| Investments | Investments The following tables show the cost or amortized cost, gross unrealized gains and losses, fair value and other-than-temporary impairment (“OTTI”) of the Company's fixed maturity and equity securities as of the dates indicated: March 31, 2016 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 $ 171,926 $ 6,061 $ (5 ) $ 177,982 $ — States, municipalities and political subdivisions 561,971 46,948 — 608,919 — Foreign governments 500,754 75,054 (465 ) 575,343 — Asset-backed 3,026 1,291 (306 ) 4,011 1,237 Commercial mortgage-backed 20,628 496 — 21,124 — Residential mortgage-backed 880,676 61,281 (296 ) 941,661 14,760 Corporate 6,091,890 675,220 (56,403 ) 6,710,707 16,590 Total fixed maturity securities $ 8,230,871 $ 866,351 $ (57,475 ) $ 9,039,747 $ 32,587 Equity securities: Common stocks $ 12,311 $ 6,865 $ (3 ) $ 19,173 $ — Non-redeemable preferred stocks 349,226 37,004 (1,701 ) 384,529 — Total equity securities $ 361,537 $ 43,869 $ (1,704 ) $ 403,702 $ — December 31, 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 $ 150,681 $ 3,891 $ (537 ) $ 154,035 $ — States, municipalities and political subdivisions 647,335 48,389 (94 ) 695,630 — Foreign governments 497,785 65,188 (723 ) 562,250 — Asset-backed 3,499 1,367 (204 ) 4,662 1,285 Commercial mortgage-backed 22,169 352 — 22,521 — Residential mortgage-backed 953,247 48,676 (3,409 ) 998,514 15,343 Corporate 7,196,079 677,549 (95,912 ) 7,777,716 17,885 Total fixed maturity securities $ 9,470,795 $ 845,412 $ (100,879 ) $ 10,215,328 $ 34,513 Equity securities: Common stocks $ 13,048 $ 6,623 $ (7 ) $ 19,664 $ — Non-redeemable preferred stocks 437,515 45,495 (2,617 ) 480,393 — Total equity securities $ 450,563 $ 52,118 $ (2,624 ) $ 500,057 $ — (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. The Company's 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 March 31, 2016 and December 31, 2015. At March 31, 2016 and December 31, 2015, the securities include general obligation and revenue bonds issued by states, cities, counties, school districts and similar issuers, including $281,102 and $319,654 , 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 March 31, 2016 and December 31, 2015, revenue bonds account for 52% and 50% 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 March 31, 2016, approximately 81% , 7% 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, 2015, approximately 79% , 8% and 5% of the foreign government securities were held in the Canadian government/provincials and the governments of Brazil and Germany, respectively. No other country represented more than 3% of the Company's foreign government securities as of March 31, 2016 and December 31, 2015. The Company has European investment exposure in its corporate fixed maturity and equity securities of $708,883 with a net unrealized gain of $62,581 at March 31, 2016 and $888,923 with a net unrealized gain of $67,957 at December 31, 2015. Approximately 23% and 25% of the corporate European exposure is held in the financial industry at March 31, 2016 and December 31, 2015, respectively. The Company's largest European country exposure (the United Kingdom) represented approximately 4% and 5% of the fair value of the Company's corporate securities as of March 31, 2016 and December 31, 2015, respectively. Approximately 8% of the fair value of the corporate European securities are pound and euro-denominated and are not hedged to U.S. dollars, but held to support those foreign-denominated liabilities. The Company's international investments are managed as part of the overall portfolio with the same approach to risk management and focus on diversification. The Company has exposure to the energy sector in its corporate fixed maturity securities of $573,013 with a net unrealized gain of $1,365 at March 31, 2016 and $779,720 with a net unrealized loss of $6,985 at December 31, 2015. Approximately 82% and 89% of the energy exposure is rated as investment grade as of March 31, 2016 and December 31, 2015, respectively. The cost or amortized cost and fair value of fixed maturity securities at March 31, 2016 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 $ 302,193 $ 305,652 Due after one year through five years 1,620,861 1,694,597 Due after five years through ten years 1,960,202 2,047,978 Due after ten years 3,443,285 4,024,724 Total 7,326,541 8,072,951 Asset-backed 3,026 4,011 Commercial mortgage-backed 20,628 21,124 Residential mortgage-backed 880,676 941,661 Total $ 8,230,871 $ 9,039,747 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 2016 (a) 2015 Proceeds from sales $ 2,267,717 $ 552,513 Gross realized gains 176,317 12,343 Gross realized losses 26,461 5,599 (a) 2016 includes $146,727 related to the sale of Assurant Employee Benefits mainly through reinsurance transactions. The following table sets forth the net realized gains (losses), including OTTI, recognized in the statement of operations as follows: Three Months Ended 2016 (a) 2015 Net realized gains related to sales and other: Fixed maturity securities $ 139,149 $ 5,513 Equity securities 9,806 874 Commercial mortgage loans on real estate 12,453 — Other investments 958 138 Total net realized gains related to sales and other 162,366 6,525 Net realized losses related to other-than-temporary impairments: Fixed maturity securities (648 ) (2,570 ) Total net realized losses related to other-than-temporary impairments (648 ) (2,570 ) Total net realized gains $ 161,718 $ 3,955 (a) 2016 includes $146,727 related to the sale of Assurant Employee Benefits mainly through reinsurance transactions. 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. For the three months ended March 31, 2016 and 2015, the Company recorded $311 and $3,208 , respectively, of OTTI, of which $648 and $2,570 , respectively, was related to both credit losses and securities the Company intends to sell and recorded as net OTTI losses recognized in earnings, with the remaining amounts of $337 and $(638) , respectively, related to all other factors and was recorded as an unrealized gain (loss) component of AOCI. 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 March 31, 2016 2015 Balance, January 1, $ 32,377 $ 35,424 Additions for credit loss impairments recognized in the current period on securities previously impaired 554 — 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 (609 ) (472 ) Reductions for credit loss impairments previously recognized on securities which matured, paid down, prepaid or were sold during the period (1,341 ) (1,465 ) Balance, March 31, $ 30,981 $ 36,057 The Company regularly monitors its 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 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 March 31, 2016 and December 31, 2015 were as follows: March 31, 2016 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 $ 19,565 $ (5 ) $ — $ — $ 19,565 $ (5 ) Foreign governments 23,005 (28 ) 24,700 (437 ) 47,705 (465 ) Asset-backed — — 995 (306 ) 995 (306 ) Residential mortgage-backed 63,375 (193 ) 17,348 (103 ) 80,723 (296 ) Corporate 664,039 (44,440 ) 103,361 (11,963 ) 767,400 (56,403 ) Total fixed maturity securities $ 769,984 $ (44,666 ) $ 146,404 $ (12,809 ) $ 916,388 $ (57,475 ) Equity securities: Common stock $ 227 $ (3 ) $ — $ — $ 227 $ (3 ) Non-redeemable preferred stocks 36,980 (810 ) 12,226 (891 ) 49,206 (1,701 ) Total equity securities $ 37,207 $ (813 ) $ 12,226 $ (891 ) $ 49,433 $ (1,704 ) December 31, 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 $ 90,008 $ (465 ) $ 5,564 $ (72 ) $ 95,572 $ (537 ) States, municipalities and political subdivisions 6,881 (94 ) — — 6,881 (94 ) Foreign governments 24,071 (347 ) 22,239 (376 ) 46,310 (723 ) Asset-backed — — 1,136 (204 ) 1,136 (204 ) Residential mortgage-backed 260,620 (3,179 ) 11,147 (230 ) 271,767 (3,409 ) Corporate 1,636,457 (85,247 ) 54,029 (10,665 ) 1,690,486 (95,912 ) Total fixed maturity securities $ 2,018,037 $ (89,332 ) $ 94,115 $ (11,547 ) $ 2,112,152 $ (100,879 ) Equity securities: Common stock $ 623 $ (7 ) $ — $ — $ 623 $ (7 ) Non-redeemable preferred stocks 63,665 (1,632 ) 13,806 (985 ) 77,471 (2,617 ) Total equity securities $ 64,288 $ (1,639 ) $ 13,806 $ (985 ) $ 78,094 $ (2,624 ) Total gross unrealized losses represent approximately 6% and 5% of the aggregate fair value of the related securities at March 31, 2016 and December 31, 2015, respectively. Approximately 77% and 88% of these gross unrealized losses have been in a continuous loss position for less than twelve months at March 31, 2016 and December 31, 2015, respectively. The total gross unrealized losses are comprised of 380 and 884 individual securities at March 31, 2016 and December 31, 2015, 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 March 31, 2016 and December 31, 2015. These conclusions were based on a detailed analysis of the underlying credit and expected cash flows of each security. As of March 31, 2016, the gross unrealized losses that have been in a continuous loss position for twelve months or more were concentrated in the Company’s 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, the Company applies an impairment model similar to that used for the Company's fixed maturity securities. As of March 31, 2016, 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 March 31, 2016, 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 March 31, 2016, approximately 42% 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 $13 to $14,515 at March 31, 2016 and from $17 to $14,625 at December 31, 2015. 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. The following summarizes the Company's loan-to-value and average debt-service coverage ratios as of the dates indicated: March 31, 2016 Loan-to-Value Carrying Value % of Gross Mortgage Loans Debt-Service Coverage Ratio 70% and less $ 836,139 95.6 % 2.00 71 – 80% 27,961 3.2 % 1.18 81 – 95% 5,862 0.7 % 0.92 Greater than 95% 4,816 0.5 % 3.52 Gross commercial mortgage loans 874,778 100 % 1.97 Less valuation allowance (2,582 ) Net commercial mortgage loans $ 872,196 December 31, 2015 Loan-to-Value Carrying Value % of Gross Mortgage Loans Debt-Service Coverage Ratio 70% and less $ 1,101,572 95.5 % 2.01 71 – 80% 39,080 3.4 % 1.19 81 – 95% 8,370 0.7 % 1.05 Greater than 95% 4,816 0.4 % 3.52 Gross commercial mortgage loans 1,153,838 100 % 1.98 Less valuation allowance (2,582 ) Net commercial mortgage loans $ 1,151,256 All commercial mortgage loans that are individually impaired have an established mortgage loan valuation allowance for losses. An additional valuation allowance is established for incurred, but not specifically identified impairments. Changing economic conditions affect the Company's valuation of commercial mortgage loans. Changing vacancies and rents are incorporated into the discounted cash flow analysis that the Company performs 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, the Company continues 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, the Company has established or increased a valuation allowance based upon this analysis. Variable Interest Entities A VIE is a legal entity which does not have sufficient equity at risk to allow the entity to finance its activities without additional financial support or in which the equity investors, as a group, do not have the characteristic of a controlling financial interest. The Company's investments in VIEs include private equity limited partnerships and real estate joint ventures. These investments are generally accounted for under the equity method and included in the consolidated balance sheets in other investments. The Company's maximum exposure to loss with respect to these investments is limited to the investment carrying amounts reported in the Company's consolidated balance sheet in addition to any required unfunded commitments. As of March 31, 2016, the Company's maximum exposure to loss is $224,255 in recorded carrying value and $30,853 in unfunded commitments. |
