Assurant 2010 Annual Report Download - page 79

F-9ASSURANT, INC.  2010 Form 10K
2 Summary of Signifi cant Accounting Policies
reinsurance is recognized 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 the consolidated
balance sheets.  e cost of reinsurance related to long-duration contracts
is recognized over the life of the underlying reinsured policies.  e
ceding of insurance does not discharge the Company’s primary liability
to insureds, thus a credit exposure exists to the extent that any reinsurer
is unable to meet the obligation assumed in the reinsurance agreements.
To mitigate this exposure to reinsurance insolvencies, the Company
evaluates the fi nancial condition of its reinsurers and holds substantial
collateral (in the form of funds withheld, trusts, and letters of credit) as
security under the reinsurance agreements. An 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.
Funds withheld under reinsurance represent amounts contractually held
from assuming companies in accordance with reinsurance agreements.
Reinsurance premiums assumed are calculated based upon payments
received from ceding companies together with accrual estimates, which
are based on both payments received and in force policy information
received from ceding companies. Any subsequent diff erences arising on
such estimates are recorded in the period in which they are determined.
Income Taxes
Current federal income taxes are recognized based upon amounts
estimated to be payable or recoverable as a result of taxable operations
for the current year. Deferred income taxes are recorded for temporary
diff erences between the fi nancial reporting basis and income tax basis
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 when it is more likely than not that an amount
will not be realized.
 e Company classifi es net interest expense related to tax matters
and any applicable penalties as a component of income tax expense.
Deferred Acquisition Costs
 e costs of acquiring new business that vary with and are primarily
related to the production of new business are deferred to the extent
that such costs are deemed recoverable from future premiums or gross
profi ts. Acquisition costs primarily consist of commissions, policy
issuance expenses, premium taxes and certain direct marketing expenses.
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 off ered are deferred and amortized in proportion to anticipated
premiums over the premium-paying period.  ese acquisition costs
consist primarily of fi rst year commissions paid to agents and sales
and policy issue costs.
Acquisition costs relating to group worksite insurance products consist
primarily of fi rst year commissions to brokers and one time policy
transfer fees and costs of issuing new certifi cates.  ese 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 2008, universal life
insurance policies, and investment-type annuities (no longer off ered),
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.  e 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.  ese
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 marketing 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 and
group dental consist primarily of compensation to sales representatives.
 ese 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. Property and
equipment are assessed for impairment when impairment indicators exist.