Assurant 2012 Annual Report Download - page 45

ASSURANT, INC.2012 Form10-K 37
PARTII
ITEM 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations
value of estimated gross pro ts from investment, mortality, expense
margins and surrender charges over the estimated life of the policy or
contract.  e assumptions used for the estimates are consistent with
those used in computing the policy or contract liabilities.
Acquisition costs relating to group worksite products, which typically
have high front-end costs and are expected to remain in force for an
extended period of time, consist primarily of  rst year commissions
to brokers, costs of issuing new certi cates and compensation to sales
representatives.  ese acquisition costs are front-end loaded, thus they
are deferred and amortized over the estimated terms of the underlying
contracts.
Acquisition costs relating to individual voluntary limited bene t health
policies issued in 2007 and later are deferred and amortized over the
estimated average terms of the underlying contracts.  ese acquisition
costs relate to commission expenses which result from commission
schedules that pay signi cantly higher rates in the  rst year.
Short Duration Contracts
Acquisition costs relating to property contracts, warranty and extended
service contracts and single premium credit insurance contracts are
amortized over the term of the contracts in relation to premiums earned.
Acquisition costs relating to monthly pay credit insurance business
consist mainly of direct response advertising costs and are deferred
and amortized over the estimated average terms and balances of the
underlying contracts.
Acquisition costs relating to group term life, group disability, group
dental and group vision consist primarily of compensation to sales
representatives.  ese acquisition costs are front-end loaded; thus, they
are deferred and amortized over the estimated terms of the underlying
contracts.
Investments
We regularly monitor our investment portfolio to ensure investments
that may be other-than-temporarily impaired are identi ed in a timely
fashion, properly valued, and charged against earnings in the proper
period.  e determination that a security has incurred an other-than-
temporary decline in value requires the judgment of management.
Assessment factors include, but are not limited to, the length of time
and the extent to which the market value has been less than cost, the
 nancial condition and rating of the issuer, whether any collateral is
held, the intent and ability of the Company to retain the investment
for a period of time su cient to allow for recovery for equity securities,
and the intent to sell or whether it is more likely than not that the
Company will be required to sell for  xed maturity securities.
Any equity security whose price decline is deemed other-than-temporary
is written down to its then current market value with the amount of the
impairment reported as a realized loss in that period.  e impairment
of a  xed maturity security that the Company has the intent to sell or
that it is more likely than not that the Company will be required to
sell is deemed other-than-temporary and is written down to its market
value at the balance sheet date, with the amount of the impairment
reported as a realized loss in that period. For all other-than-temporarily
impaired  xed maturity securities that do not meet either of these two
criteria, the Company analyzes its ability to recover the amortized
cost of the security by calculating the net present value of projected
future cash  ows. For these other-than-temporarily impaired  xed
maturity securities, the net amount recognized in earnings is equal
to the di erence between its amortized cost and its net present value.
Inherently, there are risks and uncertainties involved in making these
judgments. Changes in circumstances and critical assumptions such as
a continued weak economy, or unforeseen events which a ect one or
more companies, industry sectors or countries could result in additional
impairments in future periods for other-than-temporary declines in
value. See also Note4 to the Consolidated Financial Statements included
elsewhere in this report and “Item 1A—Risk Factors— e value of
our investments could decline, a ecting our pro tability and  nancial
strength” and “Investments” contained later in this item.
Reinsurance
Reinsurance recoverables include amounts we are owed by reinsurers.
Reinsurance costs are expensed over the terms of the underlying reinsured
policies using assumptions consistent with those used to account for the
policies. Amounts recoverable from reinsurers are estimated in a manner
consistent with claim and claim adjustment expense reserves or future
policy bene ts reserves and are reported in our consolidated balance
sheets. An estimated allowance for doubtful accounts is recorded on
the basis of periodic evaluations of balances due from reinsurers (net
of collateral), reinsurer solvency, management’s experience and current
economic conditions.  e ceding of insurance does not discharge our
primary liability to our insureds.
 e following table sets forth our reinsurance recoverables as of the dates indicated:
December31, 2012 December31, 2011
Reinsurance recoverables $ 6,141,737 $ 5,411,064
We have used reinsurance to exit certain businesses, including blocks of individual life, annuity, and long-term care business.  e reinsurance
recoverables relating to these dispositions amounted to $3,619,747 and $3,622,481 at December31, 2012 and 2011, respectively.