Assurant 2015 Annual Report Download - page 101

ASSURANT, INC. – 2015 Form 10-K F-15
2 Summary of Signicant Accounting Policies
contracts primarily include group term life, group disability,
medical, dental, vision, property and warranty, credit life
and disability, and extended service contracts and individual
medical contracts issued from 2003 through 2006 in most
jurisdictions and in all jurisdictions after 2006�
Reinstatement premiums for reinsurance are netted against
net earned premiums in the consolidated statements
of operations�
Medical Loss Ratio Rebate Unearned Premium
Reserve
The Affordable Care Act was signed into law in March 2010�
One provision of the Affordable Care Act, effective January 1,
2011, established a minimum medical loss ratio (“MLR”) designed
to ensure that a minimum percentage of premiums is paid for
clinical services or health care quality improvement activities.
The Affordable Care Act established an MLR of 80% for individual
and small group businesses and 85% for large group business.
If the actual loss ratios, calculated in a manner prescribed by
the Department of Health and Human Services (“HHS”), are
less than the required MLR, premium rebates are payable to
the policyholders by August 1 of the subsequent year.
The Company has estimated its 2015 impact of this regulation
based on denitions and calculation methodologies outlined
in the HHS regulations and guidance� The estimate was based
on separate projection models for the individual medical
and small group businesses using projections of expected
premiums, claims, and enrollment by state, legal entity, and
market for medical business subject to MLR requirements for
the MLR reporting year� In addition, the projection models
include quality improvement expenses, state assessments
and taxes� The premium rebate is presented as a reduction
of net earned premiums in the consolidated statement
of operations and included in unearned premiums in the
consolidated balance sheets�
Affordable Care Act Risk Mitigation Programs
Beginning in 2014, the Affordable Care Act introduced new and
signicant premium stabilization programs. These programs,
discussed in further detail below, are meant to mitigate
the potential adverse impact to individual health insurers
as a result of Affordable Care Act provisions that became
effective January 1, 2014�
A three-year (2014-2016) reinsurance program provides
reimbursement to insurers for high cost individual business
sold on or off the public marketplaces� The reinsurance entity
established by HHS is funded by a per-member reinsurance
fee assessed on all commercial medical plans, including
self-insured group health plans� Only Affordable Care Act
individual plans are eligible for recoveries if claims exceed
a specied threshold, up to a reinsurance cap. Reinsurance
contributions associated with Affordable Care Act individual
plans are reported as a reduction in net earned premiums in
the consolidated statements of operations, and estimated
reinsurance recoveries are established as reinsurance
recoverables in the consolidated balance sheets with an
offsetting reduction in policyholder benets in the consolidated
statements of operations� Reinsurance fee contributions for
non-Affordable Care Act business are reported in underwriting,
general and administrative expenses in the consolidated
statements of operations�
A permanent risk adjustment program transfers funds from
insurers with lower risk populations to insurers with higher risk
populations based on the relative risk scores of participants
in Affordable Care Act plans in the individual and small group
markets, both on and off the public marketplaces� Based on the
risk of its members compared to the total risk of all members
in the same state and market, considering data obtained from
industry studies, the Company estimates its year-to-date risk
adjustment transfer amount� The Company records a risk
adjustment transfer receivable (payable) in premiums and
accounts receivable (unearned premiums) in the consolidated
balance sheets, with an offsetting adjustment to net earned
premiums in the consolidated statements of operations�
A three year (2014-2016) risk corridor program limits insurer
gains and losses by comparing allowable medical costs to
a target amount as dened by HHS. This program applies
to a subset of Affordable Care Act eligible individual and
small group products certied as Qualied Health Plans.
The public marketplace can only sell Qualied Health Plans.
In addition, carriers who sell Qualied Health Plans on
the public marketplace can also sell them off the public
marketplace� Variances from the target amount exceeding
certain thresholds may result in amounts due to or due from
HHS� During 2015, the Company participated in the Federal
insurance public marketplace for several states so the risk
corridor program is applicable� However, as the funding status
for this program is unclear at this time, a 100% allowance
was established against recorded receivable amounts, thus
there is no impact on the Company’s 2015 consolidated
statement of operations� The Company does not anticipate
any payables into this program for 2015�
Total Other-Than-Temporary
Impairment Losses
For debt securities with credit losses and non-credit losses or
gains, total other-than-temporary impairment (“OTTI”) losses
is the total of the decline in fair value from either the most
recent OTTI determination or a prior period end in which the
fair value declined until the current period end valuation date�
This amount does not include any securities that had fair value
increases. For equity securities and debt securities that the
Company has the intent to sell or if it is more likely than not
that it will be required to sell for equity securities that have
an OTTI or for debt securities if there are only credit losses,
total other-than-temporary impairment losses is the total
amount by which the fair value of the security is less than its
amortized cost basis at the period end valuation date and the
decline in fair value is deemed to be other-than-temporary�
When a decline in value is considered to be other-than-
temporary for equity method investments, the carrying value of
these investments is written down, or impaired, to fair value�