Assurant 2011 Annual Report Download - page 45

ASSURANT, INC.2011 Form10-K 37
PARTII
ITEM 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations
In the ordinary course of business, we are involved in both the assumption and cession of reinsurance with non-a liated companies.  e following
table provides details of the reinsurance recoverables balance for the years ended December31:
2011 2010
Ceded future policyholder bene ts and expense $ 3,399,938 $ 3,344,066
Ceded unearned premium 1,013,778 796,944
Ceded claims and bene ts payable 945,900 823,731
Ceded paid losses 51,448 32,575
TOTAL $ 5,411,064 $ 4,997,316
We utilize reinsurance for loss protection and capital management,
business dispositions and, in Assurant Solutions and Assurant Specialty
Property, client risk and pro t sharing. See also “Item1A—Risk
Factors—Reinsurance may not be available or adequate to protect us
against losses and we are subject to the credit risk of insurers,” and
“Item7A—Quantitative and Qualitative Disclosures About Market
Risk—Credit Risk.”
Retirement and Other Employee Benefi ts
We sponsor quali ed and non-quali ed pension plans and a retirement
health bene ts plan covering our employees who meet speci ed eligibility
requirements.  e calculation of reported expense and liability associated
with these plans requires an extensive use of assumptions including factors
such as discount rates, expected long-term returns on plan assets, employee
retirement and termination rates and future compensation increases. We
determine these assumptions based upon currently available market and
industry data, and historical performance of the plan and its assets.  e
assumptions we use may di er materially from actual results. See Note21
to our consolidated  nancial statements for more information on our
retirement and other employee bene ts, including a sensitivity analysis
for changes in the assumed health care cost trend rates.
Contingencies
We account for contingencies by evaluating each contingent matter
separately. A loss is accrued if reasonably estimable and probable. We
establish reserves for these contingencies at the best estimate, or, if
no one estimated number within the range of possible losses is more
probable than any other, we report an estimated reserve at the low end
of the estimated range. Contingencies a ecting the Company include
litigation matters which are inherently di cult to evaluate and are
subject to signi cant changes.
Deferred Taxes
Deferred income taxes are recorded for temporary di erences between
the  nancial reporting and income tax bases of assets and liabilities,
based on enacted tax laws and statutory tax rates applicable to the
periods in which the Company expects the temporary di erences to
reverse. A valuation allowance is established for deferred tax assets if,
based on the weight of all available evidence, it is more likely than
not that some portion of the asset will not be realized.  e valuation
allowance is su cient to reduce the asset to the amount that is more
likely than not to be realized.  e Company has deferred tax assets
resulting from temporary di erences that may reduce taxable income
in future periods.  e detailed components of our deferred tax assets,
liabilities and valuation allowance are included in Note7 to our
consolidated  nancial statements.
As of December31,2010, the Company had a cumulative valuation
allowance of $90,738 against deferred tax assets. During the year ended
December31,2011, the Company recognized a cumulative income tax
bene t of $80,584 related to the release of a portion of the valuation
allowance due to su cient taxable income of the appropriate character
during the period.  e $80,584 consists of $80,000 related to capital
losses and $584 related to operating losses. As of December31,2011,
the Company has a cumulative valuation allowance of $10,154 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 realization of deferred tax assets depends upon the existence of
su cient taxable income of the same character during the carry back
or carry forward period. U.S. tax rules mandate that capital losses can
only be recovered against capital gains. An example of capital gains
would be gains from the sale of investments.  e Company’s capital
loss carryovers were generated in 2008.  e company was dependent
upon having capital gain income within the next  ve years in order to
use the capital loss carryforward in its entirety.
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 di erences, future taxable income
exclusive of reversing temporary di erences and carry forwards, taxable
income in carry back years and tax-planning strategies.
 e gross deferred tax asset related to net operating loss carryforwards
on international subsidiaries is $52,674. 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
$9,472 has been recorded as of December31,2011.  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.
 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 certain international subsidiaries, a valuation
allowance has not been established.
Future reversal of the valuation allowance will be recognized either
when the bene t is realized or when we determine that it is more likely
than not that the bene 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.