Assurant 2011 Annual Report Download - page 40

ASSURANT, INC.2011 Form10-K32
PARTII
ITEM 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations
 e Assurant Health loss ratio reported on page 46 (the “GAAP loss
ratio”) di ers from the loss ratio calculated under the MLR rules (“MLR
loss ratio”) speci ed under the A ordable Care Act.  e most signi cant
di erences include: the MLR loss ratio is calculated separately by state
and legal entity; the MLR loss ratio calculation includes credibility
adjustments for each entity, which are not applicable to the GAAP
loss ratio; the MLR loss ratio calculation applies only to some of our
health insurance products, while the GAAP loss ratio applies to the
entire portfolio, including products not governed by the A ordable
Care Act; the MLR loss ratio includes quality improvement expenses,
taxes and fees; changes in reserves are treated di erently in the MLR
loss ratio calculation; and the premium rebate amounts are considered
adjustments to premiums for GAAP reporting whereas they are reported
as additions to incurred claims in the MLR rebate estimate calculations.
Assurant Health has estimated the 2011 impact of this regulation and
recorded a premium rebate accrual of $41,589 for Twelve Months
2011.  e premium rebate accrual was based on our interpretation of
de nitions and calculation methodologies outlined in the HHS Interim
Final Regulation released December1,2010, Technical Corrections
released December29,2010 and the HHS Final Regulation released
December7,2011. Additionally, the premium rebate accrual was
based on separate projection models for the individual medical and
small group businesses using projections of expected premiums, claims,
and enrollment by state, legal entity, and market for medical business
subject to MLR requirements for the MLR reporting year. In addition,
the projection models include quality improvement expenses, state
assessments and taxes.
We estimated the 2011 full-year premium rebate accrual to be $41,589;
however, further emerging regulations and interpretations from HHS
as well as additional loss experience on claims incurred in 2011 could
cause the actual premium rebate to di er. We will not know the
actual premium rebate amount with certainty until mid-2012; it will
be based on actual premium and claim experience for all of 2011.
 e estimated liability may also need to be adjusted for any further
regulatory clari cations or transition relief granted for states in which
we do business.  e premium rebate is presented as a reduction of
net earned premiums in the consolidated statement of operations and
included in unearned premiums in the consolidated balance sheets.
Reserves
Reserves are established in accordance with GAAP using generally
accepted actuarial methods and re ect judgments about expected
future claim payments. Calculations incorporate assumptions about
in ation rates, the incidence of incurred claims, the extent to which all
claims have been reported, future claims processing, lags and expenses
and future investment earnings, and numerous other factors. While
the methods of making such estimates and establishing the related
liabilities are periodically reviewed and updated, the calculation of
reserves is not an exact process.
Reserves do not represent precise calculations of expected future
claims, but instead represent our best estimates at a point in time of
the ultimate costs of settlement and administration of a claim or group
of claims, based upon actuarial assumptions and projections using facts
and circumstances known at the time of calculation.
Many of the factors a ecting reserve adequacy are not directly quanti able
and not all future events can be anticipated when reserves are established.
Reserve estimates are re ned as experience develops. Adjustments to
reserves, both positive and negative, are re ected in the statement of
operations in the period in which such estimates are updated.
Because establishment of reserves is an inherently complex process
involving signi cant judgment and estimates, there can be no certainty
that ultimate losses will not exceed existing claim reserves. Future loss
development could require reserves to be increased, which could have
a material adverse e ect on our earnings in the periods in which such
increases are made.