Assurant 2011 Annual Report Download - page 102

ASSURANT, INC.2011 Form10-KF-26
5 Fair Value Disclosures
Management evaluates the following factors in order to determine
whether the market for a  nancial asset is inactive.  e factors include,
but are not limited to:
• ere are few recent transactions;
•Little information is released publicly;
•
 e available prices vary signi cantly over time or among market
participants;
• e prices are stale (i.e., not current); and
• e magnitude of the bid-ask spread.
Illiquidity did not have a material impact in the fair value determination
of the Company’s  nancial assets.
 e Company generally obtains one price for each  nancial asset.  e
Company performs a monthly analysis to assess if the evaluated prices
represent a reasonable estimate of their fair value.  is process involves
quantitative and qualitative analysis and is overseen by investment and
accounting professionals. Examples of procedures performed include,
but are not limited to, initial and on-going review of pricing service
methodologies, review of the prices received from the pricing service,
review of pricing statistics and trends, and comparison of prices for
certain securities with two di erent appropriate price sources for
reasonableness. Following this analysis, the Company generally uses the
best estimate of fair value based upon all available inputs. On infrequent
occasions, a non-pricing service source may be more familiar with the
market activity for a particular security than the pricing service. In
these cases the price used is taken from the non-pricing service source.
 e pricing service provides information to indicate which securities
were priced using market observable inputs so that the Company can
properly categorize our  nancial assets in the fair value hierarchy.
Disclosures for Non-Financial Assets Measured
at Fair Value on a Non-Recurring Basis
 e Company also measures the fair value of certain assets on a non-
recurring basis, generally on an annual basis, or when events or changes
in circumstances indicate that the carrying amount of the assets may
not be recoverable.  ese assets include commercial mortgage loans,
goodwill and  nite-lived intangible assets.
 e Company carried a loan valuation allowance of $22,092 as of
December31, 2010 on one individually impaired commercial mortgage
loan with a principal balance of $22,092, due to the continued decline
in the regional commercial real estate market. In 2011, the loan was
written down and the valuation allowance was released, resulting in no
impact to realized capital gains and losses on commercial mortgage loans.
 e fair value measurement was classi ed as Level 3 (unobservable) in
the fair value hierarchy at December31, 2010.
For its fourth quarter annual goodwill impairment test, a qualitative
assessment was performed for the Assurant Specialty Property reporting
unit; for the Assurant Solutions reporting unit, the Company performed
a Step 1 analysis, consistent with prior years. Based on these analyses,
it was determined that goodwill was not impaired at either reporting
unit. See Note 10 for further information.
 e Company utilizes both the income and market valuation approaches
to measure the fair value of its reporting units when required. Under
the income approach, the Company determined the fair value of
the reporting units considering distributable earnings, which were
estimated from operating plans.  e resulting cash  ows were then
discounted using a market participant weighted average cost of capital
estimated for the reporting units. After discounting the future discrete
earnings to their present value, the Company estimated the terminal
value attributable to the years beyond the discrete operating plan
period.  e discounted terminal value was then added to the aggregate
discounted distributable earnings from the discrete operating plan
period to estimate the fair value of the reporting units. Under the
market approach, the Company derived the fair value of the reporting
units based on various  nancial multiples, including but not limited to:
price to tangible book value of equity, price to estimated 2011 earnings
and price to estimated 2012 earnings, which were estimated based on
publicly available data related to comparable guideline companies. In
addition,  nancial multiples were also estimated from publicly available
purchase price data for acquisitions of companies operating in the
insurance industry.  e estimated fair value of the reporting units was
more heavily weighted towards the income approach because in the
current economic environment the earnings capacity of a business is
generally considered the most important factor in the valuation of a
business enterprise.  is fair value determination was categorized as
Level 3 (unobservable) in the fair value hierarchy.
During the fourth quarter of 2010, a $47,612 impairment charge was
recorded related to the non-renewal of a block of business related to
the 2008 acquisition of the Warranty Management Group business
from General Electric Co.
 ere was no remaining goodwill or material other intangible assets
measured at fair value on a non-recurring basis on which an impairment
charge was recorded as of December31, 2011 and 2010.  e following
table presents the Company’s fair value hierarchy for goodwill measured
at fair value on a non-recurring basis on which an impairment charge
was recorded as of December31, 2009.
Assets at Fair Value Non-Recurring Basis
Level1 Level2 Level 3 Total
Goodwill at December31, 2009 $ — $ — $ 102,078 $ 102,078
 e following table presents the goodwill and material other intangible assets impairment charges as of December31, 2011, 2010 and 2009:
Impairment Charges TwelveMonthsEndedDecember31,
2011 2010 2009
Goodwill $ — $ 306,381 $ 83,000
Other intangible assets $ — $ 47,612 $ —