Assurant 2010 Annual Report Download - page 40

34 ASSURANT, INC.  2010 Form 10K
PART II
ITEM 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations
Reinsurance
Reinsurance recoverables include amounts we are owed by reinsurers.
Reinsurance costs are expensed over the terms of the underlying reinsured
policies using assumptions consistent with those used to account for the
policies. Amounts recoverable from reinsurers are estimated in a manner
consistent with claim and claim adjustment expense reserves or future
policy benefi ts reserves and are reported in our consolidated balance
sheets. An estimated allowance for doubtful accounts is recorded on
the basis of periodic evaluations of balances due from reinsurers (net
of collateral), reinsurer solvency, management’s experience and current
economic conditions.  e ceding of insurance does not discharge our
primary liability to our insureds.
 e following table sets forth our reinsurance recoverables as of the dates indicated:
December 31, 2010 December 31, 2009
Reinsurance recoverables $ 4,997,316 $ 4,231,734
We have used reinsurance to exit certain businesses, including blocks of
individual life, annuity, and long-term care business.  e reinsurance
recoverables relating to these dispositions amounted to $3,488,908 and
$2,790,765 at December 31, 2010 and 2009, respectively.
In the ordinary course of business, we are involved in both the assumption
and cession of reinsurance with non-affi liated companies.  e following
table provides details of the reinsurance recoverables balance for the years
ended December 31:
2010 2009
Ceded future policyholder benefi ts and expense $ 3,344,066 $ 2,786,916
Ceded unearned premium 796,944 698,985
Ceded claims and benefi ts payable 823,731 680,836
Ceded paid losses 32,575 64,997
TOTAL $ 4,997,316 $ 4,231,734
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 insurers,” and
“Item 7A—Quantitative and Qualitative Disclosures About Market
Risk—Credit Risk.”
Retirement and Other Employee Benefi ts
We sponsor qualifi ed and non-qualifi ed pension plans and a retirement
health benefi ts plan covering our employees who meet specifi 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 diff er materially from
actual results. See Note 22 to our consolidated fi nancial statements
for more information on our retirement and other employee benefi ts,
including a sensitivity analysis for changes in the assumed health care
cost trend rates.
Contingencies
We account for contingencies using the Contingencies guidance.  is
requires management to evaluate 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 aff ecting 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 diff erences 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 diff 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
suffi cient to reduce the asset to the amount that is more likely than not
to be realized.  e Company has signifi cant deferred tax assets resulting
from capital loss carryforwards and other temporary diff 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 8 to our consolidated fi nancial statements.
During 2008, the Company realized a tax benefi t of $174,864 upon
the sale of a non-operating subsidiary, United Family Life Insurance
Company (“UFLIC”), and recorded an off setting valuation allowance
of $90,000. During 2009, the Company recognized $16,000 of other
comprehensive income which reduced the valuation allowance to
$74,000. During 2010, the Company recognized $6,000 of expense
which increased the valuation allowance to $80,000.  e increase in
the valuation allowance was primarily related to fl uctuations in gains
resulting from certain tax planning strategies as well as fl uctuations
in gross unrealized gains.  e gross deferred tax asset for cumulative
realized and unrealized capital losses as of December 31, 2010 is
$246,300, including the carryover from the loss on the sale of UFLIC.
 e realization of deferred tax assets depends upon the existence of
suffi 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 is dependent
upon having capital gain income in the foreseeable future to use the
capital loss carryforward in its entirety. To support the capital deferred
tax asset, the Company is able to rely on future taxable capital gain