Assurant 2010 Annual Report Download - page 41

35ASSURANT, INC.  2010 Form 10K
PART II
ITEM 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations
income from gross unrealized gains in its investment portfolio.  e
Company is also able to rely on the use of various tax planning strategies
to forecast taxable gains in the foreseeable future.
In determining whether the deferred tax asset is realizable, the Company
weighed all available evidence, both positive and negative. We considered
all sources of taxable income available to realize the asset, including the
future reversal of existing temporary diff erences, future taxable income
exclusive of reversing temporary diff erences and carry forwards, taxable
income in carry back years and tax-planning strategies.
We have identifi ed certain prudent and feasible strategies which could
generate taxable future capital gain income. Tax planning strategies are
actions that management ordinarily might not take, but would take,
if necessary, to realize a tax benefi t for a carryforward before it expires.
Examples include, but are not limited to, changing the character of
taxable or deductible amounts from ordinary income or loss to capital
gain or loss or accelerating taxable amounts. While no commitments
to implement any strategy have been made, these strategies have been
considered in the analysis of the recoverability of the Company’s deferred
tax assets and the reduction of the valuation allowance.
 e gross deferred tax asset related to net operating loss carryforwards
on international subsidiaries is $52,897. Management believes that it
is more likely than not that some of this asset will not be realized in
the foreseeable future.  erefore, a cumulative valuation allowance of
$9,971 has been recorded as of December 31, 2010.  e Company is
dependent on income of the same character in the same jurisdiction to
support the deferred tax assets related to net operating loss carryforwards
of international subsidiaries.
As of December 31, 2010, the Company had a cumulative valuation
allowance of $90,738 against deferred tax assets, as it is management’s
assessment that it is more likely than not that this amount of deferred
tax assets will not be realized.
 e Company believes it is more likely than not that the remainder of its
deferred tax assets will be realized in the foreseeable future. Accordingly,
other than noted herein for capital loss carryovers and international
subsidiaries, a valuation allowance has not been established.
Future reversal of the valuation allowance will be recognized either
when the benefi t is realized or when we determine that it is more likely
than not that the benefi t will be realized. Depending on the nature of
the taxable income that results in a reversal of the valuation allowance,
and on management’s judgment, the reversal will be recognized either
through other comprehensive income (loss) or through continuing
operations in the statement of operations. Likewise, if the Company
determines that it is not more likely than not that it would be able to
realize all or part of the deferred tax asset in the future, an adjustment
to the deferred tax asset valuation allowance would be recorded through
a charge to continuing operations in the statement of operations in
the period such determination is made.
In determining the appropriate valuation allowance, management
makes judgments about recoverability of deferred tax assets, use of
tax loss and tax credit carryforwards, levels of expected future taxable
income and available tax planning strategies.  e assumptions used in
making these judgments are updated periodically by management based
on current business conditions that aff ect the Company and overall
economic conditions.  ese management judgments are therefore
subject to change based on factors that include, but are not limited
to, changes in expected capital gain income in the foreseeable future
and the ability of the Company to successfully execute its tax planning
strategies. Please see “Item 1A—Risk Factors—Risks Related to Our
Company—Unanticipated changes in tax provisions or exposure to
additional income tax liabilities could materially and adversely aff ect
our results” for more information.
Valuation and Recoverability of Goodwill
Goodwill represented $619,779 and $926,398 of our $26,397,018 and
$25,860,667 of total assets as of December 31, 2010 and 2009,
respectively. We review our goodwill annually in the fourth quarter
for impairment, or more frequently if indicators of impairment exist.
Such indicators include, but are not limited to, a sustained signifi cant
decline in our market capitalization or a signifi cant decline in our
expected future cash fl ows due to changes in company-specifi c factors
or the broader business climate.  e evaluation of such factors requires
considerable judgment. Any adverse change in these factors could have
a signifi cant impact on the recoverability of goodwill and could have a
material impact on our consolidated fi nancial statements.
We have concluded that our reporting units for goodwill testing are
equivalent to our reported operating segments, excluding the Corporate
and Other segment.  erefore, we test goodwill for impairment at the
reporting unit level.
 e following table illustrates the amount of goodwill carried to each reporting unit:
December 31,
2010 2009
Assurant Solutions $ 379,935 $ 380,291
Assurant Specialty Property 239,844 239,726
Assurant Health — 204,303
Assurant Employee Benefi ts — 102,078
TOTAL $ 619,779 $ 926,398
For each reporting unit, we fi rst compare its estimated fair value with
its net book value. If the estimated fair value exceeds its net book
value, goodwill is deemed not to be impaired, and no further testing
is necessary. If the net book value exceeds its estimated fair value, we
then perform a second test to calculate the amount of impairment, if
any. To determine the amount of any impairment, we determine the
implied fair value of goodwill in the same manner as if the reporting
unit were being acquired in a business combination. Specifi cally, we
determine the fair value of all of the assets and liabilities of the reporting
unit, including any unrecognized intangible assets, in a hypothetical
calculation that yields the implied fair value of goodwill. If the implied
fair value of goodwill is less than the recorded goodwill, we record an
impairment charge for the diff erence.
 e following describes the valuation methodologies used in both
2010 and 2009 to derive the estimated fair value of the reporting units.
For each reporting unit we identifi ed a group of peer companies, which
have operations that are as similar as possible to the reporting unit.