Assurant 2011 Annual Report Download - page 111

ASSURANT, INC.2011 Form10-K F-35
12 Reserves
Short Duration Contracts
 e Company’s short duration contracts are comprised of group term
life, group disability, medical, dental, property and warranty, credit life
and disability, extended service contract and all other.  e principal
products and services included in these categories are described in the
summary of signi cant accounting polices (see note2).
Case reserves and IBNR amounts are developed using actuarial principles
and assumptions that consider, among other things, contractual
requirements, historical utilization trends and payment patterns,
bene t changes, medical in ation, seasonality, membership, product
mix, legislative and regulatory environment, economic factors, disabled
life mortality and claim termination rates and other relevant factors.
 e Company consistently applies the principles and assumptions
listed above from year to year, while also giving due consideration to
the potential variability of these factors.
Since case reserves and IBNR include estimates developed from various
actuarial methods, the Company’s actual losses incurred may be more
or less than the Company’s previously developed estimates. As shown
in the table above, if the amounts listed on the line labeled “Incurred
losses related to: Prior years” are negative (redundant) this means that
the Company’s actual losses incurred related to prior years for these
lines were less than the estimates previously made by the Company.
If the line labeled “Incurred losses related to: Prior years” are positive
(de cient) this means that the Company’s actual losses incurred related
to prior years for these lines were greater than the estimates previously
made by the Company.
Medical reserves established for obligations that would persist even
if contracts were cancelled (such as extension of bene ts) have been
excluded from the incurred loss roll-forwards because they cannot be
analyzed appropriately under a roll-forward approach.
 e Group Term Life case and IBNR reserve redundancies in all years
are due to actual mortality rates running below those assumed in prior
year reserves, and actual recovery rates running higher than those
assumed in prior years reserves.
Group Disability case reserves and IBNR show redundancies in all
years due to actual claim recovery rates exceeding those assumed in
prior year reserves.
 e redundancies in our Medical lines case and IBNR reserves were
caused by the Company’s claims and other case reserves developing
more favorably than expected.  e Company’s actual claims experience
re ected lower medical provider utilization and lower medical in ation
than assumed in the Company’s prior-year pricing and reserving
processes as well as more favorable reimbursement from a pharmacy
services provider for 2009 and 2010 activity.
 e Company’s group disability products include short and long term
disability coverage. Case reserves and IBNR for long-term disability
claims incurred in 2011 have been discounted at 4.75% while these
claims incurred amounts in 2010 and earlier have been discounted at
5.25%.  e December31, 2011 and 2010 liabilities net of reinsurance
include $1,377,416 and $1,337,576, respectively, of such reserves.
 e amount of discounts deducted from outstanding reserves as of
December31, 2011 and 2010 are $442,595 and $469,442, respectively.
In 2011, 2010, and 2009, the Company’s Property and Warranty case and
IBNR reserves re ected redundancies from the Company’s lender-placed
homeowners business due to lower than anticipated loss ratios.  e current
year redundancy was less than 2010 due to unfavorable development of
$11,400 on the 2010 Arizona Hail storms. 2010 redundancy levels were
elevated due to favorable development on a long tail product and a Credit
product, as well as other short tail product lines. A subrogation recovery,
net of reinsurance, of $9,000 associated with the 2007 California wild res
contributed to the redundancy in 2009. For the longer-tail Property and
Warranty coverages (e.g. asbestos, environmental, and other general
liability), for all other years presented, there were no material changes
in estimated amounts for incurred claims in prior years.
Long Duration Contracts
 e Company’s long duration contracts are primarily comprised of
preneed life insurance and annuity policies, life insurance policies (no
longer o ered), universal life and annuities (no longer o ered), FFG and
LTC disposed businesses and medical policies.  e principal products
and services included in these categories are described in the summary
of signi cant accounting policies. See Note 2 for further information.
 e Assurant Solutions segment manages preneed insurance products
through two separate divisions: the independent division and the
American Memorial Life Insurance Company (“AMLIC”) division.
 e Company signed an agreement with Forethought Life Insurance
Company on November9, 2005 whereby the Company discontinued
writing new preneed insurance policies in the U.S. via independent
funeral homes.  e reserve assumptions for future policy bene ts
and expenses for pre-funded funeral life and annuity contracts and
traditional life insurance (no longer o ered) by the preneed business
di er by division and are established based upon the following:
Preneed Business—Independent Division
Interest and discount rates for preneed life insurance issued prior
to 2009 vary by year of issuance and product, are based on pricing
assumptions and modi ed to allow for provisions for adverse deviation.
For preneed life insurance with discretionary death bene t growth
issued after 2008, interest and discount rates are based upon current
assumptions without provisions for adverse deviation. During 2011
and 2010, interest and discount rates ranged between 4.5% and 7.3%.
Interest and discount rates for traditional life insurance (no longer o ered)
vary by year of issuance and products and were 7.5% grading to 5.3%
over 20 years in 2011 and 2010 with the exception of a block of pre-
1980 business which had a level 8.8% discount rate in 2011 and 2010.
Mortality assumptions for business issued prior to 2009 are based upon
pricing assumptions and modi ed to allow for provisions for adverse
deviation. For business issued after 2008, mortality assumptions are
based upon pricing assumptions without provisions for adverse deviation.
Surrender rates vary by product and are based upon pricing assumptions.
Future assumed policy bene t increases on preneed life insurance issued
prior to 2009 ranged from 1.0% to 7.0% in 2011 and 2010. Some
policies have future policy bene t increases, which are guaranteed or
tied to equal some measure of in ation.  e in ation assumption for
most of these in ation-linked bene ts was 3.0% in both 2011 and
2010 with the exception of most policies issued in 2005 through 2007
where the assumption was 2.3%. Future policy bene t increases for
business issued in 2011 are based on current assumptions.