Assurant 2014 Annual Report Download - page 58

44 ASSURANT, INC. – 2014 Form 10-K
PART II
ITEM 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations
The determination of fair value of our reporting units requires
many estimates and assumptions. These estimates and
assumptions primarily include, but are not limited to, earnings
and required capital projections discussed above, discount
rates, terminal growth rates, operating income and dividend
forecasts for each reporting unit and the weighting assigned to
the results of each of the three valuation methods described
above. Changes in certain assumptions could have a signifi cant
impact on the goodwill impairment assessment. For example,
an increase of the discount rate of 250 basis points, with
all other assumptions held constant, for Assurant Solutions,
would result in its estimated fair value being less than its net
book value as of December 31, 2014. Likewise, a reduction of
1,280 basis points in the terminal growth rate, with all other
assumptions held constant, for Assurant Solutions would result in
its estimated fair value being less than its net book value as of
December 31, 2014. It would take more signifi cant movements
in our estimates and assumptions in order for Assurant Specialty
Property’s estimated fair value to be less than its net book value.
We evaluated the signifi cant assumptions used to determine
the estimated fair values of Assurant Solutions and Assurant
Specialty Property, both individually and in the aggregate,
and concluded they are reasonable. However, should the
operating results of either reporting unit decline substantially
compared to projected results, or should further interest
rate declines further increase the net unrealized investment
portfolio gain position, we could determine that we need to
record an impairment charge related to goodwill in Assurant
Solutions and Assurant Specialty Property.
Had the net book value exceeded its estimated fair value in
the Step 1 test, we would have then performed a second test
to calculate the amount of impairment, if any. To determine
the amount of any impairment, we would determine the
implied fair value of goodwill in the same manner as if the
reporting unit were being acquired in a business combination.
Specifi cally, we would determine the fair value of all of the
assets and liabilities of the reporting unit, including any
unrecognized intangible assets, in a hypothetical calculation
that yields the implied fair value of goodwill. If the implied
fair value of goodwill is less than the recorded goodwill, we
would record an impairment charge for the difference.
Recent Accounting Pronouncements —
Adopted
On December 31, 2014, the Company adopted the amended
guidance on reporting discontinued operations and disclosures
of disposals of components of an entity. To qualify as a
discontinued operation under the amended guidance, a
component or group of components must represent a strategic
shift that has (or will have) a major effect on an entity’s
operations and fi nancial results. The amended guidance
includes expanded disclosures for discontinued operations
and requires comparative balance sheet presentation. New
disclosures are also required for disposals of individually
signifi cant components that do not qualify as discontinued
operations. The adoption of this amended guidance did not
impact the Company’s fi nancial position or results of operations.
On January 1, 2014, the Company adopted the new guidance
on presentation of an unrecognized tax benefi t when a net
operating loss carryforward, a similar tax loss, or a tax credit
carryforward exists. The amendments in this guidance state
that an unrecognized tax benefi t, or a portion thereof, should
be presented in the fi nancial statements as a reduction to a
deferred tax asset for a net operating loss carryforward, a
similar tax loss, or a tax credit carryforward. An exception to
this guidance would be where a net operating loss carryforward
or similar tax loss or credit carryforward would not be available
under the tax law to settle any additional income taxes
that would result from the disallowance of a tax position,
or the tax law does not require the entity to use, and the
entity does not intend to use, the deferred tax asset for
such purpose. In such a case, the unrecognized tax benefi t
should be presented in the fi nancial statements as a liability
and should not be combined with deferred tax assets. The
adoption of this new presentation guidance did not impact
the Company’s fi nancial position or results of operations.
On January 1, 2014, the Company adopted the other expenses
guidance that addresses how health insurers should recognize
and classify in their statements of operations fees mandated
by the Affordable Care Act. The Affordable Care Act imposes
an annual fee on health insurers for each calendar year
beginning on or after January 1, 2014. The amendments
specify that the liability for the fee should be estimated
and recorded in full once the entity provides qualifying
health insurance in the applicable calendar year in which
the fee is payable with a corresponding deferred cost that is
amortized to expense ratably over the calendar year during
which it is payable. The Company’s adoption of this guidance
impacts the results of our Assurant Health and Assurant
Employee Benefi ts segments. For the calendar year ended
December 31, 2014, the Company ratably recorded $25,723
in underwriting, general and administrative expenses in the
consolidated statements of operations, and paid, in full, the
fi nal assessment during the third quarter of 2014.
Recent Accounting Pronouncements —
Not Yet Adopted
In May 2014, the Financial Accounting Standards Board
(“FASB”) issued amended guidance on revenue recognition.
The amended guidance affects any entity that either enters
into contracts with customers to transfer goods or services
or enters into contracts for the transfer of nonfi nancial
assets unless those contracts are within the scope of other
standards. Insurance contracts are within the scope of other
standards and therefore are specifi cally excluded from the
scope of the amended revenue recognition guidance. The core
principle of the amended guidance is that an entity recognizes
revenue to depict the transfer of promised goods or services
to customers in an amount that refl ects the consideration
to which the entity expects to be entitled in exchange for
those goods or services. To achieve the core principle, the
entity applies a fi ve-step process outlined in the amended
guidance. The amended guidance also includes a cohesive
set of disclosure requirements. The amended guidance is
effective for interim and annual periods beginning after