Assurant 2013 Annual Report Download - page 115

ASSURANT, INC. – 2013 Form 10-K F-29
5 Fair Value Disclosures
For the net option, the Company will perform a periodic
analysis to assess if the evaluated price represents a reasonable
estimate of the fair value for the fi nancial liability. This
process will involve quantitative and qualitative analysis
overseen by fi nance and accounting professionals. Examples
of procedures to be performed include, but are not limited
to, initial and on-going review of the pricing methodology and
review of the projection for the underlying asset including
the probability distribution of possible scenarios.
Disclosures for Non-Financial Assets Measured at
Fair Value on a Non-Recurring Basis
The 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. These
assets include commercial mortgage loans, goodwill and
fi nite-lived intangible assets.
For its 2013 and 2011 fourth quarter annual goodwill
impairment tests, 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. Based on these analyses, it was determined
that goodwill was not impaired at either reporting unit. 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. See Note 10 for
further information.
The 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. The resulting cash fl 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. The 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 fi nancial multiples, including but not limited to:
price to tangible book value of equity, price to estimated
2013 earnings and price to estimated 2014 earnings, which
were estimated based on publicly available data related
to comparable guideline companies. In addition, fi nancial
multiples were also estimated from publicly available purchase
price data for acquisitions of companies operating in the
insurance industry. The estimated fair value of the reporting
units was more heavily weighted towards the income approach
because in the current economic environment the earnings
capacity of a business is generally considered the most
important factor in the valuation of a business enterprise.
This fair value determination was categorized as Level 3
(unobservable) in the fair value hierarchy.
During the fourth quarter of 2012, a $26,458 impairment
charge was recorded in connection with the 2007 acquisitions
of two U.K. mortgage insurance brokers due to the persistency
rates of the acquired business declining signifi cantly following
actions by an independent underwriter of the business.
This fair value determination was categorized as Level 3
(unobservable) in the fair value hierarchy.
There was no remaining goodwill or material other intangible
assets measured at fair value on a non-recurring basis on
which an impairment charge was recorded as of December 31,
2013, 2012 and 2011.
Fair Value of Financial Instruments Disclosures
The fi nancial instruments guidance requires disclosure of fair
value information about fi nancial instruments, as defi ned
therein, for which it is practicable to estimate such fair
value. Therefore, it requires fair value disclosure for fi nancial
instruments that are not recognized or are not carried at
fair value in the consolidated balance sheets. However, this
guidance excludes certain fi nancial instruments, including
those related to insurance contracts and those accounted
for under the equity method and joint ventures guidance
(such as real estate joint ventures).
For the fi nancial instruments included within the following
fi nancial assets and fi nancial liabilities, the carrying value in the
consolidated balance sheets equals or approximates fair value.
Please refer to the Fair Value Inputs and Valuation Techniques
for Financial Assets and Liabilities Disclosures section above
for more information on the fi nancial instruments included
within the following fi nancial assets and fi nancial liabilities
and the methods and assumptions used to estimate fair value:
•Cash and cash equivalents
•Fixed maturity securities
•Equity securities
•Short-term investments
•Collateral held/pledged under securities agreements
•Other investments
•Other assets
•Assets held in separate accounts
•Other liabilities
•Liabilities related to separate accounts
In estimating the fair value of the fi nancial instruments that
are not recognized or are not carried at fair value in the
consolidated balance sheets, the Company used the following
methods and assumptions:
Commercial mortgage loans: the fair values of mortgage
loans are estimated using discounted cash fl ow models.
The model inputs include mortgage amortization schedules
and loan provisions, an internally developed credit spread
based on the credit risk associated with the borrower and