Assurant 2011 Annual Report Download - page 87

ASSURANT, INC.2011 Form10-K F-11
2 Summary of Signi cant Accounting Policies
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 bene 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
in 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.
Reserves do not represent an exact calculation of exposure, but instead
represent our best estimates of what we expect the ultimate settlement
and administration of a claim or group of claims will cost based on facts
and circumstances known at the time of calculation.  e adequacy of
reserves may be impacted by future trends in claims severity, frequency,
judicial theories of liability and other factors.  ese variables are a ected
by both external and internal events, including but not limited to:
changes in the economic cycle, changes in the social perception of the
value of work, emerging medical perceptions regarding physiological
or psychological causes of disability, emerging health issues and new
methods of treatment or accommodation, in ation, judicial trends,
legislative changes and claims handling procedures.
Many of these items are not directly quanti able. Reserve estimates
are re ned as experience develops. Adjustments to reserves, both
positive and negative, are re ected in the consolidated statement of
operations in the period in which such estimates are updated. Because
establishment of reserves is an inherently uncertain process involving
estimates of future losses, there can be no certainty that ultimate losses
will not exceed existing claims 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.
However, based on information currently available, we believe our
reserve estimates are adequate.
Long Duration Contracts
 e Company’s long duration contracts include preneed life insurance
policies and annuity contracts, traditional life insurance policies no
longer o ered, universal life and annuities no longer o ered, policies
disposed of via reinsurance (Fortis Financial Group (“FFG”) and Long
Term Care (“LTC”) contracts), group worksite policies, certain group
short-term disability policies and certain medical policies.
Future policy bene ts and expense reserves for LTC, certain life and
annuity insurance policies no longer o ered, a majority of individual
medical policies issued prior to 2003, certain medical contracts issued
from 2003 through 2006, individual voluntary limited bene t health
policies issued in 2007 and later, the traditional life insurance contracts
within FFG and group worksite contracts are equal to the present
value of future bene ts to policyholders plus related expenses less the
present value of the future net premiums.  ese amounts are estimated
based on assumptions as to the expected investment yield, in ation,
mortality, morbidity andwithdrawal rates as well as other assumptions
that are based on the Company’s experience.  ese assumptions re ect
anticipated trends and include provisions for possible unfavorable
deviations.
Future policy bene ts and expense reserves for preneed investment-
type annuities, preneed life insurance policies with discretionary death
bene t growth issued after 2008, universal life insurance policies and
investment-type annuity contracts (no longer o ered), and the variable
life insurance and investment-type annuity contracts in FFG consist of
policy account balances before applicable surrender charges and certain
deferred policy initiation fees that are being recognized in income over
the terms of the policies. Policy bene ts charged to expense during
the period include amounts paid in excess of policy account balances
and interest credited to policy account balances. An unearned revenue
reserve is also recorded for those preneed life insurance contracts
which represents the balance of the excess of gross premiums over net
premiums that is still recognized in future years’ income in a constant
relationship to estimated gross pro ts.
Future policy bene ts and expense reserves for preneed life insurance
contracts issued prior to 2009 are reported at the present value of
future bene ts to policyholders and related expenses less the present
value of future net premiums. Reserve assumptions are selected using
best estimates for expected investment yield, in ation, mortality and
withdrawal rates.  ese assumptions re ect current trends, are based
on Company experience and include provision for possible unfavorable
deviation. An unearned revenue reserve is also recorded for these
contracts which represents the balance of the excess of gross premiums
over net premiums that is still to be recognized in future years’ income
in a constant relationship to insurance in force.
Reserves for group worksite policies, also include case reserves and
incurred but not reported (“IBNR”) reserves which equal the net present
value of the expected future claims payments. Worksite group disability
reserves are discounted to the valuation date at the valuation interest
rate.  e valuation interest rate is reviewed quarterly by taking into
consideration actual and expected earned rates on our asset portfolio.
Changes in the estimated liabilities are reported as a charge or credit
to policyholder bene ts as the estimates are revised.
Short Duration Contracts
 e Company’s short duration contracts include group term life
contracts, group disability contracts, medical contracts, dental contracts,
property and warranty contracts, credit life and disability contracts
and extended service contracts. For short duration contracts, claims
and bene ts payable reserves are recorded when insured events occur.