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48 ASSURANT, INC.2010 Form 10K
PART II
ITEM 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations
Total Benefi ts, Losses and Expenses
Total benefi ts, losses and expenses remained relatively fl at at $160,438
for Twelve Months 2010 compared with $161,846 for Twelve Months
2009.
Year Ended December 31, 2009 Compared to the Year
Ended December 31, 2008
Net Loss
Segment net loss improved $235,990 to $(24,411) for Twelve Months
2009 compared with $(260,401) for Twelve Months 2008. Segment
results improved mainly due to a decline in net realized losses on
investments of $243,803 (after-tax) and the above-mentioned $83,542
(after-tax) favorable legal settlement with Willis Limited. Segment results
also include a $3,500 (after-tax) penalty to settle the previously disclosed
SEC investigation regarding a fi nite reinsurance arrangement. Expenses
related to the SEC investigation, which included reimbursements of
certain SEC investigation related expenses through our director and
offi cer insurance coverage, were $4,076 (after-tax) lower in Twelve
Months 2009 compared with Twelve Months 2008.  ese improvements
were partially off set by a tax benefi t of $88,994 related to the sale of
an inactive subsidiary included in Twelve Months 2008, $9,914 of
tax expense from the change in deferred tax asset valuation allowance,
previously disclosed executive compensation expense (severance and
special retirement bonus) of $4,550 (after-tax) and a decline in net
investment income of $6,467 (after-tax).
Total Revenues
Total revenues increased $495,748, to $125,915 for Twelve Months
2009 compared with $(369,833) for Twelve Months 2008.  e
increase in revenues is mainly due to an improvement of $375,082 in
net realized losses on investments and the above-mentioned favorable
legal settlement with Willis Limited. Included in net realized losses
on investments were other-than-temporary impairments (“OTTI”) of
$38,660 and $340,153 for Twelve Months 2009 and Twelve Months
2008, respectively.  ese increases were partially off set by a decline
of $9,949 in net investment income as a result of lower short-term
interest rates and lower average invested assets and $6,951 in lower
amortization of deferred gains on disposal of businesses.
Total Benefi ts, Losses and Expenses
Total expenses increased $7,090, to $161,846 in Twelve Months 2009
compared with $154,756 in Twelve Months 2008.  e increase in
expenses is mainly due to additional executive compensation expense
of $7,000.
Goodwill Impairment
e goodwill impairment test has two steps. Step 1 of the test identifi es
potential impairments at the reporting unit level, which for the Company
is the same as our operating segments, by comparing the estimated
fair value of each reporting unit to its net book value. If the estimated
fair value of a reporting unit exceeds its net book value, there is no
impairment of goodwill and Step 2 is unnecessary. However, if the net
book value exceeds the estimated fair value, then Step 1 is failed, and Step
2 is performed to determine the amount of the potential impairment.
Step 2 utilizes acquisition accounting guidance and requires the fair
value calculation of all individual assets and liabilities of the reporting
unit (excluding goodwill, but including any unrecognized intangible
assets).  e net fair value of assets less liabilities is then compared to the
reporting unit’s total estimated fair value as calculated in Step 1.  e
excess of fair value over the net asset value equals the implied fair value
of goodwill.  e implied fair value of goodwill is then compared to the
carrying value of goodwill to determine the reporting unit’s goodwill
impairment. See “Item 7-Management’s Discussion and Analysis of
Financial Condition and Results of Operations-Critical Factors Aff ecting
Results-Critical Accounting Estimates-Valuation and Recoverability of
Goodwill” and Notes 6 and 11 to the Consolidated Financial Statements
contained elsewhere in this report for more information.
Investments
e Company had total investments of $13,505,478 and $13,157,832 as of December 31, 2010 and December 31, 2009, respectively. For more
information on our investments see Note 5 to the Notes to Consolidated Financial Statements included elsewhere in this report.
e following table shows the credit quality of our fi xed maturity securities portfolio as of the dates indicated:
Fixed Maturity Securities by Credit Quality (Fair Value)
As of
December 31, 2010 December 31, 2009
Aaa/Aa/A $ 6,488,208 61.2% $ 6,152,842 61.8 %
Baa 3,227,216 30.4% 2,953,964 29.6 %
Ba 618,465 5.8% 647,321 6.5 %
B and lower 278,663 2.6% 212,645 2.1 %
TOTAL $ 10,612,552 100.0% $ 9,966,772 100.0 %