Assurant 2012 Annual Report Download - page 102

ASSURANT, INC.2012 Form10-KF-26
5 Fair Value Disclosures
observable inputs are unavailable to the pricing service, the remaining
unpriced securities are submitted to independent brokers who provide
non-binding broker quotes or are priced by other quali ed sources.
Ifthe Company cannot corroborate the non-binding broker quotes
with Level 2 inputs, these securities are categorized as Level 3 securities.
•Level 3 Securities
 e Company’s investments classi ed as Level 3 as of December31,
2012 and December31, 2011, consisted of  xed maturity securities and
derivatives. All of the Level 3  xed maturity and equity securities are
priced using non-binding broker quotes which cannot be corroborated
with Level 2 inputs. Of our total Level 3  xed maturity and equity
securities, $102,586 and $99,920 were priced by a pricing service
using single broker quotes due to insu cient information to provide
an evaluated price as of December31, 2012 and December31, 2011,
respectively.  e single broker quotes are provided by market makers or
broker-dealers who are recognized as market participants in the markets
in which they are providing the quotes.  e remaining $100,220 and
$82,522 were priced internally using independent and non-binding
broker quotes as of December31, 2012 and December31, 2011,
respectively.  e inputs factoring into the broker quotes include trades
in the actual bond being priced, trades of comparable bonds, quality
of the issuer, optionality, structure and liquidity. Signi cant changes
in interest rates, issuer credit, liquidity, and overall market conditions
would result in a signi cantly lower or higher broker quote.  e prices
received from both the pricing service and internally are reviewed for
reasonableness by management and if necessary, management works
with the pricing service or broker to further understand how they
developed their price. Further details on Level 3 derivative investment
types follow:
Other investments and other liabilities: Swaptions are priced using
a Black-Scholes pricing model incorporating third-party market data,
including swap volatility data.
Other assets: A non-pricing service source prices the CPI Cap derivatives
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  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 signi 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  nancial assets.
 e Company generally obtains one price for each  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 di 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  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  nite-lived intangible assets.
For its 2012 fourth quarter annual goodwill impairment test, the
Company performed a Step 1 analysis for the Assurant Solutions and
Assurant Specialty Property reporting units. Based on these analyses,
it was determined that goodwill was not impaired at either reporting
unit. For its 2011 fourth quarter annual goodwill impairment test,
a qualitative assessment was performed for the Assurant Specialty
Property reporting unit; for the Assurant Solutions Reporting unit, the
Company performed a Step 1 analysis, consistent with prior years. Based
on these analyses, it was determined that goodwill was not impaired
at either reporting unit. For its 2010 fourth quarter annual goodwill
impairment test the carrying amount of the Assurant Employee Bene ts
and Assurant Health reporting units were greater than their estimated
fair values as determined in Step 1 of the impairment test. As such,
the Company was required to measure the fair value of goodwill of
the Assurant Employee Bene ts and Assurant Health reporting units
in Step 2 of the impairment test. Goodwill of the Assurant Employee
Bene 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 were included in earnings for that
period. In addition, the Company performed a Step 1 analysis for the
Assurant Solutions and Assurant Specialty Property reporting units.
Based on these analyses, it was determined that goodwill was not
impaired at either reporting unit. See Note10 for further information.
 e Company utilizes both the income and market valuation approaches
to measure the fair value of its reporting units when required. 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  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  nancial multiples, including but not limited to:
price to tangible book value of equity, price to estimated 2012 earnings