Assurant 2014 Annual Report Download - page 56

42 ASSURANT, INC. – 2014 Form 10-K
PART II
ITEM 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations
We utilize reinsurance for loss protection and capital management,
business dispositions and, in Assurant Solutions and Assurant
Specialty Property, client risk and profi 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 reinsurers,” and “Item 7A — Quantitative
and Qualitative Disclosures About Market Risk — Credit Risk.”
Retirement and Other Employee Benefi ts
We sponsor a qualifi ed pension plan, (the “Assurant Pension
Plan”) and various non-qualifi ed pension plans (including an
Executive Pension Plan), along with a retirement health benefi ts
plan covering our employees who meet specifi ed eligibility
requirements. The reported expense and liability associated
with these plans requires an extensive use of assumptions which
include, but are not limited to, the discount rate, expected
return on plan assets and rate of future compensation increases.
We determine these assumptions based upon currently available
market and industry data, and historical performance of the
plan and its assets. The actuarial assumptions used in the
calculation of our aggregate projected benefi t obligation vary
and include an expectation of long-term appreciation in equity
markets which is not changed by minor short-term market
fl uctuations, but does change when large interim deviations
occur. The assumptions we use may differ materially from
actual results due to changing market and economic conditions,
higher or lower withdrawal rates or longer or shorter life spans
of the participants.
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 amount 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 affecting the Company include litigation
matters which are inherently diffi cult to evaluate and are
subject to signifi cant changes.
Deferred Taxes
Deferred income taxes are recorded for temporary differences
between the fi 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 differences 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. The valuation allowance
is suffi cient to reduce the asset to the amount that is more
likely than not to be realized. The Company has deferred tax
assets resulting from temporary differences that may reduce
taxable income in future periods. The detailed components of
our deferred tax assets, liabilities and valuation allowance are
included in Note 8 to our consolidated fi nancial statements.
As of December 31, 2013, the Company had a cumulative
valuation allowance of $16,474 against deferred tax assets
of international subsidiaries. During Twelve Months 2014, the
Company recognized a cumulative income tax expense of
$1,690 primarily related to operating losses of international
subsidiaries. As of December 31, 2014, the Company has a
cumulative valuation allowance of $18,164 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. The realization of deferred tax assets related to
net operating loss carryforwards of international subsidiaries
depends upon the existence of suffi cient taxable income of
the same character in the same jurisdiction.
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 differences, future taxable income
exclusive of reversing temporary differences, carry forwards
and tax-planning strategies.
The 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 benefi t is realized or when we determine that
it is more likely than not that the benefi 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 consolidated statements 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 consolidated statements of
operations in the period such determination is made.
In determining the appropriate valuation allowance,
management makes judgments about recoverability of deferred
tax assets, use of tax loss and tax credit carryforwards, levels
of expected future taxable income and available tax planning
strategies. The assumptions used in making these judgments
are updated periodically by management based on current
business conditions that affect the Company and overall
economic conditions. These management judgments are
therefore subject to change based on factors that include, but
are not limited to, changes in expected capital gain income
in the foreseeable future and the ability of the Company to
successfully execute its tax planning strategies. Please see
“Item 1A — Risk Factors — Risks Related to Our Company —
Unanticipated changes in tax provisions, changes in tax laws or
exposure to additional income tax liabilities could materially
and adversely affect our results” for more information.