Assurant 2010 Annual Report Download - page 88

F-18 ASSURANT, INC.  2010 Form 10K
5 Investments
Year ended
December 31, 2009
Balance, beginning of period $—
Credit losses remaining in retained earnings related to the adoption of OTTI guidance eff ective April 1, 2009 119,022
Additions for credit loss impairments recognized in the current period on securities not previously impaired 1,464
Additions for credit loss impairments recognized in the current period on securities previously impaired 6,900
Reductions for increases in cash fl ows expected to be collected that are recognized over the remaining life of the security (433)
Reductions for credit loss impairments previously recognized on securities which matured, paid down, prepaid or were sold
during the period (18,900)
BALANCE, END OF YEAR $ 108,053
We regularly monitor our investment portfolio to ensure investments
that may be other-than-temporarily impaired are identifi ed in a
timely fashion, properly valued, and charged against earnings in
the proper period.  e determination that a security has incurred
an other-than-temporary decline in value requires the judgment of
management. Assessment factors include, but are not limited to, the
length of time and the extent to which the market value has been less
than cost, the fi nancial condition and rating of the issuer, whether any
collateral is held, the intent and ability of the Company to retain the
investment for a period of time suffi cient to allow for recovery for equity
securities and the intent to sell or whether it is more likely than not
that the Company will be required to sell for fi xed maturity securities.
Inherently, there are risks and uncertainties involved in making these
judgments. Changes in circumstances and critical assumptions such as
a continued weak economy, a more pronounced economic downturn
or unforeseen events which aff ect one or more companies, industry
sectors, or countries could result in additional impairments in future
periods for other-than-temporary declines in value. Any equity security
whose price decline is deemed other-than-temporary is written down
to its then current market value with the amount of the impairment
reported as a realized loss in that period.  e impairment of a fi xed
maturity security that the Company has the intent to sell or that it
is more likely than not that the Company will be required to sell is
deemed other-than-temporary and is written down to its market value
at the balance sheet date with the amount of the impairment reported
as a realized loss in that period. For all other-than-temporarily impaired
fi xed maturity securities that do not meet either of these two criteria,
the Company is required to analyze its ability to recover the amortized
cost of the security by calculating the net present value of projected
future cash fl ows. For these other-than-temporarily impaired fi xed
maturity securities, the net amount recognized in earnings is equal to
the diff erence between the amortized cost of the fi xed maturity security
and its net present value.
 e Company considers diff erent factors to determine the amount of
projected future cash fl ows and discounting methods for corporate
debt and residential and commercial mortgage-backed or asset-backed
securities. For corporate debt securities, the split between the credit
and non-credit losses is driven principally by assumptions regarding the
amount and timing of projected future cash fl ows.  e net present value
is calculated by discounting the Company’s best estimate of projected
future cash fl ows at the eff ective interest rate implicit in the security at
the date of acquisition. For residential and commercial mortgage-backed
and asset-backed securities, cash fl ow estimates, including prepayment
assumptions, are based on data from widely accepted third-party data
sources or internal estimates. In addition to prepayment assumptions,
cash fl ow estimates vary based on assumptions regarding the underlying
collateral including default rates, recoveries and changes in value.  e net
present value is calculated by discounting the Company’s best estimate
of projected future cash fl ows at the eff ective interest rate implicit in
the fi xed maturity security prior to impairment at the balance sheet
date.  e discounted cash fl ows become the new amortized cost basis
of the fi xed maturity security.
In periods subsequent to the recognition of an other-than-temporary
impairment, the Company generally accretes the discount (or amortizes
the reduced premium) into net investment income, up to the non-
discounted amount of projected future cash fl ows, resulting from the
reduction in cost basis, based upon the amount and timing of the
expected future cash fl ows over the estimated period of cash fl ows.
Realized gains and losses on sales of investments are recognized on the
specifi c identifi cation basis.