Assurant 2010 Annual Report Download - page 95

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F-25ASSURANT, INC.2010 Form 10K
6 Fair Value Disclosures
A non-pricing service source prices certain privately placed corporate
bonds using a model with observable inputs including, but not limited
to, the credit rating, credit spreads, sector add-ons, and issuer specifi c
add-ons. A non-pricing service source prices our CPI Caps using a model
with inputs including, but not limited to, the time to expiration, the
notional amount, the strike price, the forward rate, implied volatility
and the discount rate.
Management evaluates the following factors in order to determine
whether the market for a fi nancial asset is inactive.  e factors include,
but are not limited to:
• ere are few recent transactions,
•Little information is released publicly,
•
e available prices vary signifi cantly over time or among market
participants,
• e prices are stale (i.e., not current), and
• e magnitude of the bid-ask spread.
Illiquidity did not have a material impact in the fair value determination
of the Company’s fi nancial assets.
e Company generally obtains one price for each fi nancial asset.  e
Company performs a monthly analysis to assess if the evaluated prices
represent a reasonable estimate of their fair value.  is process involves
quantitative and qualitative analysis and is overseen by investment and
accounting professionals. Examples of procedures performed include,
but are not limited to, initial and on-going review of pricing service
methodologies, review of the prices received from the pricing service,
review of pricing statistics and trends, and comparison of prices for
certain securities with two diff erent appropriate price sources for
reasonableness. Following this analysis, the Company generally uses the
best estimate of fair value based upon all available inputs. On infrequent
occasions, a non-pricing service source may be more familiar with the
market activity for a particular security than the pricing service. In
these cases the price used is taken from the non-pricing service source.
e pricing service provides information to indicate which securities
were priced using market observable inputs so that the Company can
properly categorize our fi nancial assets in the fair value hierarchy.
Disclosures for Non-Financial Assets Measured
at Fair Value on a Non-Recurring Basis
e Company also measures the fair value of certain assets on a non-
recurring basis, generally on an annual basis, or when events or changes
in circumstances indicate that the carrying amount of the assets may
not be recoverable.  ese assets include commercial mortgage loans,
goodwill and fi nite-lived intangible assets.
e Company carries a loan valuation allowance of $22,092 and $6,320
as of December 31, 2010 and 2009, respectively, on one individually
impaired commercial mortgage loan with a principal balance of
$22,092 for both periods. Due to the continued decline in the regional
commercial real estate market, the value of the loan was determined
to be zero at December 31, 2010.  e fair value measurement was
classifi ed as Level 3 (unobservable) inputs in the fair value hierarchy.
In accordance with the goodwill guidance, since the carrying amount
of the Assurant Employee Benefi ts and Assurant Health reporting units
was greater than their estimated fair values as determined in Step 1 of
the impairment test, the Company was required to measure the fair
value of goodwill of the Assurant Employee Benefi ts and Assurant
Health reporting units in Step 2 of the impairment test. Goodwill of
the Assurant Employee Benefi ts and Assurant Health reporting units
with carrying amount of $102,078 and $204,303, respectively were
written down to their implied fair values of $0, resulting in impairment
charges of $102,078 and $204,303, respectively, which was included
in earnings for the period. See Note 11 for further information.
To estimate the fair value of the Assurant Employee Benefi ts and Assurant
Health reporting units, the Company utilized both the income and
market valuation approaches. Under the income approach, the Company
determined the fair value of the reporting units’ considering distributable
earnings which were estimated from operating plans.  e resulting cash
fl ows were then discounted using a market participant weighted average
cost of capital estimated for the reporting units. After discounting the
future discrete earnings to their present value, the Company estimated
the terminal value attributable to the years beyond the discrete operating
plan period.  e discounted terminal value was then added to the
aggregate discounted distributable earnings from the discrete operating
plan period to estimate the fair value of the reporting units. Under the
market approach, the Company derived the fair value of the reporting
units based on various fi nancial multiples, including but not limited to:
price to tangible book value of equity, price to estimated 2010 earnings
and price to estimated 2011 earnings which were estimated based on
publicly available data related to comparable guideline companies. In
addition, fi nancial multiples were also estimated from publicly available
purchase price data for acquisitions of companies operating in the
insurance industry.  e estimated fair value of the reporting units was
more heavily weighted towards the income approach because in the
current economic environment the earnings capacity of a business is
generally considered the most important factor in the valuation of a
business enterprise.  is fair value determination was categorized as
Level 3 (unobservable) in the fair value hierarchy.
In connection with the acquisition of the Warranty Management Group
business from GE Consumer & Industrial, the Company entered into
a new 10-year agreement to market extended warranties and service
contracts on GE-branded major appliances in the U.S. that included
warranty distribution agreements with two existing retail customers.
For one of the existing retail customers, we recorded a customer related
intangible asset with an associated 10 year amortization period. We
recorded an impairment charge of $47,612 in the fourth quarter of
2010 upon receipt, on November 30, 2010, of notifi cation of non-
renewal of a block of the acquired business eff ective June 1, 2011.
ere was no remaining goodwill or other intangible assets measured
at fair value on a non-recurring basis on which an impairment charge
was recorded as of December 31, 2010.