SAML assertions can be signed and/or encrypted, or neither.
http://stackoverflow.com/questions/8276233/is-it-recommended-to-sign-and-encrypt-saml-and-use-ssl
I do not encrypt the assertions between my IdP and splunk, nor do I see a requirement to do so. However splunk will only accept signed assertions:
authentication.conf
signedAssertion = [true|false]
* OPTIONAL
* This tells Splunk if the SAML assertion has been signed by the IDP
* If set to false, Splunk will not verify the signature of the assertion
using the certificate of the IDP.
* Currently, we accept only signed assertions.
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