Assurant 2014 Annual Report Download - page 99

ASSURANT, INC. – 2014 Form 10-K F-11
2 Summary of Signifi cant Accounting Policies
Premium defi ciency testing is performed annually and generally
reviewed quarterly. Such testing involves the use of best
estimate assumptions including the anticipation of investment
income to determine if anticipated future policy premiums
are adequate to recover all DAC and related claims, benefi ts
and expenses. To the extent a premium defi ciency exists, it
is recognized immediately by a charge to the consolidated
statement of operations and a corresponding reduction in
DAC. If the premium defi ciency is greater than unamortized
DAC, a liability will be accrued for the excess defi ciency.
Long Duration Contracts
Acquisition costs for pre-funded funeral (“preneed”) life
insurance policies issued prior to 2009 and certain life insurance
policies no longer offered are deferred and amortized in
proportion to anticipated premiums over the premium-paying
period. These acquisition costs consist primarily of fi rst year
commissions paid to agents.
Acquisition costs relating to group worksite insurance products
consist primarily of fi rst year commissions to brokers, costs
of issuing new certifi cates and compensation to sales
representatives. These acquisition costs are front-end loaded,
thus they are deferred and amortized over the estimated
terms of the underlying contracts.
For preneed investment-type annuities, preneed life insurance
policies with discretionary death benefi t growth issued
after January 1, 2009, universal life insurance policies, and
investment-type annuities (no longer offered), DAC is amortized
in proportion to the present value of estimated gross profi ts
from investment, mortality, expense margins and surrender
charges over the estimated life of the policy or contract.
Estimated gross profi ts include the impact of unrealized gains
or losses on investments as if these gains or losses had been
realized, with corresponding credits or charges included in
AOCI. The assumptions used for the estimates are consistent
with those used in computing the policy or contract liabilities.
Acquisition costs relating to the individual voluntary limited
benefi t health policies issued in 2007 and later are deferred
and amortized over the estimated average terms of the
underlying contracts. These acquisition costs relate to
commission expenses which result from commission schedules
that pay signifi cantly higher rates in the fi rst year.
Short Duration Contracts
Acquisition costs relating to property contracts, warranty
and extended service contracts and single premium credit
insurance contracts are amortized over the term of the
contracts in relation to premiums earned.
Acquisition costs relating to monthly pay credit insurance
business consist mainly of direct response advertising costs
and are deferred and amortized over the estimated average
terms and balances of the underlying contracts.
Acquisition costs relating to group term life, group disability,
group dental, and group vision consist primarily of
compensation to sales representatives. These acquisition costs
are front-end loaded; thus, they are deferred and amortized
over the estimated terms of the underlying contracts.
Property and Equipment
Property and equipment are reported at cost less accumulated
depreciation. Depreciation is calculated on a straight-line basis
over estimated useful lives with a maximum of 39.5 years for
buildings, a maximum of 7 years for furniture and a maximum
of 5 years for equipment. Expenditures for maintenance and
repairs are charged to income as incurred. Expenditures
for improvements are capitalized and depreciated over the
remaining useful life of the asset.
Property and equipment also includes capitalized software
costs, which represent costs directly related to obtaining,
developing or upgrading internal use software. Such costs
are capitalized and amortized using the straight-line method
over their estimated useful lives, not to exceed 20 years.
Property and equipment are assessed for impairment when
impairment indicators exist.
Goodwill
Goodwill represents the excess of acquisition costs over the
net fair value of identifi able assets acquired and liabilities
assumed in a business combination. Goodwill is deemed
to have an indefi nite life and is not amortized, but rather
is tested at least annually for impairment. We review our
goodwill annually in the fourth quarter for impairment, or
more frequently if indicators of impairment exist. We regularly
assess whether any indicators of impairment exist. Such
indicators include, but are not limited to: signifi cant adverse
change in legal factors, adverse action or assessment by a
regulator, unanticipated competition, loss of key personnel
or a signifi cant decline in our expected future cash fl ows
due to changes in company-specifi c factors or the broader
business climate. The evaluation of such factors requires
considerable management judgment.
When required, we test goodwill for impairment at the
reporting unit level. Following the guidance on goodwill,
we have concluded that our reporting units for goodwill
testing are equivalent to our reported operating segments,
excluding the Corporate and Other segment.
At the time of the annual goodwill test, the Company has the
option to fi rst assess qualitative factors to determine whether
it is necessary to perform the current two-step goodwill
impairment test. The Company is required to perform step
one if it determines qualitatively that it is more likely than
not (that is, a likelihood of more than 50 percent) that the
fair value of a reporting unit is less than its carrying amount,
including goodwill. Otherwise, no further testing is required.
If the Company does not take the option to perform the
qualitative assessment or the qualitative assessment performed
indicates that it is more likely than not that the reporting
unit’s fair value is less than the carrying value, the Company
will then compare the estimated fair value of the reporting
unit with its net book value (“Step 1”). If the estimated fair
value exceeds its net book value, goodwill is deemed not to
be impaired, and no further testing is necessary. If the net
book value exceeds its estimated fair value, we perform a