Assurant 2010 Annual Report Download - page 80

F-10 ASSURANT, INC.  2010 Form 10K
2 Summary of Signifi cant Accounting Policies
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: a sustained signifi cant decline in our
market capitalization 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.  e 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.
For each reporting unit, we fi rst compare estimated fair value with 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 second test to measure the amount of impairment, if any. To
determine the amount of any impairment, we determine the implied
fair value of goodwill in the same manner as if the reporting unit were
being acquired in a business combination (“Step 2”). Specifi cally, we
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 record an
impairment charge for the diff erence.
In the fourth quarters of 2010 and 2009, we conducted our annual
assessments of goodwill. Based on the results of the 2010 assessment,
the Company concluded that the net book values of the Assurant
Employee Benefi ts and Assurant Health reporting units exceeded
their estimated fair values and therefore performed a Step 2 test. Based
on the results of the Step 2 test, the Company recorded impairment
charges of $102,078 and $204,303 related to the Assurant Employee
Benefi ts and Assurant Health reporting units, respectively, in 2010.
During 2009, the Company concluded that the net book value of the
Assurant Employee Benefi ts reporting unit exceeded its estimated fair
value and recorded an $83,000 impairment charge after performing
a Step 2 test. For both 2010 and 2009, those reporting units where a
Step 2 test was not performed, the estimated fair value of the reporting
units exceeded their respective net book values and therefore goodwill
was not impaired.
Value of Businesses Acquired
VOBA is the identifi able intangible asset representing the value of the
insurance businesses acquired.  e amount is determined using best
estimates for mortality, lapse, maintenance expenses and investment
returns at date of purchase.  e amount determined represents the
purchase price paid to the seller for producing the business. Similar
to the amortization of DAC, the amortization of VOBA is over the
premium payment period for traditional life insurance policies and a
small block of limited payment policies. For the remaining limited
payment policies, preneed life insurance policies, all universal life
policies and annuities, the amortization of VOBA is over the expected
lifetime of the policies.
VOBA is tested for recoverability annually. If it is determined that
future policy premiums and investment income or gross profi ts are
not adequate to cover related losses or loss expenses, then an expense
is reported in current earnings. Based on 2010 and 2009 testing, future
policy premiums and investment income or gross profi ts were deemed
adequate to cover related losses or loss expenses.
Other Assets
Other assets primarily include prepaid items and other intangible
assets. Other intangible assets that have fi nite lives, including but not
limited to, customer contracts, customer relationships and marketing
relationships, are amortized over their estimated useful lives. Other
intangible assets deemed to have indefi nite useful lives, primarily
certain state licenses, are not amortized and are subject to at least
annual impairment tests. Impairment exists if the carrying amount
of the indefi nite-lived other intangible asset exceeds its fair value. For
other intangible assets with fi nite lives, impairment is recognized if
the carrying amount is not recoverable and exceeds the fair value of
the other intangible asset. Generally other intangible assets with fi nite
lives are only tested for impairment if there are indicators (“triggers”)
of impairment identifi ed. Triggers include, but are not limited to, a
signifi cant adverse change in the extent, manner or length of time in
which the other intangible asset is being used or a signifi cant adverse
change in legal factors or in the business climate that could aff ect the
value of the other intangible asset. In certain cases, the Company
does perform an annual impairment test for other intangible assets
with fi nite lives even if there are no triggers present.  e Company
recorded an impairment charge of $47,612 related to fi nite-lived other
intangible assets in 2010.  ere were no impairment charges related to
fi nite-lived other intangible assets in 2009. For both 2010 and 2009,
there were no impairment charges for indefi nite-lived other intangible
assets. Amortization expense is included in underwriting, general and
administrative expenses in the consolidated statements of operations.
Separate Accounts
Assets and liabilities associated with separate accounts relate to premium
and annuity considerations for variable life and annuity products
for which the contract-holder, rather than the Company, bears the
investment risk. Separate account assets (with matching liabilities) are
reported at fair value. Revenues and expenses related to the separate
account assets and liabilities, to the extent of benefi ts paid or provided
to the separate account policyholders, are excluded from the amounts
reported in the accompanying consolidated statements of operations
because the accounts are administered by reinsurers.
Reserves
Reserves are established in accordance with GAAP, using generally
accepted actuarial methods. Factors used in their calculation include
experience derived from historical claim payments and actuarial
assumptions. Such assumptions and other factors include trends, the
incidence of incurred claims, the extent to which all claims have been
reported, and internal claims processing charges.  e process used in
computing reserves cannot be exact, particularly for liability coverages,
since actual claim costs are dependent upon such complex factors as
infl ation, changes in doctrines of legal liabilities and damage awards.
 e methods of making such estimates and establishing the related
liabilities are periodically reviewed and updated.