Assurant 2012 Annual Report Download - page 46

ASSURANT, INC.2012 Form10-K38
PARTII
ITEM 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations
In the ordinary course of business, we are involved in both the assumption and cession of reinsurance with non-a liated companies.  e following
table provides details of the reinsurance recoverables balance for the years ended December31:
2012 2011
Ceded future policyholder bene ts and expense $ 3,338,783 $ 3,399,938
Ceded unearned premium 1,214,028 1,013,778
Ceded claims and bene ts payable 1,540,073 945,900
Ceded paid losses 48,853 51,448
TOTAL $ 6,141,737 $ 5,411,064
We utilize reinsurance for loss protection and capital management, business
dispositions and, in Assurant Solutions and Assurant Specialty Property,
client risk and pro t sharing. See also “Item 1A—Risk Factors—Reinsurance
may not be available or adequate to protect us against losses and we are
subject to the credit risk of reinsurers,” and “Item 7A—Quantitative and
Qualitative Disclosures About Market Risk—Credit Risk.”
Retirement and Other Employee Benefi ts
We sponsor quali ed and non-quali ed pension plans and a retirement
health bene ts plan covering our employees who meet speci ed eligibility
requirements.  e calculation of reported expense and liability associated
with these plans requires an extensive use of assumptions including factors
such as discount rates, expected long-term returns on plan assets, employee
retirement and termination rates and future compensation increases. We
determine these assumptions based upon currently available market and
industry data, and historical performance of the plan and its assets.  e
assumptions we use may di er materially from actual results. See Note20
to our consolidated  nancial statements for more information on our
retirement and other employee bene ts, including a sensitivity analysis
for changes in the assumed health care cost trend rates.
Contingencies
We account for contingencies by evaluating each contingent matter
separately. A loss is accrued if reasonably estimable and probable. We
establish reserves for these contingencies at the best estimate, or, if
no one estimated amount within the range of possible losses is more
probable than any other, we report an estimated reserve at the low end
of the estimated range. Contingencies a ecting the Company include
litigation matters which are inherently di cult to evaluate and are
subject to signi cant changes.
Deferred Taxes
Deferred income taxes are recorded for temporary di erences between
the  nancial reporting and income tax bases of assets and liabilities,
based on enacted tax laws and statutory tax rates applicable to the
periods in which the Company expects the temporary di erences to
reverse. A valuation allowance is established for deferred tax assets if,
based on the weight of all available evidence, it is more likely than
not that some portion of the asset will not be realized.  e valuation
allowance is su cient to reduce the asset to the amount that is more
likely than not to be realized.  e Company has deferred tax assets
resulting from temporary di erences that may reduce taxable income
in future periods.  e detailed components of our deferred tax assets,
liabilities and valuation allowance are included in Note7 to our
consolidated  nancial statements.
As of December31, 2011, the Company had a cumulative valuation
allowance of $10,154 against deferred tax assets of international
subsidiaries. During Twelve Months 2012, the Company recognized a
cumulative income tax expense of $2,937 related to operating losses of
international subsidiaries. As of December31, 2012, the Company has
a cumulative valuation allowance of $13,091 against deferred tax assets,
as it is management’s assessment that it is more likely than not that
this amount of deferred tax assets will not be realized.  e realization
of deferred tax assets related to net operating loss carryforwards of
international subsidiaries depends upon the existence of su cient
taxable income of the same character in the same jurisdiction.
In determining whether the deferred tax asset is realizable, the Company
weighed all available evidence, both positive and negative. We considered
all sources of taxable income available to realize the asset, including
the future reversal of existing temporary di erences, future taxable
income exclusive of reversing temporary di erences, carry forwards
and tax-planning strategies.
 e Company believes it is more likely than not that the remainder of its
deferred tax assets will be realized in the foreseeable future. Accordingly,
other than noted herein for certain international subsidiaries, a valuation
allowance has not been established.
Future reversal of the valuation allowance will be recognized either
when the bene t is realized or when we determine that it is more likely
than not that the bene t will be realized. Depending on the nature of
the taxable income that results in a reversal of the valuation allowance,
and on management’s judgment, the reversal will be recognized either
through other comprehensive income (loss) or through continuing
operations in the consolidated statements of operations. Likewise, if
the Company determines that it is not more likely than not that it
would be able to realize all or part of the deferred tax asset in the future,
an adjustment to the deferred tax asset valuation allowance would be
recorded through a charge to continuing operations in the consolidated
statements of operations in the period such determination is made.
In determining the appropriate valuation allowance, management
makes judgments about recoverability of deferred tax assets, use of
tax loss and tax credit carryforwards, levels of expected future taxable
income and available tax planning strategies.  e assumptions used in
making these judgments are updated periodically by management based
on current business conditions that a ect the Company and overall
economic conditions.  ese management judgments are therefore
subject to change based on factors that include, but are not limited
to, changes in expected capital gain income in the foreseeable future
and the ability of the Company to successfully execute its tax planning
strategies. Please see “Item 1A—Risk Factors—Risks Related to Our
Company—Unanticipated changes in tax provisions or exposure to
additional income tax liabilities could materially and adversely a ect
our results” for more information.