AIZ-2015.06.30 10Q

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 June 30, 2015
OR 
¨
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.)
28 Liberty Street, 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.
Large accelerated filer
 
x
  
Accelerated filer
 
¨
 
 
 
 
Non-accelerated filer
 
¨ (Do not check if a smaller reporting company)
  
Smaller reporting company
 
¨
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 July 30, 2015 was 66,818,458.
 
 
 
 
 



ASSURANT, INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2015
TABLE OF CONTENTS
 
Item
Number
 
Page
Number
 
 
 
 
 
1.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2.
 
 
 
3.
 
 
 
4.
 
 
 
 
 
 
 
 
1.
 
 
 
1A.
 
 
 
2.
 
 
 
6.
 
 
 
 
Amounts are presented in United States of America (“U.S.”) dollars and all amounts are in thousands, except number of shares and per share amounts.

1


Assurant, Inc.
Consolidated Balance Sheets (unaudited)
At June 30, 2015 and December 31, 2014
 
 
 



 
June 30, 2015
 
December 31, 2014
 
(in thousands except number of shares and per
share amounts)
Assets
 
 
 
Investments:
 
 
 
Fixed maturity securities available for sale, at fair value (amortized cost - $9,798,374 in 2015 and
   $10,048,100 in 2014)
$
10,745,939

 
$
11,263,174

Equity securities available for sale, at fair value (cost - $461,066 in 2015 and $434,875 in 2014)
523,786

 
499,407

Commercial mortgage loans on real estate, at amortized cost
1,267,033

 
1,272,616

Policy loans
45,453

 
48,272

Short-term investments
442,611

 
345,246

Collateral held/pledged under securities agreements
95,291

 
95,985

Other investments
585,394

 
606,752

Total investments
13,705,507

 
14,131,452

Cash and cash equivalents
1,297,436

 
1,318,656

Premiums and accounts receivable, net
1,426,284

 
1,445,630

Reinsurance recoverables
7,376,942

 
7,254,585

Accrued investment income
133,374

 
138,868

Deferred acquisition costs
3,078,233

 
2,957,740

Property and equipment, at cost less accumulated depreciation
289,416

 
277,645

Tax receivable
—

 
15,132

Goodwill
842,202

 
841,239

Value of business acquired
41,584

 
45,462

Other intangible assets, net
332,370

 
381,960

Other assets
399,125

 
847,860

Assets held in separate accounts
1,919,609

 
1,906,237

Total assets
$
30,842,082

 
$
31,562,466

Liabilities
 
 
 
Future policy benefits and expenses
$
9,489,876

 
$
9,483,672

Unearned premiums
6,429,804

 
6,529,675

Claims and benefits payable
4,010,733

 
3,698,606

Commissions payable
380,205

 
487,322

Reinsurance balances payable
99,226

 
157,089

Funds held under reinsurance
95,632

 
75,161

Deferred gain on disposal of businesses
94,317

 
100,817

Obligation under securities agreements
95,289

 
95,986

Accounts payable and other liabilities
2,201,257

 
2,675,515

Tax payable
26,945

 
—

Debt
1,171,229

 
1,171,079

Liabilities related to separate accounts
1,919,609

 
1,906,237

Total liabilities
26,014,122

 
26,381,159

Commitments and contingencies (Note 15)

 

Stockholders’ equity
 
 
 
Common stock, par value $0.01 per share, 800,000,000 shares authorized, 66,998,201 and 69,299,559
   shares outstanding at June 30, 2015 and December 31, 2014, respectively
1,496

 
1,490

Additional paid-in capital
3,126,772

 
3,131,274

Retained earnings
4,851,670

 
4,809,287

Accumulated other comprehensive income
348,419

 
555,767

Treasury stock, at cost; 82,226,828 and 79,338,142 shares at June 30, 2015 and December 31, 2014,
   respectively
(3,500,397
)
 
(3,316,511
)
Total stockholders’ equity
4,827,960

 
5,181,307

Total liabilities and stockholders’ equity
$
30,842,082

 
$
31,562,466


See the accompanying notes to the consolidated financial statements

2


Assurant, Inc.
Consolidated Statements of Operations (unaudited)
Three and Six Months Ended June 30, 2015 and 2014
 
 
 

 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2015
 
2014
 
2015
 
2014
 
(in thousands except number of shares and per share amounts)
Revenues
 
 
 
 
 
 
 
Net earned premiums
$
2,138,258

 
$
2,171,734

 
$
4,297,820

 
$
4,232,196

Net investment income
167,786

 
167,508

 
320,059

 
335,566

Net realized gains on investments, excluding other-than-
   temporary impairment losses
11,999

 
6,117

 
18,524

 
25,868

Total other-than-temporary impairment losses
—

 
(40
)
 
(3,208
)
 
(69
)
Portion of net loss recognized in other comprehensive
   income, before taxes
—

 
10

 
638

 
39

Net other-than-temporary impairment losses recognized in
   earnings
—

 
(30
)
 
(2,570
)
 
(30
)
Amortization of deferred gain on disposal of businesses
3,242

 
3,644

 
6,500

 
7,304

Fees and other income
323,609

 
259,128

 
603,171

 
455,569

Total revenues
2,644,894

 
2,608,101

 
5,243,504

 
5,056,473

Benefits, losses and expenses
 
 
 
 
 
 
 
Policyholder benefits
1,267,714

 
1,149,613

 
2,478,441

 
2,157,645

Amortization of deferred acquisition costs and value of
   business acquired
353,883

 
366,589

 
722,886

 
711,371

Underwriting, general and administrative expenses
969,494

 
884,336

 
1,891,403

 
1,727,576

Interest expense
13,778

 
13,776

 
27,556

 
30,841

Total benefits, losses and expenses
2,604,869

 
2,414,314

 
5,120,286

 
4,627,433

Income before provision for income taxes
40,025

 
193,787

 
123,218

 
429,040

Provision for income taxes
7,236

 
50,177

 
40,385

 
148,185

Net income
$
32,789

 
$
143,610

 
$
82,833

 
$
280,855

Earnings Per Share
 
 
 
 
 
 
 
Basic
$
0.48

 
$
1.98

 
$
1.20

 
$
3.86

Diluted
$
0.47

 
$
1.95

 
$
1.18

 
$
3.81

Dividends per share
$
0.30

 
$
0.27

 
$
0.57

 
$
0.52

Share Data
 
 
 
 
 
 
 
Weighted average shares outstanding used in basic per
   share calculations
68,558,472

 
72,659,590

 
69,161,001

 
72,753,651

Plus: Dilutive securities
685,927

 
884,601

 
785,363

 
981,748

Weighted average shares used in diluted per share
   calculations
69,244,399

 
73,544,191

 
69,946,364

 
73,735,399

See the accompanying notes to the consolidated financial statements

3


Assurant, Inc.
Consolidated Statements of Comprehensive Income (unaudited)
Three and Six Months Ended June 30, 2015 and 2014
 
 
 

 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2015
 
2014
 
2015
 
2014
 
(in thousands)
Net income
$
32,789

 
$
143,610

 
$
82,833

 
$
280,855

Other comprehensive (loss) income:
 
 
 
 
 
 
 
Change in unrealized gains on securities, net of taxes
   of $116,577, $(69,980), $88,228 and $(156,856),
   respectively
(223,064
)
 
139,934

 
(165,605
)
 
310,967

Change in other-than-temporary impairment gains,
   net of taxes of $152, $(400), $632 and $(1,284),
   respectively
(281
)
 
744

 
(1,175
)
 
2,384

Change in foreign currency translation, net of taxes of
   $(712), $9,012, $1,943 and $12,354, respectively
20,151

 
37,883

 
(45,800
)
 
19,829

Amortization of pension and postretirement
   unrecognized net periodic benefit cost, net of taxes
   of $(1,409), $(1,094), $(2,818) and $(2,188),
   respectively
2,616

 
2,030

 
5,232

 
4,062

Total other comprehensive (loss) income
(200,578
)
 
180,591

 
(207,348
)
 
337,242

Total comprehensive (loss) income
$
(167,789
)
 
$
324,201

 
$
(124,515
)
 
$
618,097

See the accompanying notes to the consolidated financial statements

4


Assurant, Inc.
Consolidated Statement of Stockholders’ Equity (unaudited)
From December 31, 2014 through June 30, 2015
 
 
 

 
Common
Stock
 
Additional
Paid-in
Capital
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Income
 
Treasury
Stock
 
Total
 
(in thousands)
Balance at December 31, 2014
$
1,490

 
$
3,131,274

 
$
4,809,287

 
$
555,767

 
$
(3,316,511
)
 
$
5,181,307

Stock plan exercises
6

 
(16,427
)
 
—

 
—

 
—

 
(16,421
)
Stock plan compensation
  expense
—

 
13,413

 
—

 
—

 
—

 
13,413

Change in tax benefit from
  share-based payment
  arrangements
—

 
(1,488
)
 
—

 
—

 
—

 
(1,488
)
Dividends
—

 
—

 
(40,450
)
 
—

 
—

 
(40,450
)
Acquisition of common
  stock
—

 
—

 
—

 
—

 
(183,886
)
 
(183,886
)
Net income
—

 
—

 
82,833

 
—

 
—

 
82,833

Other comprehensive
 loss
—

 
—

 
—

 
(207,348
)
 
—

 
(207,348
)
Balance, June 30, 2015
$
1,496

 
$
3,126,772

 
$
4,851,670

 
$
348,419

 
$
(3,500,397
)
 
$
4,827,960

 
See the accompanying notes to the consolidated financial statements

5


Assurant, Inc.
Consolidated Statements of Cash Flows (unaudited)
Six Months Ended June 30, 2015 and 2014
 
 
 

 
Six Months Ended June 30,
 
2015
 
2014
 
(in thousands)
Net cash provided by operating activities
$
168,896

 
$
261,768

Investing activities
 
 
 
Sales of:
 
 
 
Fixed maturity securities available for sale
1,219,007

 
911,944

Equity securities available for sale
96,541

 
74,975

Other invested assets
40,831

 
43,644

Property and equipment and other
3,407

 
128

Subsidiary, net of cash transferred (3)
65,002

 
—

Maturities, calls, prepayments, and scheduled redemption of:
 
 
 
Fixed maturity securities available for sale
394,341

 
425,887

Commercial mortgage loans on real estate
123,739

 
80,032

Purchases of:
 
 
 
Fixed maturity securities available for sale
(1,459,405
)
 
(1,372,172
)
Equity securities available for sale
(122,710
)
 
(76,074
)
Commercial mortgage loans on real estate
(123,624
)
 
(40,950
)
Other invested assets
(9,344
)
 
(15,808
)
Property and equipment and other
(62,251
)
 
(30,867
)
Subsidiary, net of cash transferred (4)
(11,571
)
 
(59,541
)
Equity interest (1)
(457
)
 
(20,950
)
Change in short-term investments
(101,146
)
 
112,558

Change in policy loans
2,693

 
1,800

Change in collateral held/pledged under securities agreements
697

 
(11
)
Net cash provided by investing activities
55,750

 
34,595

Financing activities
 
 
 
Repayment of debt
—

 
(467,330
)
Change in tax benefit from share-based payment arrangements
(1,488
)
 
14,182

Acquisition of common stock
(187,752
)
 
(81,858
)
Dividends paid
(40,450
)
 
(38,933
)
Payment of contingent obligations (2)
—

 
(31,871
)
Change in obligation under securities agreements
(697
)
 
11

Net cash used in financing activities
(230,387
)
 
(605,799
)
Effect of exchange rate changes on cash and cash equivalents
(15,479
)
 
(8,878
)
Change in cash and cash equivalents
(21,220
)
 
(318,314
)
Cash and cash equivalents at beginning of period
1,318,656

 
1,717,184

Cash and cash equivalents at end of period
$
1,297,436

 
$
1,398,870

 
(1)
Relates to the purchase of equity interest in Iké Asistencia.
(2)
Relates to the delayed and contingent liability payments established at the time of acquisition of Lifestyle Services Group.
(3)
Relates to the sale of American Reliable Insurance Company to Global Indemnity Group, Inc., in January 2015.
(4)
Relates to the acquisition of StreetLinks LLC in 2014 and an immaterial acquisition made in 2015.
See the accompanying notes to the consolidated financial statements

6

Assurant, Inc.
Notes to Consolidated Financial Statements (unaudited)
Three and Six Months Ended June 30, 2015 and 2014
(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 specialty protection products and related services in North America, Latin America, Europe and other select worldwide markets.
The Company is traded on the New York Stock Exchange under the symbol "AIZ."
Through its operating subsidiaries, the Company provides mobile device protection products and services; debt protection administration; credit-related insurance; warranties and extended service products and related services for consumer electronics, appliances and vehicles; pre-funded funeral insurance; lender-placed homeowners insurance; property preservation and valuation services; flood 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 group life insurance.
As previously announced, the Company concluded a comprehensive review of its portfolio and decided to sharpen its focus on specialty housing and lifestyle protection products and services. As a result, the Company will exit the health insurance market and is pursuing a sale of its Assurant Employee Benefits segment. See Note 4 for more information.
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 June 30, 2015 and December 31, 2014 and for the three and six months ended June 30, 2015 and 2014 is unaudited; in the opinion of management, the interim data includes all adjustments, consisting only of normal recurring adjustments, necessary for 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.
The Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010, and the rules and regulations thereunder (together, the “Affordable Care Act”) introduced new and significant premium stabilization programs in 2014. These programs require the Company to record amounts to our consolidated financial statements based on assumptions and estimates that could materially change as experience develops.
Operating results for the three and six months ended June 30, 2015 are not necessarily indicative of the results that may be expected for the year ending December 31, 2015. 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, 2014.
3. Recent Accounting Pronouncements
Not Yet Adopted
In April 2015, the Financial Accounting Standards Board (“FASB”) issued amended guidance on presentation of debt issuance costs. This amended guidance requires that debt issuance costs be presented in the balance sheet as a direct deduction from the carrying amount of the debt liability, consistent with debt discounts or premiums. The recognition and measurement guidance for debt issuance costs is not affected by the amendments. The amended guidance is effective for interim and annual periods beginning after December 15, 2015. Therefore, the Company is required to adopt the guidance on January 1, 2016. Early adoption of the amended guidance is permitted for financial statements that have not been previously issued. An entity should apply the amended guidance on a retrospective basis, wherein the balance sheet of each individual period presented should be adjusted to reflect the period-specific effects of applying the new guidance. The Company does not expect the adoption of this presentation guidance to impact the Company’s financial position or results of operations.

7

Assurant, Inc.
Notes to Consolidated Financial Statements (unaudited)
Three and Six Months Ended June 30, 2015 and 2014
(In thousands, except number of shares and per share amounts)
 
 
 




In February 2015, the FASB issued new consolidation guidance that affects reporting entities that are required to evaluate whether they should consolidate certain legal entities. All legal entities are subject to reevaluation under the revised consolidation model. The new guidance eliminates specialized guidance for limited partnerships and similar legal entities, and removes the indefinite deferral for certain investment funds. The new guidance is effective for interim and annual periods beginning after December 15, 2015. Therefore, the Company is required to adopt the guidance on January 1, 2016. Early adoption is permitted, including adoption in an interim period. The new guidance may be applied retrospectively or through a cumulative effect adjustment to retained earnings as of the beginning of the year of adoption. The Company is evaluating the requirements of this new consolidation guidance and the potential impact on the Company’s financial position and results of operations.
In May 2014, the FASB issued amended guidance on revenue recognition. The amended guidance affects any entity that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets unless those contracts are within the scope of other standards. Insurance contracts are within the scope of other standards and therefore are specifically excluded from the scope of the amended revenue recognition guidance. The core principle of the amended guidance is that an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve the core principle, the entity applies a five step process outlined in the amended guidance. The amended guidance also includes a cohesive set of disclosure requirements. The amended guidance is effective for interim and annual periods beginning after December 15, 2016 and early adoption is not permitted. Therefore, the Company is required to adopt the guidance on January 1, 2017. An entity can choose to apply the amended guidance using either the full retrospective approach or a modified retrospective approach. The Company is evaluating the requirements of the revenue recognition guidance as it relates to its non-insurance contract revenue and the potential impact on the Company’s financial position and results of operations.
4. Reorganization
On June 7, 2015, the Company concluded its comprehensive review of strategic alternatives for the Assurant Health business segment as the Company sharpens its focus on housing and lifestyle specialty protection products and services. The Company has begun a process to wind down its major medical operations and expects to substantially complete its exit of the health insurance market by the end of 2016. As part of this process, Assurant is negotiating to reinsure its supplemental and small-group self-funded lines of business and to sell certain legal entities to National General Holdings Corp., subject to any necessary regulatory approval.
The following table presents information regarding exit-related charges:
 
Premium
deficiency
reserves
 
Severance
and
retention
 
Long-lived asset impairments and contract and lease terminations
 
Other
transaction
costs
Total amount expected to be incurred
$
122,488

 
$
93,500

 
$
31,000

 
$
6,000

The amount incurred in the period
$
122,488

 
$
14,435

 
$
22,307

 
$
4,996

Amounts related to premium deficiency reserves are included in policyholders benefits and all other amounts in the above table are included in underwriting, general and administrative expenses on the consolidated statements of operations.
The total amount expected to be incurred is an estimate that is subject to change as facts and circumstances evolve. For instance, severance and retention estimates could change if employees previously identified for separation resign from the Company before the date through which they are required to be employed in order to receive severance and retention benefits.
Future cash payments, primarily related to severance and retention charges, are expected to be substantially complete by 2016.


8

Assurant, Inc.
Notes to Consolidated Financial Statements (unaudited)
Three and Six Months Ended June 30, 2015 and 2014
(In thousands, except number of shares and per share amounts)
 
 
 




5. Dispositions
In January 2015, the Company completed the sale of its general agency business and primary insurance carrier, American Reliable Insurance Company (“ARIC”), to Global Indemnity Group, Inc., a subsidiary of Global Indemnity plc, for $117,860 in net cash consideration. The business was part of the Assurant Specialty Property segment and offers specialty personal lines and agricultural insurance through general and independent agents. The sale price was based on the GAAP book value of the business from June 30, 2014 adjusted as of January 1, 2015. In accordance with held for sale accounting, the Company recorded a loss of $21,526 for the period ended December 31, 2014. Upon final settlement, the Company recorded gains (losses) of $5,284 and $(4,164) for the three months ended March 31, 2015 and June 30, 2015, respectively. The net gain recorded on the sale as of June 30, 2015 is $1,120, which is classified in underwriting, general and administrative expenses on the Consolidated Statements of Operations.

9

Assurant, Inc.
Notes to Consolidated Financial Statements (unaudited)
Three and Six Months Ended June 30, 2015 and 2014
(In thousands, except number of shares and per share amounts)
 
 
 




6. 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: 
 
June 30, 2015
 
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
$
170,201

 
$
4,576

 
$
(376
)
 
$
174,401

 
$
—

States, municipalities and political
  subdivisions
705,878

 
54,635

 
(1,605
)
 
758,908

 
—

Foreign governments
549,039

 
75,012

 
(1,611
)
 
622,440

 
—

Asset-backed
3,762

 
1,578

 
(124
)
 
5,216

 
1,478

Commercial mortgage-backed
29,974

 
673

 
—

 
30,647

 
—

Residential mortgage-backed
1,018,385

 
55,042

 
(4,327
)
 
1,069,100

 
16,472

Corporate
7,321,135

 
798,462

 
(34,370
)
 
8,085,227

 
21,157

Total fixed maturity securities
$
9,798,374

 
$
989,978

 
$
(42,413
)
 
$
10,745,939

 
$
39,107

Equity securities:
 
 
 
 
 
 
 
 
 
Common stocks
$
24,119

 
$
15,772

 
$
(12
)
 
$
39,879

 
$
—

Non-redeemable preferred stocks
436,947

 
48,991

 
(2,031
)
 
483,907

 
—

Total equity securities
$
461,066

 
$
64,763

 
$
(2,043
)
 
$
523,786

 
$
—

 
 
December 31, 2014
 
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
$
172,070

 
$
5,201

 
$
(429
)
 
$
176,842

 
$
—

States, municipalities and political
  subdivisions
703,167

 
67,027

 
(353
)
 
769,841

 
—

Foreign governments
591,981

 
74,339

 
(1,457
)
 
664,863

 
—

Asset-backed
3,917

 
1,680

 
(78
)
 
5,519

 
1,570

Commercial mortgage-backed
44,907

 
1,109

 
—

 
46,016

 
—

Residential mortgage-backed
911,004

 
58,876

 
(1,154
)
 
968,726

 
17,732

Corporate
7,621,054

 
1,026,927

 
(16,614
)
 
8,631,367

 
21,612

Total fixed maturity securities
$
10,048,100

 
$
1,235,159

 
$
(20,085
)
 
$
11,263,174

 
$
40,914

Equity securities:
 
 
 
 
 
 
 
 
 
Common stocks
$
22,300

 
$
15,651

 
$
(1
)
 
$
37,950

 
$
—

Non-redeemable preferred stocks
412,575

 
50,975

 
(2,093
)
 
461,457

 
—

Total equity securities
$
434,875

 
$
66,626

 
$
(2,094
)
 
$
499,407

 
$
—

 

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

10

Assurant, Inc.
Notes to Consolidated Financial Statements (unaudited)
Three and Six Months Ended June 30, 2015 and 2014
(In thousands, except number of shares and per share amounts)
 
 
 




Our states, municipalities and political subdivisions holdings are highly diversified across the U.S. and Puerto Rico, with no individual state’s exposure (including both general obligation and revenue securities) exceeding 0.5% of the overall investment portfolio as of June 30, 2015 and December 31, 2014. At June 30, 2015 and December 31, 2014, the securities include general obligation and revenue bonds issued by states, cities, counties, school districts and similar issuers, including $335,964 and $270,107, respectively, of advance refunded or escrowed-to-maturity bonds (collectively referred to as “pre-refunded bonds”), which are bonds for which an irrevocable trust has been established to fund the remaining payments of principal and interest. As of June 30, 2015 and December 31, 2014, revenue bonds account for 50% and 51% of the holdings, respectively. Excluding pre-refunded revenue bonds, the activities supporting the income streams of the Company’s revenue bonds are across a broad range of sectors, primarily highway, water, airport and marina, higher education, 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 June 30, 2015, approximately 77%, 10% and 5% of the foreign government securities were held in the Canadian government/provincials and the governments of Brazil and Germany, respectively. At December 31, 2014, approximately 76%, 10% and 5% of the foreign government securities were held in the Canadian government/provincials and the governments of Brazil and Germany, respectively. No other country represented more than 2% and 3% of our foreign government securities as of June 30, 2015 and December 31, 2014, respectively.
The Company has European investment exposure in its corporate fixed maturity and equity securities of $967,422 with a net unrealized gain of $90,871 at June 30, 2015 and $1,060,655 with a net unrealized gain of $116,975 at December 31, 2014. Approximately 22% of the corporate European exposure is held in the financial industry at June 30, 2015 and December 31, 2014. Our largest European country exposure represented approximately 5% of the fair value of our corporate securities as of June 30, 2015 and December 31, 2014. Approximately 6% of the fair value of the corporate European securities are pound and euro-denominated and are not hedged to U.S. dollars, but held to support those foreign-denominated liabilities. Our international investments are managed as part of our overall portfolio with the same approach to risk management and focus on diversification.
The Company has exposure to the energy sector in its corporate fixed maturity securities of $927,651 with a net unrealized gain of $75,138 at June 30, 2015 and $992,012 with a net unrealized gain of $89,590 at December 31, 2014. Approximately 88% and 89% of the energy exposure is rated as investment grade as of June 30, 2015 and December 31, 2014, respectively.
The cost or amortized cost and fair value of fixed maturity securities at June 30, 2015 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
$
307,598

 
$
313,370

Due after one year through five years
1,995,950

 
2,110,987

Due after five years through ten years
2,280,879

 
2,382,011

Due after ten years
4,161,826

 
4,834,608

Total
8,746,253

 
9,640,976

Asset-backed
3,762

 
5,216

Commercial mortgage-backed
29,974

 
30,647

Residential mortgage-backed
1,018,385

 
1,069,100

Total
$
9,798,374

 
$
10,745,939



11

Assurant, Inc.
Notes to Consolidated Financial Statements (unaudited)
Three and Six Months Ended June 30, 2015 and 2014
(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   June 30,
 
Six Months Ended   June 30,
 
2015
 
2014
 
2015
 
2014
Proceeds from sales
$
804,476

 
$
449,405

 
$
1,356,989

 
$
1,002,404

Gross realized gains
13,912

 
8,804

 
26,255

 
31,587

Gross realized losses
5,844

 
1,300

 
11,443

 
6,567

The following table sets forth the net realized gains (losses), including OTTI, recognized in the statement of operations as follows: 
 
Three Months Ended   June 30,
 
Six Months Ended   June 30,
 
2015
 
2014
 
2015
 
2014
Net realized gains (losses) related to sales and other:
 
 
 
 
 
 
 
Fixed maturity securities
$
6,746

 
$
6,500

 
$
12,259

 
$
21,690

Equity securities
1,080

 
13

 
1,954

 
5,137

Other investments
4,173

 
(396
)
 
4,311

 
(959
)
Total net realized gains related to sales and other
11,999

 
6,117

 
18,524

 
25,868

Net realized losses related to other-than-temporary
   impairments:
 
 
 
 
 
 
 
Fixed maturity securities
—

 
(30
)
 
(2,570
)
 
(30
)
Total net realized losses related to other-than-
   temporary impairments
—

 
(30
)
 
(2,570
)
 
(30
)
Total net realized gains
$
11,999

 
$
6,087

 
$
15,954

 
$
25,838

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 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.
There was no OTTI recorded for the three months ended June 30, 2015. For the six months ended June 30, 2015, the Company recorded $3,208 of OTTI, of which $2,570 was related to credit losses and recorded as net OTTI losses recognized in earnings, with the remaining $638 related to all other factors and recorded as an unrealized loss component of AOCI. For the three and six months ended June 30, 2014, the Company recorded $40 and $69, respectively, of OTTI, of which $30 and $30, respectively was related to credit losses and recorded as net OTTI losses recognized in earnings, with the remaining $10 and $39, respectively, related to all other factors and recorded as an unrealized loss component of AOCI.

12

Assurant, Inc.
Notes to Consolidated Financial Statements (unaudited)
Three and Six Months Ended June 30, 2015 and 2014
(In thousands, except number of shares and per share amounts)
 
 
 




The following table sets 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 June 30,
 
2015
 
2014
Balance, March 31,
$
36,057

 
$
44,301

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

 
30

Reductions for increases in cash flows expected to be collected that are recognized over
  the remaining life of the security
(603
)
 
(2,163
)
Reductions for credit loss impairments previously recognized on securities which
  matured, paid down, prepaid or were sold during the period
(1,146
)
 
(2,920
)
Balance, June 30,
$
34,308

 
$
39,248

 
 
Six Months Ended June 30,
 
2015
 
2014
Balance, January 1,
$
35,424

 
$
45,278

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

 
30

Additions for credit loss impairments recognized in the current period on securities not
  previously impaired
2,570

 
—

Reductions for increases in cash flows expected to be collected that are recognized over
  the remaining life of the security
(1,075
)
 
(2,645
)
Reductions for credit loss impairments previously recognized on securities which
  matured, paid down, prepaid or were sold during the period
(2,611
)
 
(3,415
)
Balance, June 30,
$
34,308

 
$
39,248

We regularly monitor our investment portfolio to ensure investments that may be other-than-temporarily impaired are timely identified, 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-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

13

Assurant, Inc.
Notes to Consolidated Financial Statements (unaudited)
Three and Six Months Ended June 30, 2015 and 2014
(In thousands, except number of shares and per share amounts)
 
 
 




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 June 30, 2015 and December 31, 2014 were as follows:
 
June 30, 2015
 
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
$
48,420

 
$
(316
)
 
$
8,549

 
$
(60
)
 
$
56,969

 
$
(376
)
States, municipalities and political
  subdivisions
20,761

 
(634
)
 
2,363

 
(971
)
 
23,124

 
(1,605
)
Foreign governments
48,399

 
(319
)
 
26,975

 
(1,292
)
 
75,374

 
(1,611
)
Asset-backed
—

 
—

 
1,318

 
(124
)
 
1,318

 
(124
)
Residential mortgage-backed
243,223

 
(3,936
)
 
13,750

 
(391
)
 
256,973

 
(4,327
)
Corporate
1,061,803

 
(32,266
)
 
18,709

 
(2,104
)
 
1,080,512

 
(34,370
)
Total fixed maturity securities
$
1,422,606

 
$
(37,471
)
 
$
71,664

 
$
(4,942
)
 
$
1,494,270

 
$
(42,413
)
Equity securities:
 
 
 
 
 
 
 
 
 
 
 
Common stock
$
667

 
$
(12
)
 
$
—

 
$
—

 
$
667

 
$
(12
)
Non-redeemable preferred stocks
78,449

 
(1,164
)
 
12,461

 
(867
)
 
90,910

 
(2,031
)
Total equity securities
$
79,116

 
$
(1,176
)
 
$
12,461

 
$
(867
)
 
$
91,577

 
$
(2,043
)
 

14

Assurant, Inc.
Notes to Consolidated Financial Statements (unaudited)
Three and Six Months Ended June 30, 2015 and 2014
(In thousands, except number of shares and per share amounts)
 
 
 




 
December 31, 2014
 
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
$
34,551

 
$
(188
)
 
$
21,488

 
$
(241
)
 
$
56,039

 
$
(429
)
States, municipalities and political
  subdivisions
3,050

 
(282
)
 
4,633

 
(71
)
 
7,683

 
(353
)
Foreign governments
19,886

 
(67
)
 
37,741

 
(1,390
)
 
57,627

 
(1,457
)
Asset-backed
—

 
—

 
1,348

 
(78
)
 
1,348

 
(78
)
Residential mortgage-backed
22,337

 
(71
)
 
61,682

 
(1,083
)
 
84,019

 
(1,154
)
Corporate
640,641

 
(13,132
)
 
113,918

 
(3,482
)
 
754,559

 
(16,614
)
Total fixed maturity securities
$
720,465

 
$
(13,740
)
 
$
240,810

 
$
(6,345
)
 
$
961,275

 
$
(20,085
)
Equity securities:
 
 
 
 
 
 
 
 
 
 
 
Common stock
$
—

 
$
—

 
$
196

 
$
(1
)
 
$
196

 
$
(1
)
Non-redeemable preferred stocks
8,844

 
(264
)
 
24,784

 
(1,829
)
 
33,628

 
(2,093
)
Total equity securities
$
8,844

 
$
(264
)
 
$
24,980

 
$
(1,830
)
 
$
33,824

 
$
(2,094
)
Total gross unrealized losses represent approximately 3% and 2% of the aggregate fair value of the related securities at June 30, 2015 and December 31, 2014, respectively. Approximately 87% and 63% of these gross unrealized losses have been in a continuous loss position for less than twelve months at June 30, 2015 and December 31, 2014, respectively. The total gross unrealized losses are comprised of 642 and 385 individual securities at June 30, 2015 and December 31, 2014, 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 June 30, 2015 and December 31, 2014. These conclusions were based on a detailed analysis of the underlying credit and expected cash flows of each security. As of June 30, 2015, the gross unrealized losses that have been in a continuous loss position for twelve months or more were concentrated in the Company’s states, municipalities and political subdivisions, foreign governments, and corporate fixed maturity securities, and in non-redeemable preferred stocks. 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 June 30, 2015, 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, the Company 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 June 30, 2015, 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 June 30, 2015, approximately 39% of the outstanding principal balance of commercial mortgage loans was concentrated in the states of California, New York, and Oregon. 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 $40 to $14,990 at June 30, 2015 and from $77 to $15,190 at December 31, 2014.
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.
 

15

Assurant, Inc.
Notes to Consolidated Financial Statements (unaudited)
Three and Six Months Ended June 30, 2015 and 2014
(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:
 
June 30, 2015
Loan-to-Value
Carrying
Value
 
% of Gross
Mortgage
Loans
 
Debt-Service
Coverage Ratio
70% and less
$
1,171,935

 
92.3
%
 
1.95

71 – 80%
62,653

 
4.9
%
 
1.29

81 – 95%
35,844

 
2.8
%
 
1.04

Gross commercial mortgage loans
1,270,432

 
100
%
 
1.89

Less valuation allowance
(3,399
)
 
 
 
 
Net commercial mortgage loans
$
1,267,033

 
 
 
 
 
 
December 31, 2014
Loan-to-Value
Carrying
Value
 
% of Gross
Mortgage
Loans
 
Debt-Service
Coverage Ratio
70% and less
$
1,168,454

 
91.6
%
 
2.01

71 – 80%
73,762

 
5.8
%
 
1.26

81 – 95%
27,268

 
2.1
%
 
1.04

Greater than 95%
6,531

 
0.5
%
 
0.43

Gross commercial mortgage loans
1,276,015

 
100
%
 
1.94

Less valuation allowance
(3,399
)
 
 
 
 
Net commercial mortgage loans
$
1,272,616

 
 
 
 
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 specific geographic events, 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 lends fixed maturity securities, primarily bonds issued by the U.S. government and government agencies and authorities, and U.S. corporations, to selected broker/dealers. All such loans are negotiated on an overnight basis; term loans are not permitted. The Company receives collateral, greater than or equal to 102% of the fair value of the securities lent, plus accrued interest, 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 on the re-investment of cash collateral. The Company's investment portfolio is readily marketable and convertible to cash sufficient to provide for short term needs related to the securities lending transactions.
As of June 30, 2015 and December 31, 2014, our collateral held under securities lending agreements, of which its use is unrestricted, was $95,291 and $95,985, 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 $95,289 and $95,986, 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 (loss) and is included as part of AOCI. All securities were in an unrealized gain position as of June 30, 2015. All securities with unrealized losses have been in a continuous loss position for less than 12 months as of December 31, 2014. The Company includes the available-for-sale investments purchased with the cash collateral in its evaluation of other-than-temporary impairments. 

16

Assurant, Inc.
Notes to Consolidated Financial Statements (unaudited)
Three and Six Months Ended June 30, 2015 and 2014
(In thousands, except number of shares and per share amounts)
 
 
 




As of June 30, 2015, all of the obligation under securities agreements is invested in corporate fixed maturities, money market funds and daily repurchase agreements with a remaining contractual maturity of one year or less.  
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.
7. 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 takes into account 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.
The Company reviews fair value hierarchy classifications 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.
 

17

Assurant, Inc.
Notes to Consolidated Financial Statements (unaudited)
Three and Six Months Ended June 30, 2015 and 2014
(In thousands, except number of shares and per share amounts)
 
 
 




The following tables present the Company’s fair value hierarchy for assets and liabilities measured at fair value on a recurring basis as of June 30, 2015 and December 31, 2014. 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 and Liabilities held in separate accounts are received directly from third parties. 
 
June 30, 2015
 
 
Total
 
Level 1
 
 
Level 2
 
 
Level 3
 
Financial Assets
 
 
 
 
 
 
 
 
 
 
Fixed maturity securities:
 
 
 
 
 
 
 
 
 
 
United States Government and government agencies
  and authorities
$
174,401

 
$
—

  
 
$
174,401

  
 
$
—

  
State, municipalities and political subdivisions
758,908

 
—

  
 
758,908

  
 
—

  
Foreign governments
622,440

 
847

  
 
621,593

  
 
—

  
Asset-backed
5,216

 
—

  
 
5,216

  
 
—

  
Commercial mortgage-backed
30,647

 
—

  
 
30,343

  
 
304

  
Residential mortgage-backed
1,069,100

 
—

  
 
1,069,100

  
 
—

  
Corporate
8,085,227

 
—

  
 
8,035,417

  
 
49,810

  
Equity securities:
 
 
 
 
 
 
 
 
 
 
Common stocks
39,879

 
39,197

  
 
682

  
 
—

  
Non-redeemable preferred stocks
483,907

 
—

  
 
481,787

  
 
2,120

  
Short-term investments
442,611

 
346,187

b 
 
96,424

c 
 
—

  
Collateral held/pledged under securities agreements
95,291

 
92,089

b 
 
3,202

c 
 
—

  
Other investments
266,526

 
66,253

a 
 
197,892

c 
 
2,381

d 
Cash equivalents
767,105

 
765,638

b 
 
1,467

c 
 
—

  
Other assets
1,303

 
—

  
 
515

f 
 
788

e 
Assets held in separate accounts
1,871,780

 
1,713,417

a 
 
158,363

c 
 
—

  
Total financial assets
$
14,714,341

 
$
3,023,628

  
 
$
11,635,310

  
 
$
55,403

  
 
 
 
 
 
 
 
 
 
 
 
Financial Liabilities
 
 
 
 
 
 
 
 
 
 
Other liabilities
$
94,842

 
$
66,253

a 
 
$
12

f 
 
$
28,577

f 
Liabilities related to separate accounts
1,871,780

 
1,713,417

a 
 
158,363

c 
 
—

   
Total financial liabilities
$
1,966,622

 
$
1,779,670

  
 
$
158,375

   
 
$
28,577

   

 
 

18

Assurant, Inc.
Notes to Consolidated Financial Statements (unaudited)
Three and Six Months Ended June 30, 2015 and 2014
(In thousands, except number of shares and per share amounts)
 
 
 




 
December 31, 2014
 
 
Total
 
Level 1
 
 
Level 2
 
 
Level 3
 
Financial Assets
 
 
 
 
 
 
 
 
 
 
Fixed maturity securities:
 
 
 
 
 
 
 
 
 
 
United States Government and government agencies
  and authorities
$
176,842

 
$
—

 
 
$
176,842

 
 
$
—

 
State, municipalities and political subdivisions
769,841

 
—

 
 
769,841

 
 
—

 
Foreign governments
664,863

 
757

 
 
664,106

 
 
—

 
Asset-backed
5,519

 
—

 
 
5,519

 
 
—

 
Commercial mortgage-backed
46,016

 
—

 
 
45,613

 
 
403

 
Residential mortgage-backed
968,726

 
—

 
 
964,081

 
 
4,645

 
Corporate
8,631,367

 
—

 
 
8,527,092

 
 
104,275

 
Equity securities:
 
 
 
 
 
 
 
 
 
 
Common stocks
37,950

 
37,266

 
 
684

 
 
—

 
Non-redeemable preferred stocks
461,457

 
—

 
 
459,457

 
 
2,000

 
Short-term investments
345,246

 
266,980

b 
 
78,266

c 
 
—

 
Collateral held/pledged under securities agreements
74,985

 
67,783

b 
 
7,202

c 
 
—

 
Other investments
272,755

 
59,358

a 
 
211,276

c 
 
2,121

d 
Cash equivalents
683,142

 
635,804

b 
 
47,338

c 
 
—

 
Other assets
1,674

 
—

  
 
867

f 
 
807

e 
Assets held in separate accounts
1,854,193

 
1,682,671

a 
 
171,522

c 
 
—

 
Total financial assets
$
14,994,576

 
$
2,750,619

 
 
$
12,129,706

 
 
$
114,251

 
 
 
 
 
 
 
 
 
 
 
 
Financial Liabilities
 
 
 
 
 
 
 
 
 
 
Other liabilities
$
84,660

 
$
59,358

a 
 
$
69

f
 
$
25,233

f 
Liabilities related to separate accounts
1,854,193

 
1,682,671

a 
 
171,522

c 
 
—

 
Total financial liabilities
$
1,938,853

 
$
1,742,029

 
 
$
171,591

 
 
$
25,233

 
 

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.
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 periods, which are reflected in the “Transfers in” and “Transfers out” columns below. Transfers between Level 2 and Level 3 most commonly occur from changes in the availability of observable market information and re-evaluation of the observability of pricing inputs. Any remaining unpriced securities are submitted to independent brokers who provide non-binding broker quotes or are priced by other qualified sources.

19

Assurant, Inc.
Notes to Consolidated Financial Statements (unaudited)
Three and Six Months Ended June 30, 2015 and 2014
(In thousands, except number of shares and per share amounts)
 
 
 




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 six months ended June 30, 2015 and 2014: 
 
Three Months Ended June 30, 2015
 
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
out (3)
 
Balance,
end of
period
Financial Assets
 
 
 
 
 
 
 
 
 
 
 
 
 
Fixed Maturity Securities
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial mortgage-backed
$
354

 
$
—

 
$
(3
)
 
$
—

 
$
(47
)
 
$
—

 
$
304

Corporate
100,990

 
576

 
(2,026
)
 
6,523

 
(3,476
)
 
(52,777
)
 
49,810

Equity Securities
 
 
 
 
 
 
 
 
 
 
 
 
 
Non-redeemable preferred stocks
2,060

 
—

 
60

 
—

 
—

 
—

 
2,120

  Other investments
2,460

 
(33
)
 
(11
)
 
—

 
(35
)
 
—

 
2,381

  Other assets
944

 
(156
)
 
—

 
—

 
—

 
—

 
788

Financial Liabilities
 
 
 
 
 
 
 
 
 
 
 
 
 
  Other liabilities
(26,181
)
 
(2,473
)
 
—

 
77

 
—

 
—

 
(28,577
)
Total level 3 assets and liabilities
$
80,627

 
$
(2,086
)
 
$
(1,980
)
 
$
6,600

 
$
(3,558
)
 
$
(52,777
)
 
$
26,826

 

  
Three Months Ended June 30, 2014
 
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
out (3)
 
Balance,
end of
period
Financial Assets
 
 
 
 
 
 
 
 
 
 
 
 
 
Fixed Maturity Securities
 
 
 
 
 
 
 
 
 
 
 
 
 
Foreign governments
$
16,873

 
$
—

 
$
—

 
$
—

 
$
—

 
$
(16,873
)
 
$
—

Commercial mortgage-backed
550

 
—

 
(4
)
 
—

 
(43
)
 
—

 
503

Corporate
108,213

 
(43
)
 
920

 
9,941

 
(2,204
)
 
—

 
116,827

Equity Securities
 
 
 
 
 
 
 
 
 
 
 
 
 
Non-redeemable preferred stocks
5,714

 
—

 
161

 
—

 
—

 
(1,776
)
 
4,099

  Other investments
3,060

 
(420
)
 
5

 
—

 
(30
)
 
—

 
2,615

  Other assets
2,300

 
(32
)
 
—

 
—

 
—

 
—

 
2,268

Financial Liabilities
 
 
 
 
 
 
 
 
 
 
 
 
 
  Other liabilities
(23,045
)
 
(115
)
 
—

 
—

 
—

 
—

 
(23,160
)
Total level 3 assets and liabilities
$
113,665

 
$
(610
)
 
$
1,082

 
$
9,941