Assurant 2011 Annual Report Download - page 88

ASSURANT, INC.2011 Form10-KF-12
2 Summary of Signi cant Accounting Policies
 eliabilityisbased on the expected ultimate cost of settling the
claims.  e claims and bene ts payable reserves include (1)case
reserves for known but unpaid claims as of the balance sheet date;
(2)IBNR reserves for claims where the insured event has occurred but
has not been reported to the Company as of the balance sheet date;
and (3)loss adjustment expense reserves for the expected handling
costs of settling the claims.
For group disability, the case reserves and the IBNR reserves are
recorded at an amount equal to the net present value of the expected
future claims payments. Group long-term disability and group term
life waiver ofpremiums 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. Group long term disability and group term life
reserve adequacy studies are performed annually, and morbidity and
mortality assumptions are adjusted where appropriate.
 e Company has exposure to asbestos, environmental and other general
liability claims arising from its participation in various reinsurance pools
from 1971 through 1985.  is exposure arose from a short duration
contract that the Company discontinued writing many years ago.  e
Company carries case reserves for these liabilities as recommended by
the various pool managers and IBNR reserves. Any estimation of these
liabilities is subject to greater than normal variation and uncertainty
due to the general lack of su cient detailed data, reporting delays, and
absence of generally accepted actuarial methodology for determining
the exposures.  ere are signi cant unresolved industry legal issues,
including such items as whether coverage exists and what constitutes
an occurrence. In addition, the determination of ultimate damages
and the  nal allocation of losses to  nancially responsible parties are
highly uncertain.
Changes in the estimated liabilities are recorded as a charge or credit to
policyholder bene ts as estimates are revised. Amounts reimbursed by
the National Flood Insurance Program for processing and adjudication
services are reported as a reduction of policyholder bene ts.
Medical Loss Ratio Rebate Unearned Premium Reserve
 e Patient Protection and A ordable Care Act and the Health Care
and Education Reconciliation Act of 2010, and the rules and regulations
thereunder (together, “the A ordable Care Act”) was signed into law
in March 2010. One provision of the A ordable Care Act, e ective
January1, 2011, established a minimum medical loss ratio (“MLR”)
designed to ensure that a minimum percentage of premiums is paid
for clinical services or health care quality improvement activities.  e
A ordable Care Act established an MLR of 80% for individual and
small group business and 85% for large group business. If the actual
loss ratios, calculated in a manner prescribed by the HHS, are less than
the required MLR, premium rebates are payable to the policyholders
by August1 of the subsequent year.
Assurant Health has estimated its 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 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. Further emerging
regulations and interpretations from HHS as well as additional claims
data for 2011 dates of service received through March31, 2012 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.
Deferred Gain on Disposal of Businesses
 e Company recorded a deferred gain on disposal of businesses utilizing
reinsurance. On March1, 2000, the Company sold its LTC business
using a coinsurance contract. On April2, 2001, the Company sold its
FFG business using a modi ed coinsurance contract. Since the form of
sale did not discharge the Company’s primary liability to the insureds,
the gain on these disposals was deferred and reported as a liability.  e
liability is decreased and recognized as revenue over the estimated life of
the contracts’ terms.  e Company reviews and evaluates the estimates
a ecting the deferred gain on disposal of businesses annually or when
signi cant information a ecting the estimates becomes known to the
Company, and adjusts the revenue recognized accordingly. Based on
the Company’s annual review in the fourth quarter of 2011, there
were no adjustments to the estimates a ecting the deferred gain. In
the fourth quarter of 2010, the Company re-established $8,158 of the
FFG deferred gain based on its annual review.
Debt
 e Company reports debt net of unamortized discount or premium.
Interest expense related to debt is expensed as incurred.
 e Company reports mandatorily redeemable preferred stock equal
to its redemption value.
Premiums
Long Duration Contracts
Currently, the Company’s long duration contracts which are actively
being sold are preneed life insurance and certain group worksite insurance
policies.  e preneed life insurance policies include provisions for death
bene t growth that is either pegged to the changes in the Consumer
Price Index or determined periodically at the discretion of management.
For preneed life insurance policies issued prior to 2009, revenues are
recognized when due from policyholders. For preneed life insurance
policies with discretionary death bene t growth issued after 2008
and for preneed investment-type annuity contracts, revenues consist
of charges assessed against policy balances. Revenues are recognized
ratably as earned income over the premium-paying periods of the
policies for the group worksite insurance products and certain group
short-term disability policies.