current), and

•

The magnitude of the bid-ask spread.

Illiquidity did not have a material impact in the fair value determination of the Company’s financial assets.

The Company generally obtains one price for each financial asset. The Company performs a monthly analysis to assess if the evaluated prices represent a reasonable estimate of their fair value. This process involves quantitative and qualitative analysis and is overseen by investment and accounting professionals. Examples of procedures performed include, but are not limited to, initial and on-going review of pricing service methodologies, review of the prices received from the pricing service, review of pricing statistics and trends, and comparison of prices for certain securities with two different appropriate price sources for reasonableness. Following this analysis, the Company generally uses the best estimate of fair value based upon all available inputs. On infrequent occasions, a non-pricing service source may be more familiar with the market activity for a particular security than the pricing service. In these cases the price used is taken from the non-pricing service source. The pricing service provides information to indicate which securities were priced using market observable inputs so that the Company can properly categorize our financial assets in the fair value hierarchy.

Disclosures for Non-Financial Assets Measured at Fair Value on a Non-Recurring Basis

The Company also measures the fair value of certain assets on a non-recurring basis, generally on an annual basis, or when events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. These assets include commercial mortgage loans, goodwill and finite-lived intangible assets.

The Company utilizes both the income and market valuation approaches to measure the fair value of its reporting units when required. Under the income approach, the Company determined the fair value of the reporting units considering distributable earnings, which were estimated from operating plans. The resulting cash flows were then discounted using a market participant weighted average cost of capital estimated for the reporting units. After discounting the future discrete earnings to their present value, the Company estimated the terminal value attributable to the years beyond the discrete operating plan period. The discounted terminal value was then added to the aggregate discounted distributable earnings from the discrete operating plan period to estimate the fair value of the reporting units. Under the market approach, the Company derived the fair value of the reporting units based on various financial multiples, including but not limited to: price to tangible book value of equity, price to estimated 2013 earnings and price to estimated 2014 earnings, which were estimated based on publicly available data related to comparable guideline companies. In addition, financial multiples were also estimated from publicly available purchase price data for acquisitions of companies operating in the insurance industry. The estimated fair value of the reporting units was more heavily weighted towards the income approach because in the current economic environment the earnings capacity of a business is generally considered the most important factor in the valuation of a business enterprise. This fair value determination was categorized as Level 3 (unobservable) in the fair value hierarchy.

Fair Value of Financial Instruments Disclosures

The financial instruments guidance requires disclosure of fair value information about financial instruments, as defined therein, for which it is practicable to estimate such fair value. Therefore, it requires fair value disclosure for financial instruments that are not recognized or are not carried at fair value in the consolidated balance sheets. However, this guidance excludes certain financial instruments, including those related to insurance contracts and those accounted for under the equity method and joint ventures guidance (such as real estate joint ventures).

For the financial instruments included within the following financial assets and financial liabilities, the carrying value in the consolidated balance sheets equals or approximates fair value. Please refer to the Fair Value Inputs and Valuation Techniques for Financial Assets and Liabilities Disclosures section above for more information on the financial instruments included within the following financial assets and financial liabilities and the methods and assumptions used to estimate fair value:

Assurant, Inc.

Notes to Consolidated Financial Statements (unaudited)

Three and Nine Months Ended September 30, 2013 and 2012

(In thousands, except number of shares and per share amounts)

•

Cash and cash equivalents

•

Fixed maturity securities

•

Equity securities

•

Short-term investments

•

Collateral held/pledged under securities agreements

•

Other investments

•

Other assets

•

Assets held in separate accounts

•

Other liabilities

•

Liabilities related to separate accounts

In estimating the fair value of the financial instruments that are not recognized or are not carried at fair value in the consolidated balance sheets, the Company used the following methods and assumptions:

Commercial mortgage loans: the fair values of mortgage loans are estimated using discounted cash flow models. The model inputs include mortgage amortization schedules and loan provisions, an internally developed credit spread based on the credit risk associated with the borrower and the U.S. Treasury spot curve. Mortgage loans with similar characteristics are aggregated for purposes of the calculations.

Policy loans: the carrying value of policy loans reported in the balance sheets approximates fair value.

Policy reserves under investment product: the fair values for the Company’s policy reserves under investment products are determined using discounted cash flow analysis. Key inputs to the valuation include projections of policy cash flows, reserve run-off, market yields and risk margins.

Funds held under reinsurance: the carrying value reported approximates fair value due to the short maturity of the instruments.

Debt: the fair value of debt is based upon matrix pricing performed by the pricing service utilizing the standard inputs.

Obligations under securities agreements: obligation under securities agreements is reported at the amount of cash received from the selected broker/dealers.

The following table discloses the carrying value, fair value amount and hierarchy level of the financial instruments that are not recognized or are not carried at fair value in the consolidated balance sheets:

Assurant, Inc.

Notes to Consolidated Financial Statements (unaudited)

Three and Nine Months Ended September 30, 2013 and 2012

(In thousands, except number of shares and per share amounts)


	September 30, 2013
			Fair Value
	Carrying Value		Total		Level 1		Level 2		Level 3
Financial Assets
Commercial mortgage loans on real estate	$	1,268,056	$	1,431,841	$	0	$	0	$	1,431,841
Policy loans		51,997		51,997		51,997		0		0

Total financial assets	$	1,320,053	$	1,483,838	$	51,997	$	0	$	1,431,841


Financial Liabilities
Policy reserves under investment products (Individual and group annuities, subject to discretionary withdrawal)	$	833,446	$	835,243	$	0	$	0	$	835,243
Funds withheld under reinsurance		70,881		70,881		70,881		0		0
Debt		1,638,388		1,668,961		0		1,668,961		0
Obligation under securities agreements		95,761		95,761		95,761		0		0

Total financial liabilities	$	2,638,476	$	2,670,846	$	166,642	$	1,668,961	$	835,243


	December 31, 2012
			Fair Value
	Carrying Value		Total		Level 1		Level 2		Level 3
Financial Assets
Commercial mortgage loans on real estate	$	1,311,682	$	1,468,723	$	0	$	0	$	1,468,723
Policy loans		52,938		52,938		52,938		0		0

Total financial assets	$	1,364,620	$	1,521,661	$	52,938	$	0	$	1,468,723


Financial Liabilities
Policy reserves under investment products (Individual and group annuities, subject to discretionary withdrawal)	$	862,398	$	902,449	$	0	$	0	$	902,449
Funds withheld under reinsurance		61,413		61,413		61,413		0		0
Debt		972,399		1,050,920		0		1,050,920		0
Obligations under securities agreements		94,714		94,714		94,714		0		0

Total financial liabilities	$	1,990,924	$	2,109,496	$	156,127	$	1,050,920	$	902,449

Assurant, Inc.

Notes to Consolidated Financial Statements (unaudited)

Three and Nine Months Ended September 30, 2013 and 2012

(In thousands, except number of shares and per share amounts)

Only the fair value of the Company’s policy reserves for investment-type contracts, (those without significant mortality or morbidity risk) are reflected in the table above.

Reinsurance Recoverables Credit Disclosures

A key credit quality indicator for reinsurance is the A.M. Best financial strength ratings of the reinsurer. The A.M. Best ratings are an independent opinion of a reinsurer’s ability to meet ongoing obligations to policyholders. The A.M. Best ratings for new reinsurance agreements where there is material credit exposure are reviewed at the time of execution. The A.M. Best ratings for existing reinsurance agreements are reviewed on a periodic basis, at least annually. The A.M. Best ratings have not changed significantly since December 31, 2012.

An allowance for doubtful accounts for reinsurance recoverables is recorded on the basis of periodic evaluations of balances due from reinsurers (net of collateral), reinsurer solvency, management’s experience and current economic conditions. Information about the allowance for doubtful accounts for reinsurance recoverable as of September 30, 2013 is as follows:


Balance as of beginning-of-year	$	10,633
Provision		0
Other additions		372
Direct write-downs charged against the allowance		0

Balance as of the end-of-period	$	11,005

7. Debt

On March 28, 2013, the Company completed an issuance of two series of senior notes with an aggregate principal amount of $700,000 (the “2013 Senior Notes”). The Company received net proceeds of $698,093 from this transaction, which represents the principal amount less the discount before offering expenses. The discount of $1,907 is being amortized over the life of the 2013 Senior Notes and is included as part of interest expense on the consolidated statements of operations. The first series is $350,000 in principal amount, bears interest at 2.50% per year and is payable in a single installment due March 15, 2018 and was issued at a 0.18% discount. The second series is $350,000 in principal amount, bears interest at 4.00% per year and is payable in a single installment due March 15, 2023 and was issued at a 0.37% discount.

In February 2004, the Company issued two series of senior notes with an aggregate principal amount of $975,000 (the “2004 Senior Notes”). The Company received net proceeds of $971,537 from this transaction, which represents the principal amount less the discount before offering expenses. The discount of $3,463 is being amortized over the life of the 2004 Senior Notes and is included as part of interest expense on the consolidated statement of operations. The first series is $500,000 in principal amount, bears interest at 5.63% per year and is payable in a single installment due February 15, 2014 and was issued at a 0.11% discount. The second series is $475,000 in principal amount, bears interest at 6.75% per year and is payable in a single installment due February 15, 2034 and was issued at a 0.61% discount.

During the three and nine months ended September 30, 2013, the Company repurchased $8,590 and $32,310 of the 2004 Senior Notes through open market transactions, respectively. The $187 and $961 difference between the reacquisition price and the net carrying amount of the extinguished debt for the three and nine months ended September 30, 2013, respectively, was recorded as an extinguishment loss and is included in the consolidated statement of operations as part of interest expense.

The interest expense incurred related to the 2004 Senior Notes was $14,714 and $15,078 for the three months ended September 30, 2013 and 2012, respectively, and $44,795 and $45,228 for the nine months ended September 30, 2013 and 2012, respectively. There was $7,523 of accrued interest at September 30, 2013 and 2012, respectively. The Company made interest payments on the 2004 Senior Notes of $30,094 on February 15, 2013 and 2012 and August 15, 2013 and 2012.

Assurant, Inc.

Notes to Consolidated Financial Statements (unaudited)

Three and Nine Months Ended September 30, 2013 and 2012

(In thousands, except number of shares and per share amounts)

The interest expense incurred related to the 2013 Senior Notes was $5,870 and $11,613 for the three and nine months ended September 30, 2013, respectively. There was $948 of accrued interest at September 30, 2013. The Company made an interest payment on the 2013 Senior Notes of $10,553 on September 15, 2013.

Credit Facility

The Company’s commercial paper program requires the Company to maintain liquidity facilities either in an available amount equal to any outstanding notes from the commercial paper program or in an amount sufficient to maintain the ratings assigned to the notes issued from the commercial paper program. The Company’s subsidiaries do not maintain commercial paper or other borrowing facilities at their level. This program is currently backed up by a $350,000 senior revolving credit facility, of which $344,388 was available at September 30, 2013, due to outstanding letters of credit.

On September 21, 2011, the Company entered into a four-year unsecured $350,000 revolving credit agreement (“2011 Credit Facility”) with a syndicate of banks arranged by JP Morgan Chase Bank, N.A. and Bank of America, N.A. The 2011 Credit Facility provides for revolving loans and the issuance of multi-bank, syndicated letters of credit and/or letters of credit from a sole issuing bank in an aggregate amount of $350,000 and is available until September 2015, provided the Company is in compliance with all covenants. The 2011 Credit Facility has a sublimit for letters of credit issued thereunder of $50,000. The proceeds of these loans may be used for the Company’s commercial paper program or for general corporate purposes. The Company may increase the total amount available under the 2011 Credit Facility to $525,000 subject to certain conditions. No bank is obligated to provide commitments above their share of the $350,000 facility.

The Company did not use the commercial paper program during the nine months ended September 30, 2013 and 2012 and there were no amounts outstanding relating to the commercial paper program at September 30, 2013 and December 31, 2012. The Company made no borrowings using the 2011 Credit Facility and no loans are outstanding at September 30, 2013. The Company had $5,612 of letters of credit outstanding under the 2011 Credit Facility as of September 30, 2013.

The 2011 Credit Facility contains restrictive covenants and requires that the Company maintain certain specified minimum ratios and thresholds. Among others, these covenants include maintaining a maximum debt to capitalization ratio and a minimum consolidated adjusted net worth. At September 30, 2013, the Company was in compliance with all covenants, minimum ratios and thresholds.

Assurant, Inc.

Notes to Consolidated Financial Statements (unaudited)

Three and Nine Months Ended September 30, 2013 and 2012

(In thousands, except number of shares and per share amounts)

8. Accumulated Other Comprehensive Income

Certain amounts included in the consolidated statements of comprehensive income are net of reclassification adjustments. The following tables summarize those reclassification adjustments (net of taxes):


	Three Months Ended September 30, 2013
	Foreign currency translation adjustment			Unrealized gains on securities			OTTI		Pension under- funding			Accumulated other comprehensive income

Balance at June 30, 2013	$	(27,349	)	$	593,630		$	25,558	$	(171,331	)	$	420,508
Other comprehensive (loss) income before reclassifications		5,578			(45,212	)		279		0			(39,355	)
Amounts reclassified from accumulated other comprehensive income		0			1,907			0		3,246			5,153

Net current-period other comprehensive (loss) income		5,578			(43,305	)		279		3,246			(34,202	)

Balance at September 30, 2013	$	(21,771	)	$	550,325		$	25,837	$	(168,085	)	$	386,306


	Three Months Ended September 30, 2012
	Foreign currency translation adjustment			Unrealized gains on securities			OTTI		Pension under- funding			Accumulated other comprehensive income

Balance at June 30, 2012	$	(1,677	)	$	833,891		$	19,245	$	(175,027	)	$	676,432
Other comprehensive income before reclassifications		15,712			156,563			2,283		0			174,558
Amounts reclassified from accumulated other comprehensive income		0			4,029			0		3,840			7,869

Net current-period other comprehensive income		15,712			160,592			2,283		3,840			182,427

Balance at September 30, 2012	$	14,035		$	994,483		$	21,528	$	(171,187	)	$	858,859

Assurant, Inc.

Notes to Consolidated Financial Statements (unaudited)

Three and Nine Months Ended September 30, 2013 and 2012

(In thousands, except number of shares and per share amounts)


	Nine Months Ended September 30, 2013
	Foreign currency translation adjustment			Unrealized gains on securities			OTTI			Pension under- funding			Accumulated other comprehensive income

Balance at December 31, 2012	$	6,882		$	981,879		$	23,861		$	(182,219	)	$	830,403
Other comprehensive (loss) income before reclassifications		(28,653	)		(449,116	)		1,952			0			(475,817	)
Amounts reclassified from accumulated other comprehensive income		0			17,562			24			14,134			31,720

Net current-period other comprehensive (loss) income		(28,653	)		(431,554	)		1,976			14,134			(444,097	)

Balance at September 30, 2013	$	(21,771	)	$	550,325		$	25,837		$	(168,085	)	$	386,306


	Nine Months Ended September 30, 2012
	Foreign currency translation adjustment			Unrealized gains on securities			OTTI			Pension under- funding			Accumulated other comprehensive income

Balance at December 31, 2011	$	10,919		$	713,773		$	15,386		$	(182,502	)	$	557,576
Other comprehensive income before reclassifications		3,116			262,706			6,234			0			272,056
Amounts reclassified from accumulated other comprehensive income		0			18,004			(92	)		11,315			29,227

Net current-period other comprehensive income		3,116			280,710			6,142			11,315			301,283

Balance at September 30, 2012	$	14,035		$	994,483		$	21,528		$	(171,187	)	$	858,859

Assurant, Inc.

Notes to Consolidated Financial Statements (unaudited)

Three and Nine Months Ended September 30, 2013 and 2012

(In thousands, except number of shares and per share amounts)

The following tables summarize the reclassifications out of accumulated other comprehensive income for the three and nine months ended September 30, 2013 and 2012:


Details about accumulated other comprehensive income components	Amount reclassified from accumulated other comprehensive income						Affected line item in the statement where net income is presented
	Three Months Ended September 30,
	2013			2012
Unrealized gains on securities	$	2,934		$	6,199		Net realized gains on investments, excluding other-than-temporary impairment losses
		(1,027	)		(2,170	)	Provision for income taxes

	$	1,907		$	4,029		Net of tax

OTTI	$	0		$	0		Portion of net loss (gain) recognized in other comprehensive income, before taxes
		0			0		Provision for income taxes

	$	0		$	0		Net of tax

Amortization of pension and postretirement unrecognized net periodic benefit cost:
Amortization of prior service cost	$	12		$	(51	)	(1)
Amortization of net loss		4,983			5,959		(1)

		4,995			5,908		Total before tax
		(1,749	)		(2,068	)	Provision for income taxes

	$	3,246		$	3,840		Net of tax

Total reclassifications for the period	$	5,153		$	7,869		Net of tax


Details about accumulated other comprehensive income components	Amount reclassified from accumulated other comprehensive income						Affected line item in the statement where net income is presented
	Nine Months Ended September 30,
	2013			2012
Unrealized gains on securities	$	27,019		$	27,699		Net realized gains on investments, excluding other-than-temporary impairment losses
		(9,457	)		(9,695	)	Provision for income taxes

	$	17,562		$	18,004		Net of tax

OTTI	$	37		$	(142	)	Portion of net loss (gain) recognized in other comprehensive income, before taxes
		(13	)		50		Provision for income taxes

	$	24		$	(92	)	Net of tax

Amortization of pension and postretirement unrecognized net periodic benefit cost:
Amortization of prior service cost	$	(88	)	$	(101	)	(1)
Amortization of net loss		21,833			17,509		(1)

		21,745			17,408		Total before tax
		(7,611	)		(6,093	)	Provision for income taxes

	$	14,134		$	11,315		Net of tax

Total reclassifications for the period	$	31,720		$	29,227		Net of tax

(1)	These accumulated other comprehensive income components are included in the computation of net periodic pension cost. See Note 12—Retirement and Other Employee Benefits for additional information.

Assurant, Inc.

Notes to Consolidated Financial Statements (unaudited)

Three and Nine Months Ended September 30, 2013 and 2012

(In thousands, except number of shares and per share amounts)

9. Stock Based Compensation

Long-Term Equity Incentive Plan

In May 2008, the Company’s shareholders approved the Assurant, Inc. Long-Term Equity Incentive Plan (“ALTEIP”), which authorized the granting of up to 3,400,000 new shares of the Company’s common stock to employees, officers and non-employee directors. In May 2010, the Company’s shareholders approved an amended and restated ALTEIP, increasing the number of shares of the Company’s common stock authorized for issuance to 5,300,000 new shares. Under the ALTEIP, the Company may grant awards based on shares of its common stock, including stock options, stock appreciation rights (“SARs”), restricted stock (including performance shares), unrestricted stock, restricted stock units (“RSUs”), performance share units (“PSUs”) and dividend equivalents. All future share-based grants will be awarded under the ALTEIP.

The Compensation Committee of the Board of Directors (the “Compensation Committee”) awards PSUs and RSUs annually. RSUs and PSUs are promises to issue actual shares of common stock at the end of a vesting period or performance period. The RSUs granted to employees under the ALTEIP were based on salary grade and performance and vest one-third each year over a three-year period. RSUs granted to non-employee directors also vest one-third each year over a three-year period, however, issuance of vested shares is deferred until separation from Board service. RSUs receive dividend equivalents in cash during the restricted period and do not have voting rights during the restricted period. PSUs accrue dividend equivalents during the performance period based on a target payout, and will be paid in cash at the end of the performance period based on the actual number of shares issued. The fair value of RSUs is estimated using the fair market value of a share of the Company’s common stock at the date of grant. The fair value of PSUs is estimated using the Monte Carlo simulation model and is described in further detail below.

For the PSU portion of an award, the number of shares a participant will receive upon vesting is contingent upon the Company’s performance with respect to selected metrics, identified below, compared against a broad index of insurance companies and assigned a percentile ranking. These rankings are then averaged to determine the composite percentile ranking for the performance period. The payout levels can vary between 0% and 150% (maximum) of the target (100%) ALTEIP award amount based on the Company’s level of performance against the selected metrics.

PSU Performance Goals. The Compensation Committee established book value per share (“BVPS”) growth excluding AOCI, revenue growth and total stockholder return as the three performance measures for PSU awards. BVPS growth is defined as the year-over-year growth of the Company’s stockholders’ equity excluding AOCI divided by the number of fully diluted total shares outstanding at the end of the period. Revenue growth is defined as the year-over-year change in total revenues as disclosed in the Company’s annual statement of operations. Total stockholder return is defined as appreciation in Company stock plus dividend yield to stockholders. Payouts will be determined by measuring performance against the average performance of companies included in the A.M. Best Insurance Index, excluding those with revenues of less than $1,000,000 or that are not in the health or insurance Global Industry Classification Standard codes.

Under the ALTEIP, the Company’s Chief Executive Officer (“CEO”) is authorized by the Board of Directors to grant common stock, restricted stock and RSUs to employees other than the executive officers of the Company (as defined in Section 16 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)). The Board of Directors reviews and ratifies these grants quarterly. Restricted stock and RSUs granted under this program may have different vesting periods.

Restricted Stock Units

RSUs granted to employees and to non-employee directors were 14,916 and 25,160 for the three months ended September 30, 2013 and 2012, respectively, and 481,134 and 526,051 for the nine months ended September 30, 2013 and 2012, respectively. The compensation expense recorded related to RSUs was $6,936 and $5,593 for the three months ended September 30, 2013 and 2012, respectively, and $19,207 and $15,993 for the nine months ended September 30, 2013 and 2012, respectively. The related total income tax benefit was $2,425 and $1,952 for the three months ended September 30, 2013 and 2012, respectively, and $6,714 and $5,591 for the nine months ended September 30, 2013 and 2012, respectively. The weighted average grant date fair value for RSUs granted during the nine months ended September 30, 2013 and 2012 was $44.18 and $41.16, respectively.

As of September 30, 2013, there was $19,711 of unrecognized compensation cost related to outstanding RSUs. That cost is expected to be recognized over a weighted-average period of 1.17 years. The total fair value of RSUs vested during the three months ended September 30, 2013 and 2012 was $982 and $1,085, respectively, and $20,832 and $21,385 for the nine months ended September 30, 2013 and 2012, respectively.

Assurant, Inc.

Notes to Consolidated Financial Statements (unaudited)

Three and Nine Months Ended September 30, 2013 and 2012

(In thousands, except number of shares and per share amounts)

Performance Share Units

No PSUs were granted to employees during the three months ended September 30, 2013 and 2012. PSUs granted to employees were 408,808 and 407,506 for the nine months ended September 30, 2013 and 2012, respectively. The compensation expense recorded related to PSUs was $7,839 and $5,484 for the three months ended September 30, 2013 and 2012, respectively, and $16,688 and $8,691 for the nine months ended September 30, 2013 and 2012, respectively. The related total income tax benefit was $2,738 and $1,912 for the three months ended September 30, 2013 and 2012, respectively. The related total income tax benefit was $5,832 and $3,041 for the nine months ended September 30, 2013 and 2012, respectively. The weighted average grant date fair value for PSUs granted during the nine months ended September 30, 2013 and 2012 was $44.22 and $41.68, respectively.

As of September 30, 2013, there was $20,887 of unrecognized compensation cost related to outstanding PSUs. That cost is expected to be recognized over a weighted-average period of 0.94 years.

The fair value of PSUs with market conditions was estimated on the date of grant using a Monte Carlo simulation model, which utilizes multiple variables that determine the probability of satisfying the market condition stipulated in the award. Expected volatilities for awards issued during the nine months ended September 30, 2013 and 2012 were based on the historical stock prices of the Company’s stock and peer insurance group. The expected term for grants issued during the nine months ended September 30, 2013 and 2012 was assumed to equal the average of the vesting period of the PSUs. The risk-free rate was based on the U.S. Treasury yield curve in effect at the time of grant.

Long-Term Incentive Plan

Prior to the approval of the ALTEIP, share based awards were granted under the 2004 Assurant Long-Term Incentive Plan (“ALTIP”), which authorized the granting of up to 10,000,000 new shares of the Company’s common stock to employees and officers under the ALTIP, Business Value Rights Program (“BVR”) and CEO Equity Grants Program. Under the ALTIP, the Company was authorized to grant restricted stock and SARs. Since May 2008, no new grants have been made under this plan and the impact of these grants on the consolidated financial statements is immaterial for all periods presented.

Employee Stock Purchase Plan

Under the Employee Stock Purchase Plan (“ESPP”), the Company is authorized to issue up to 5,000,000 new shares to employees who are participants in the ESPP. Eligible employees can purchase shares at a 10% discount applied to the lower of the closing price of the common stock on the first or last day of the offering period.

In January 2013, the Company issued 107,535 shares at a discounted price of $31.23 for the offering period of July 1, 2012 through December 31, 2012. In January 2012, the Company issued 103,243 shares at a discounted price of $32.98 for the offering period of July 1, 2011 through December 31, 2011.

In July 2013, the Company issued 110,038 shares to employees at a discounted price of $31.93 for the offering period of January 1, 2013 through June 30, 2013. In July 2012, the Company issued 110,699 shares to employees at a discounted price of $31.36 for the offering period of January 1, 2012 through June 30, 2012.

The compensation expense recorded related to the ESPP was $300 and $319 for the three months ended September 30, 2013 and 2012, respectively, and $798 and $1,077 for the nine months ended September 30, 2013 and 2012, respectively. The fair value of each award under the ESPP was estimated at the beginning of each offering period using the Black-Scholes option-pricing model. Expected volatilities are based on implied volatilities from traded options on the Company’s stock and the historical volatility of the Company’s stock. The risk-free rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of grant. The dividend yield is based on the current annualized dividend and share price as of the grant date.

Assurant, Inc.

Notes to Consolidated Financial Statements (unaudited)

Three and Nine Months Ended September 30, 2013 and 2012

(In thousands, except number of shares and per share amounts)

10. Stock Repurchase

The following table shows the shares repurchased during the periods indicated:


					Total Number of Shares
					Purchased as Part of
	Number of		Average Price		Publicly Announced
Period in 2013	Shares Purchased		Paid Per Share		Programs
January		0	$	0.00		0
February		0		0.00		0
March		600,000		44.28		600,000
April		1,803,621		46.29		1,803,621
May		1,383,080		48.92		1,383,080
June		459,412		50.08		459,412
July		376,300		52.68		376,300
August		814,900		55.01		814,900
September		735,525		54.77		735,525

Total		6,172,838	$	49.52		6,172,838

On May 14, 2012, the Company’s Board of Directors authorized the Company to repurchase up to $600,000 of its outstanding common stock.

As of December 31, 2012, there was $502,900 remaining under the total purchase authorization. During the nine months ended September 30, 2013, the Company repurchased 6,172,838 shares of the Company’s outstanding common stock at a cost of $305,539, exclusive of commissions, leaving $197,361 remaining under the total repurchase authorization at September 30, 2013.

Assurant, Inc.

Notes to Consolidated Financial Statements (unaudited)

Three and Nine Months Ended September 30, 2013 and 2012

(In thousands, except number of shares and per share amounts)

11. Earnings Per Common Share

The following table presents net income, the weighted average common shares used in calculating basic earnings per common share (“EPS”) and those used in calculating diluted EPS for each period presented below.


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2013			2012			2013			2012

Numerator

Net income	$	128,788		$	126,288		$	380,091		$	458,718
Deduct dividends paid		(18,833	)		(17,284	)		(55,777	)		(52,633	)

Undistributed earnings	$	109,955		$	109,004		$	324,314		$	406,085


Denominator
Weighted average shares outstanding used in basic earnings per share calculations		75,544,542			82,156,838			77,662,796			85,723,387

Incremental common shares from :
SARs		53,172			119,925			73,307			135,626
PSUs		859,572			676,488			823,393			733,493
ESPPs		2,505			6,202			2,505			6,202


Weighted average shares used in diluted earnings per share calculations		76,459,791			82,959,453			78,562,001			86,598,708


Earnings per common share - Basic
Distributed earnings	$	0.25		$	0.21		$	0.71		$	0.60
Undistributed earnings		1.45			1.33			4.18			4.75

Net income	$	1.70		$	1.54		$	4.89		$	5.35


Earnings per common share - Diluted
Distributed earnings	$	0.25		$	0.21		$	0.71		$	0.60
Undistributed earnings		1.43			1.31			4.13			4.70

Net income	$	1.68		$	1.52		$	4.84		$	5.30

There were no anti-dilutive SARs or PSUs outstanding that were not included in the computation of diluted EPS under the treasury stock method during the three and nine months ended September 30, 2013. Average PSUs totaling 191 for the nine months ended September 30, 2012 were outstanding but were anti-dilutive and thus not included in the computation of diluted EPS under the treasury stock method. There were no anti-dilutive PSUs outstanding during the three months ended September 30, 2012.

Assurant, Inc.

Notes to Consolidated Financial Statements (unaudited)

Three and Nine Months Ended September 30, 2013 and 2012

(In thousands, except number of shares and per share amounts)

12. Retirement and Other Employee Benefits

The components of net periodic benefit cost for the Company’s qualified pension benefits plan, nonqualified pension benefits plan and retirement health benefits plan for the three and nine months ended September 30, 2013 and 2012 were as follows:


	Qualified Pension						Nonqualified Pension				Retirement Health
	Benefits						Benefits (1)				Benefits
	For the Three Months Ended September 30,						For the Three Months Ended September 30,				For the Three Months Ended September 30,
	2013			2012			2013		2012		2013			2012

Service cost	$	7,832		$	7,788		$	1,008	$	966	$	581		$	681

Interest cost		8,867			8,211			1,480		1,463		911			867

Expected return on plan assets		(11,036	)		(9,932	)		0		0		(799	)		(609	)

Amortization of prior service cost		4			24			249		167		(241	)		(242	)

Amortization of net loss		3,801			4,833			1,182		1,126		0			0


Net periodic benefit cost	$	9,468		$	10,924		$	3,919	$	3,722	$	452		$	697


	Qualified Pension						Nonqualified Pension				Retirement Health
	Benefits						Benefits (1)				Benefits
	For the Nine Months Ended September 30,						For the Nine Months Ended September 30,				For the Nine Months Ended September 30,
	2013			2012			2013		2012		2013			2012

Service cost	$	26,432		$	24,038		$	3,308	$	2,816	$	2,281		$	2,081

Interest cost		24,017			24,511			3,880		4,163		2,561			2,617

Expected return on plan assets		(33,186	)		(30,132	)		0		0		(2,199	)		(2,159	)

Amortization of prior service cost		4			74			599		517		(691	)		(692	)

Amortization of net loss		17,451			14,283			4,382		3,226		0			0


Net periodic benefit cost	$	34,718		$	32,774		$	12,169	$	10,722	$	1,952		$	1,847

(1)	The Company’s nonqualified plan is unfunded.

Our qualified pension benefits plan (the “Plan”) was under-funded by $10,420 and $107,666 (based on the fair value of Plan assets compared to the projected benefit obligation) at September 30, 2013 and December 31, 2012, respectively. This equates to a 99% and 87% funded status at September 30, 2013 and December 31, 2012, respectively. The change in under-funded projected benefit obligation status is mainly due to an increase in the discount rate used to determine the projected benefit obligation as well as contributions made to the qualified plan. During the first nine months of 2013, $37,500 in cash was contributed to the Plan. Additional cash, up to $12,500, is expected to be contributed to the Plan over the remainder of 2013.

In September, the Company decided to no longer offer a defined benefit pension plan to new hires as of January 1, 2014. Current employees will not be affected and will continue to accrue benefits under the Plan. Employees who are currently eligible but not yet participating in the Plan will remain eligible to participate in the future once they meet the Plan requirements.

Assurant, Inc.

Notes to Consolidated Financial Statements (unaudited)

Three and Nine Months Ended September 30, 2013 and 2012

(In thousands, except number of shares and per share amounts)

13. Segment Information

The Company has five reportable segments, which are defined based on the nature of the products and services offered: Assurant Solutions, Assurant Specialty Property, Assurant Health, Assurant Employee Benefits, and Corporate & Other. Assurant Solutions provides warranties and service contracts, pre-funded funeral insurance, debt protection administration, and credit-related insurance. Assurant Specialty Property provides lender-placed homeowners insurance, manufactured housing homeowners insurance and renters insurance and related products. Assurant Health provides individual health and small employer group health insurance. Assurant Employee Benefits primarily provides group dental insurance, group disability insurance, group life insurance and group vision and supplemental insurance. Corporate & Other includes activities of the holding company, financing and interest expenses, net realized gains (losses) on investments and interest income earned from short-term investments held. Corporate & Other also includes the amortization of deferred gains associated with the sales of Fortis Financial Group and Long-Term Care through reinsurance agreements.

The Company evaluates performance of the operating segments based on segment income (loss) after-tax excluding realized gains (losses) on investments. The Company determines reportable segments in a manner consistent with the way the Chief Operating Decision Maker makes operating decisions and assesses performance.

The following tables summarize selected financial information by segment:


	Three Months Ended September 30, 2013
	Solutions		Specialty Property		Health		Employee Benefits		Corporate & Other			Consolidated

Revenues
Net earned premiums	$	684,973	$	612,165	$	398,000	$	252,293	$	0		$	1,947,431
Net investment income		92,845		23,819		9,168		28,516		4,861			159,209

Net realized losses on investments		0		0		0		0		(3,631	)		(3,631	)
Amortization of deferred gain on disposal of businesses		0		0		0		0		4,074			4,074
Fees and other income		107,908		29,786		7,630		6,032		211			151,567

Total revenues		885,726		665,770		414,798		286,841		5,515			2,258,650


Benefits, losses and expenses

Policyholder benefits		226,263		228,508		295,534		183,527		0			933,832
Amortization of deferred acquisition costs and value of business acquired		286,343		79,361		266		6,780		0			372,750
Underwriting, general and administrative expenses		325,537		181,172		107,086		87,329		36,202			737,326
Interest expense		0		0		0		0		20,771			20,771


Total benefits, losses and expenses		838,143		489,041		402,886		277,636		56,973			2,064,679

Segment income (loss) before provision (benefit) for income tax		47,583		176,729		11,912		9,205		(51,458	)		193,971

Provision (benefit) for income taxes		11,374		61,679		5,351		3,056		(16,277	)		65,183


Segment income (loss) after tax	$	36,209	$	115,050

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