Assurant 2010 Annual Report Download - page 78

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F-8 ASSURANT, INC.2010 Form 10K
2 Summary of Signifi cant Accounting Policies
Fair Value
e Company uses an exit price for its fair value measurements. An
exit price is defi ned as the amount received to sell an asset or paid to
transfer a liability in an orderly transaction between market participants
at the measurement date. In measuring fair value, the Company gives
the highest priority to unadjusted quoted prices in active markets for
identical assets or liabilities and the lowest priority to unobservable
inputs. See Note 6 for further information.
Investments
Fixed maturity and equity securities are classifi ed as available-for-sale,
as defi ned in the investments guidance, and reported at fair value.
If the fair value is higher than the amortized cost for fi xed maturity
securities or the purchase cost for equity securities, the excess is an
unrealized gain; and, if lower than cost, the diff erence is an unrealized
loss. Net unrealized gains and losses, less deferred income taxes, are
included in AOCI.
Commercial mortgage loans on real estate are reported at unpaid
balances, adjusted for amortization of premium or discount, less
allowance for losses.  e allowance is based on management’s analysis
of factors including actual loan loss experience, specifi c events based on
geographical, political or economic conditions, industry experience,
loan groupings that have probable and estimable losses and individually
impaired loan loss analysis. A loan is considered individually impaired
when it becomes probable the Company will be unable to collect
all amounts due, including principal and interest, according to the
contractual terms of the loan agreement. Indicative factors of impairment
include, but are not limited to, whether the loan is current, the value
of the collateral and the fi nancial position of the borrower. If a loan is
individually impaired, the Company uses one of the following valuation
methods based on the individual loans’ facts and circumstances to
measure the impairment amount: (1) the present value of expected
future cash fl ows, (2) the loan’s observable market price, or (3) the fair
value of collateral. Changes in the allowance for loan losses are recorded
in net realized losses on investments, excluding other- than-temporary
impairment losses.
e Company places loans on non-accrual status after 90 days of
delinquent payments (unless the loans are both well secured and in
the process of collection). A loan may be placed on non-accrual status
before this time if information is available that suggests its impairment
is probable.
Policy loans are reported at unpaid principal balances, which do not
exceed the cash surrender value of the underlying policies.
Short-term investments include money market funds and short maturity
investments.  ese amounts are reported at cost, which approximates
fair value.
e Company engages in collateralized transactions in which fi xed
maturity securities, especially bonds issued by the U.S. government,
government agencies and authorities, and U.S. corporations, are loaned
to selected broker/dealers.  e collateral held under these securities
lending transactions is reported at fair value and the obligation is reported
at the amount of the collateral received.  e diff erence between the
collateral held and obligations under securities lending is recorded as
an unrealized loss and is included as part of AOCI.
e Company also engages in collateralized transactions in which bonds
issued by the U.S. government, government agencies and authorities, are
purchased under agreements to resell (“reverse repurchase agreements”).
e Company enters into these reverse repurchase agreements in order
to initiate short positions in its investment portfolio. Collateral pledged
in these securities lending transactions is reported at the amount pledged
plus accrued interest.  e obligations to return the securities that we
no longer hold are fi nancial liabilities reported at fair value with the
changes in value reported as realized gains or losses.
Other investments consist primarily of investments in joint ventures,
partnerships, invested assets associated with a modifi ed coinsurance
arrangement, invested assets associated with the Assurant Investment
Plan (“AIP”), the American Security Insurance Company Investment
Plan (“ASIC”) and the Assurant Deferred Compensation Plan (“ADC”).
e joint ventures and partnerships are valued according to the equity
method of accounting.  e invested assets related to the modifi ed
coinsurance arrangement, the AIP, ASIC and ADC are classifi ed as
trading securities as defi ned in the investment guidance.
e Company monitors its investment portfolio to identify investments
that may be other-than-temporarily impaired. In addition, securities,
aggregated by issuer, whose market price is equal to 80% or less of their
original purchase price or which had a discrete credit event resulting
in the debtor defaulting or seeking bankruptcy protection are added
to a potential write-down list, which is discussed at quarterly meetings
attended by members of the Company’s investment, accounting and
fi nance departments. See Note 5 for further information.
Realized gains and losses on sales of investments are recognized on the
specifi c identifi cation basis.
Investment income is recorded as earned net of investment expenses.
e Company uses the interest method to recognize interest income
on its commercial mortgage loans.
e Company anticipates prepayments of principal in the calculation
of the eff ective yield for mortgage-backed securities and structured
securities.  e retrospective method is used to adjust the eff ective yield.
Cash and Cash Equivalents
e Company considers cash on hand, all operating cash and working
capital cash to be cash equivalents.  ese amounts are carried at cost,
which approximates fair value. Cash balances are reviewed at the end
of each reporting period to determine if negative cash balances exist.
If negative cash balances do exist, the cash accounts are netted with
other positive cash accounts of the same bank provided the right of
off set exists between the accounts. If the right of off set does not exist,
the negative cash balances are reclassifi ed to accounts payable.
Uncollectible Receivable Balance
e Company maintains allowances for doubtful accounts for probable
losses resulting from the inability to collect payments.
Reinsurance
Reinsurance recoverables include amounts related to paid benefi ts and
estimated amounts related to unpaid policy and contract claims, future
policyholder benefi ts and policyholder contract deposits.  e cost of