Assurant 2012 Annual Report Download - page 86

ASSURANT, INC.2012 Form10-KF-10
2 Summary of Signi cant Accounting Policies
Goodwill
Goodwill represents the excess of acquisition costs over the net fair
value of identi able assets acquired and liabilities assumed in a business
combination. Goodwill is deemed to have an inde nite life and is not
amortized, but rather is tested at least annually for impairment. We review
our goodwill annually in the fourth quarter for impairment, or more
frequently if indicators of impairment exist. We regularly assess whether
any indicators of impairment exist. Such indicators include, but are not
limited to: signi cant adverse change in legal factors, adverse action or
assessment by a regulator, unanticipated competition, loss of key personnel
or a signi cant decline in our expected future cash  ows due to changes in
company-speci c factors or the broader business climate.  e evaluation
of such factors requires considerable management judgment.
When required, we test goodwill for impairment at the reporting unit
level. Following the guidance on goodwill, we have concluded that
our reporting units for goodwill testing are equivalent to our reported
operating segments, excluding the Corporate and Other segment.
At the time of the annual goodwill test, the Company has the option
to  rst assess qualitative factors to determine whether it is necessary to
perform the current two-step goodwill impairment test.  e Company
is required to perform step one if it determines qualitatively that it is
more likely than not (that is, a likelihood of more than 50percent)
that the fair value of a reporting unit is less than its carrying amount,
including goodwill. Otherwise, no further testing is required.
If the Company does not take the option to perform the qualitative
assessment or the qualitative assessment performed indicates that it is
more likely than not that the reporting unit’s fair value is less than the
carrying value, the Company will then compare the estimated fair value of
the reporting unit with its net book value (“Step 1”). If the estimated fair
value exceeds its net book value, goodwill is deemed not to be impaired,
and no further testing is necessary. If the net book value exceeds its
estimated fair value, we perform a second test to measure the amount
of impairment, if any. To determine the amount of any impairment, we
determine the implied fair value of goodwill in the same manner as if the
reporting unit were being acquired in a business combination (“Step 2”).
Speci cally, we determine the fair value of all of the assets and liabilities
of the reporting unit, including any unrecognized intangible assets, in
a hypothetical calculation that yields the implied fair value of goodwill.
If the implied fair value of goodwill is less than the recorded goodwill,
we record an impairment charge for the di erence.
In the fourth quarter of 2012, we performed Step 1 for both our
Assurant Specialty Property and Assurant Solutions reporting units
and concluded that the estimated fair value of the reporting units
exceeded their respective book values and therefore goodwill was not
impaired. For 2012, the Assurant Employee Bene ts and Assurant
Health reporting units did not have goodwill.
In the fourth quarter of 2011, the Company chose the option to  rst
perform a qualitative assessment for our Assurant Specialty Property
reporting unit. Based on this assessment, the Company determined
that it was more likely than not that the reporting unit’s fair value was
more than its carrying amount, therefore further impairment testing was
not necessary. For our Assurant Solutions reporting unit we performed
Step 1 and concluded that the estimated fair value of the reporting
unit exceeded its respective book value and therefore goodwill was not
impaired. For 2011, the Assurant Employee Bene ts and Assurant
Health reporting units did not have goodwill.
Value of Businesses Acquired
VOBA is an identi able intangible asset representing the value of the
insurance businesses acquired.  e amount is determined using best
estimates for mortality, lapse, maintenance expenses and investment
returns at date of purchase.  e amount determined represents the
purchase price paid to the seller for producing the business. Similar
to the amortization of DAC, the amortization of VOBA is over the
premium payment period for traditional life insurance policies and a
small block of limited payment policies. For the remaining limited
payment policies, preneed life insurance policies, all universal life
policies and annuities, the amortization of VOBA is over the expected
lifetime of the policies.
VOBA is tested annually in the fourth quarter for recoverability. If it
is determined that future policy premiums and investment income or
gross pro ts are not adequate to cover related losses or loss expenses,
then an expense is reported in current earnings. Based on 2012 and
2011 testing, future policy premiums and investment income or gross
pro ts were deemed adequate to cover related losses or loss expenses.
Other Assets
Other assets primarily include prepaid items.
Other Intangible Assets
Other intangible assets that have  nite lives, including but not limited to,
customer contracts, customer relationships and marketing relationships,
are amortized over their estimated useful lives. Other intangible assets
deemed to have inde nite useful lives, primarily certain state licenses,
are not amortized and are subject to at least annual impairment tests.
At the time of the annual impairment test, the Company has the option
to  rst assess qualitative factors to determine whether it is necessary to
perform a quantitative impairment test for inde nite-lived intangible
assets. Impairment exists if the carrying amount of the inde nite-lived
other intangible asset exceeds its fair value. For other intangible assets
with  nite lives, impairment is recognized if the carrying amount is
not recoverable and exceeds the fair value of the other intangible asset.
Generally other intangible assets with  nite lives are only tested for
impairment if there are indicators (“triggers”) of impairment identi ed.
Triggers include, but are not limited to, a signi cant adverse change
in the extent, manner or length of time in which the other intangible
asset is being used or a signi cant adverse change in legal factors or in
the business climate that could a ect the value of the other intangible
asset. In certain cases, the Company does perform an annual impairment
test for other intangible assets with  nite lives even if there are no
triggers present.  e Company recorded an impairment charge of
$26,458 related to  nite-lived intangible assets in 2012.  ere were
no material impairment charges related to  nite-lived other intangible
assets in 2011. For both 2012 and 2011, there were no impairment
charges for inde nite-lived other intangible assets.
Amortization expense and impairment charges are included in
underwriting, general and administrative expenses in the consolidated
statements of operations.