http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/RSS.ashx2010 Annual Report & Form 10-K PagesWed, 06 Apr 2011 17:01:18 +0200http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=1http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=12010 ANNUAL REPORT AND FORM 10-K2011-04-06T17:01:18+02:00http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=2http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=2Financial Highlights (U.S. dollars in millions) 2010 Total Revenues Net Earned Premiums Net Investment Income Net Operating Income Shareholders’ Equity (1) 2009 $8,701 7,550 699 465 4,787 2008 $8,601 7,925 774 637 4,380 2007 $8,454 7,408 799 694 4,035 $8,528 7,403 703 560 4,495 (2) (1) Assurant uses net operating income (a non-GAAP financial measure) as an important measure of the company’s operating performance. Net operating income equals net income, excluding net realized gains (losses) on investments and other unusual and/or infrequent items. Please see page 4 at the back of this Assurant 2010 Annual Report for more information and a reconciliation of net operating income to net income. (2) Excluding accumulated other comprehensive income (loss) (AOCI).2011-04-06T17:01:18+02:00http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=3http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=3To Our Shareholders: In 2010, Assurant delivered solid results. We again affirmed the adaptability of our strategy to ongoing economic challenges and regulatory changes in the specialty markets we serve. Robert B. POLLOCK President and Chief Executive Officer, Assurant Assurant’s net earned premiums were $7.4 billion for the year, and our operating return on average equity 1 was 12.1 percent. We increased net operating income 2 20 percent to $560.1 million. Net income for the year decreased to $279.2 million, due to the impairment of goodwill that originated from acquisitions completed many years ago. Our diluted book value per share, excluding AOCI3, was up year-over-year by 6 percent. The Assurant investment portfolio remains solid and we are optimistic about each of our businesses as we enter 2011. Throughout 2010, we continued to exercise discipline in our deployment of capital. We returned more than $600 million to shareholders in repurchases and dividends. Our share repurchases represented 13 percent of the shares outstanding at year-end 2009. We also increased our dividend for the seventh consecutive year. These actions underscore the ability of the Assurant specialty platform to generate free cash flow. We ended the year with $880 million in corporate capital, an increase of nearly 24 percent from the previous year. Our capital deployment strategy provides financial flexibility guided by three principles: safeguarding the balance sheet against risk, finding opportunities to grow through acquisition, and returning value to our shareholders. During 2010, we streamlined operations to improve the customer experience while reducing costs. We also developed new revenue opportunities through a broader set of products and services that we can build on in 2011 and beyond. 2010 RESULTS FROM OPERATIONS Assurant Solutions Assurant Solutions focused on developing new client relationships and distribution channels in 2010. Net operating income for the year was $103.2 million and net earned premiums were $2.48 billion. We were especially pleased with the full-year improvement in our international operating results. Domestic revenues were down due to the impact of reduced levels of consumer spending. Our preneed ASSURANT - 2010 Annual Report 12011-04-06T17:01:18+02:00http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=4http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=4insurance business continued to deliver strong results with double-digit increases in new sales and an improvement in operating results. We added clients with products that support wireless and handheld devices. This reaffirms our belief that growth in the wireless market will continue to outpace the general economy. We continued to diversify our U.S. client base by growing the original equipment manufacturer (OEM) channel. Internationally, growth is strong in Latin America, and more challenging in Europe. Looking ahead, the priorities for Assurant Solutions are to invest in new business opportunities while closely managing expenses. Looking ahead, we will continue to adapt our strategy as we more fully understand how consumers, providers and distributors adjust to the new healthcare landscape. 2011 will be a transition year at Assurant Health and we remain optimistic about our future as we adapt to the changing needs of our customers. Assurant Employee Benefits Improved results for Assurant Employee Benefits in 2010 were driven by favorable claims experience and strong expense management throughout the year. Net operating income for the year was $63.5 million and net earned premiums were $1.10 billion. Revenue growth will continue to challenge the Assurant Employee Benefits team until U.S. employment levels improve and small business payrolls expand. In the meantime, niche offerings such as worksite and voluntary products and our reinsurance capabilities will enhance our long-term competitive position while benefiting small businesses and their employees. Assurant Specialty Property The loan-tracking technology and risk-management expertise of Assurant Specialty Property combine to deliver superior service to our clients and strong results for our shareholders. Net operating income for the year was $424.3 million and net earned premiums were $1.95 billion. Catastrophic activity was minimal again in 2010, improving full-year results. Assurant Specialty Property implemented process improvements to control expenses while adding new clients for lender-placed homeowners’ coverage. We continue to believe that revenue growth will be challenged over time as the overall mortgage loan inventory declines and placement rates return to more historical levels. Our alignment with leading mortgage servicers, along with sales growth of other products such as renters and flood insurance, will temper these trends. PRIORITIES FOR 2011 For 2011, our priorities are clear: focus on growth by creating new revenue streams, find additional operating efficiencies, develop enhanced capabilities valued by our customers, leverage our risk-management expertise in all we do, and continue to effectively manage our capital to create value for our shareholders. I am confident we will be successful because of our employees. They are a very committed group, united by our shared values of common sense, common decency, uncommon thinking and uncommon results. Their expertise and excellence combine to generate superior service for our customers and long-term value for our shareholders. Assurant Health In 2010, Assurant Health delivered solid results while transforming to operate in an environment of new regulations and changing market dynamics. Net operating income for the year was $54.0 million and net earned premiums were $1.86 billion. Plan design changes, substantial cost reductions and pricing actions improved Assurant Health’s year-over-year financial performance. Sincerely, ROBERT B. POLLOCK President and Chief Executive Officer 2 ASSURANT - 2010 Annual Report2011-04-06T17:01:18+02:00http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=5http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=5FORM 10-K ASSURANT - 2010 ASSURANT - 2010 Annual Annual Report Report 3 32011-04-06T17:01:18+02:00http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=6http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=6Table of Contents PART I ITEM 1 ITEM 1A ITEM 1B ITEM 2 ITEM 3 3 Business . 3 Risk Factors . 13 Unresolved Staff Comments. 23 Properties . 23 Legal Proceedings . 23 PART II ITEM 5 ITEM 6 ITEM 7 ITEM 7A ITEM 8 ITEM 9 ITEM 9A ITEM 9B 24 Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities . 24 Selected Financial Data . 26 Management’s Discussion and Analysis of Financial Condition and Results of Operations. 27 Quantitative and Qualitative Disclosures About Market Risk . 54 Financial Statements and Supplementary Data . 57 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure . 58 Controls and Procedures. 58 Other Information . 58 PART III ITEM 10 ITEM 11 ITEM 12 ITEM 13 ITEM 14 59 Directors, Executive Officers and Corporate Governance. 59 Executive Compensation. 59 Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. 59 Certain Relationships and Related Transactions, and Director Independence. 60 Principal Accounting Fees and Services . 60 PART IV 61 ITEM 15 Exhibits and Financial Statement Schedules. 61 SIGNATURES . 642011-04-06T17:01:18+02:00http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=7http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=7UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10K Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the fiscal year ended December 31, 2010 Commission file number 001-31978 ASSURANT, INC. (Exact name of Registrant as specified in its charter) DELAWARE 391126612 (State or Other Jurisdiction of Incorporation or Organization) (I.R.S. Employer Identification No.) One Chase Manhattan Plaza, 41st Floor, New York, New York 10005 (Address of Principal Executive Offices) (Zip Code) (212) 859-7000 (Registrant’s telephone number, including area code) SECURITIES REGISTERED PURSUANT TO SECTION 12B OF THE ACT: Title of Each Class Common Stock, $0.01 Par Value Name of Each Exchange on Which Registered New York Stock Exchange SECURITIES REGISTERED PURSUANT TO SECTION 12G OF THE ACT: NONE. Indicate by check mark • if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. YES NO • if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. • Note —Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Exchange Act from their obligations under those Sections. • whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. • whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). • if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. • whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or smaller reporting company. See the definitions of “large accelerated filer», “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one): Large accelerated filer Accelerated filer Non-accelerated filer Smaller reporting company • whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). The aggregate market value of the Common Stock held by non-affiliates of the registrant was $3,718 million at June 30, 2010 based on the closing sale price of $34.70 per share for the common stock on such date as traded on the New York Stock Exchange. The number of shares of the registrant’s Common Stock outstanding at February 15, 2011 was 99,936,080. DOCUMENTS INCORPORATED BY REFERENCE Certain information contained in the definitive proxy statement for the annual meeting of stockholders to be held on May 12, 2011 (2011 Proxy Statement) is incorporated by reference into Part III hereof.2011-04-06T17:01:18+02:00http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=8http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=8Amounts are presented in United States of America (“U.S.”) dollars and all amounts are in thousands, except number of shares, per share amounts, registered holders, number of employees, beneficial owners, number of securities in an unrealized loss position and number of loans. Forward-Looking Statements Some of the statements under “Business,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this report, particularly those anticipating future financial performance, business prospects, growth and operating strategies and similar matters, are forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. You can identify these statements by the fact that they may use words such as “will,” “may,” “anticipates,” “expects,” “estimates,” “projects,” “intends,” “plans,” “believes,” “targets,” “forecasts,” “potential,” “approximately,” or the negative version of those words and other words and terms with a similar meaning. Any forward-looking statements contained in this report are based upon our historical performance and on current plans, estimates and expectations. The inclusion of this forwardlooking information should not be regarded as a representation by us or any other person that the future plans, estimates or expectations contemplated by us will be achieved. Our actual results might differ materially from those projected in the forward-looking statements. The Company undertakes no obligation to update or review any forward-looking statement, whether as a result of new information, future events or other developments. In addition to the factors described under “Critical Factors Affecting Results,” the following risk factors could cause our actual results to differ materially from those currently estimated by management: (i) the effects of the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010, and the rules and regulations thereunder (together, “the Affordable Care Act”) on our health and employee benefits businesses; (ii) deterioration in the Company’s market capitalization compared to its book value that could result in further impairment of the Company’s goodwill; (iii) loss of significant client relationships, distribution sources and contracts; (iv) failure to attract and retain sales representatives; (v) losses due to natural and man-made catastrophes; (vi) a decline in our credit or financial strength ratings (including the risk of ratings downgrades in the insurance industry); (vii) actions by governmental agencies that could result in the reduction of the premium rates we charge; (viii) unfavorable outcomes in litigation and/or regulatory investigations that could negatively affect our business and reputation; (ix) current or new laws and regulations that could increase our costs and/or decrease our revenues; (x) general global economic, financial market and political conditions (including difficult conditions in financial, capital and credit markets, the global economic slowdown, fluctuations in interest rates, mortgage rates, monetary policies, unemployment and inflationary pressure); (xi) inadequacy of reserves established for future claims losses; (xii) failure to predict or manage benefits, claims and other costs; (xiii) increases or decreases in tax valuation allowances; (xiv) fluctuations in exchange rates and other risks related to our international operations; (xv) unavailability, inadequacy and unaffordable pricing of reinsurance coverage; (xvi) diminished value of invested assets in our investment portfolio (due to, among other things, volatility in financial markets, the global economic slowdown, credit and liquidity risk, other than temporary impairments and inability to target an appropriate overall risk level); (xvii) insolvency of third parties to whom we have sold or may sell businesses through reinsurance or modified co-insurance; (xviii) inability of reinsurers to meet 2011-04-06T17:01:18+02:00http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=9http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=9PART I ITEM 1 Business PART I ITEM 1 Business Assurant, Inc. (“Assurant” or the “Company”) is a Delaware corporation formed in connection with the initial public offering (“IPO”) of its common stock, which began trading on the New York Stock Exchange on February 5, 2004. Prior to the IPO, Fortis, Inc., a Nevada corporation, formed Assurant and merged into it on February 4, 2004. Assurant is a provider of specialized insurance products and related services in North America and select worldwide markets. Our four operating segments—Assurant Solutions, Assurant Specialty Property, Assurant Health, and Assurant Employee Benefits—partner with clients who are leaders in their industries and build leadership positions in a number of specialty insurance market segments in the United States of America (“U.S.”) and select worldwide markets. These segments provide debt protection administration, credit-related insurance, warranties and service contracts, pre-funded funeral insurance, lender–placed homeowners insurance, manufactured housing homeowners insurance, individual health and small employer group health insurance, group dental insurance, group disability insurance, and group life insurance. Assurant’s mission is to be the premier provider of specialized insurance products and related services in North America and select international markets. To achieve this mission, we focus on the following areas: Leveraging a set of core capabilities for competitive advantage We pursue a strategy of building leading positions in specialized market segments for insurance products and related services in North America as well as select international markets. In these markets, we seek to apply our core capabilities to create a competitive advantage— managing risk; managing relationships with large distribution partners; and integrating complex administrative systems. These core capabilities represent areas of expertise that are advantages within each of our businesses. We seek to generate attractive returns by building on specialized market knowledge, well-established distribution relationships and, in some businesses, economies of scale. Managing targeted growth initiatives Our approach to mergers, acquisitions and other growth opportunities reflects our prudent and disciplined approach to managing our businesses. Our mergers and acquisitions process targets new business that supports our existing business model. We establish performance goals in our short-term incentive compensation plan for senior management based on growth in targeted areas. Building and maintaining a portfolio of specialty insurance businesses Our four operating segments are focused on serving specific sectors of the insurance market. We believe that the diversity of our businesses allows us to maintain a greater level of financial stability because our businesses will generally not be affected in the same way by the same economic and operating trends. Identifying and adapting to evolving market needs Assurant’s businesses strive to adapt to changing market conditions by tailoring product and service offerings to specific client and customer needs. By understanding the dynamics of our core markets, we seek to design innovative products and services that will enable us to sustain long-term profitable growth and market leading positions. Competition Assurant’s businesses focus on niche products and related services within broader insurance markets. Although we face competition in each of our businesses, we believe that no single competitor competes against us in all of our business lines. The business lines in which we operate are generally characterized by a limited number of competitors. Competition in each business is based on a number of factors, including quality of service, product features, price, scope of distribution, financial strength ratings and name recognition. The relative importance of these factors varies by product and market. We compete for customers and distributors wi2011-04-06T17:01:18+02:00http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=10http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=10PART I ITEM 1 Business Segments For additional information on our segments, see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Results of Operations” and Note 23 to the Consolidated Financial Statements included elsewhere in this report. Assurant Solutions For the Years Ended December 31, 2010 December 31, 2009 Gross written premiums for selected product groupings (1): Domestic extended service contracts and warranties (2) International extended service contracts and warranties (2) Preneed life insurance (face sales) Domestic credit insurance International credit insurance Net earned premiums and other considerations Segment net income Equity (3) $ 1,193,423 523,382 734,884 422,825 968,878 2,484,299 103,206 1,448,684 $ 1,012,670 462,964 512,366 526,532 843,225 2,671,041 120,052 1,653,817 $ $ $ $ $ $ (1) Gross written premiums does not necessarily translate to an equal amount of subsequent net earned premium since Assurant Solutions reinsure a portion of their premiums to third parties and to insurance subsidiaries of its clients. (2) Extended service contracts include warranty contracts for products such as cellular phones, personal computers, consumer electronics and appliances. (3) Equity excludes accumulated other comprehensive income. Products and Services Assurant Solutions targets growth in three key product areas: domestic and international extended service contracts (“ESC”) and warranties; preneed life insurance; and international credit insurance. Credit Insurance Our credit insurance products offer protection from life events and uncertainties that arise in purchasing and borrowing transactions. Credit insurance programs generally offer consumers the option to protect a credit card balance or installment loan in the event of death, involuntary unemployment or disability, and are generally available to all consumers without the underwriting restrictions that apply to term life insurance. Regulatory changes have reduced the demand for credit insurance in the United States. Consequently, we have seen a reduction in domestic gross written premiums generated in the credit insurance market, a trend, we expect to continue. ESC and Warranties Through partnerships with leading retailers and original equipment manufacturers, we underwrite and provide administrative services for extended service contracts and warranties. These contracts provide consumers with coverage on appliances, consumer electronics, personal computers, cellular phones, automobiles and recreational vehicles, protecting them from certain covered losses. We pay the cost of repairing or replacing customers’ property in the event of damages due to mechanical breakdown, accidental damage, and casualty losses such as theft, fire, and water damage. Our strategy is to provide service to our clients that addresses all aspects of the warranty or extended service contract, including program design and marketing strategy. We provide administration, claims handling and customer service. We believe that we maintain a differentiated position in this marketplace as a provider of both the required administrative infrastructure and insurance underwriting capabilities. Marketing and Distribution Assurant Solutions focuses on establishing strong, long-term relationships with leading distributors of its products and services. We partner with some of the largest consumer electronics and appliance retailers and original equipment manufacturers to market our extended service contract and warranty products. Several of our distribution agreements are exclusive. Typically these agreements have terms of one to five years and allow us to integrate our administrative systems with those of our clients. In addition to the domestic market, we operate in Canada, the United Kingdom (“U.K.”), Argentina, Brazil, Puerto Rico, Chile, Germany, Spain, Italy, Mexico and China. In these markets, we primarily sell ESC and credit insurance products through 2011-04-06T17:01:18+02:00http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=11http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=11PART I ITEM 1 Business In January 2009, we entered into an agreement to market, administer and underwrite ESC products to Whirlpool Corporation (“Whirlpool”) appliance customers in the U.S. and Canada. Whirlpool is a leading manufacturer and marketer of major home appliances. On September 26, 2008, the Company acquired the Warranty Management Group business from GE Consumer & Industrial, a unit of General Electric Co. (“GE”). The Company paid GE $140,000 in cash for the sale, transfer and conveyance of certain assets and assumed certain liabilities. As part of the acquisition, the Company entered into a new 10-year agreement to market extended warranties and service contracts on GE-branded major appliances in the U.S. and included warranty distribution agreements with two existing retail customers. In connection with the acquisition of this business, the Company recorded $126,840 of amortizable intangible assets and $13,160 of goodwill. We recorded a charge of $30,948 (after-tax) in the fourth quarter of 2010 for the impairment of a portion of the intangible asset. The impairment charge resulted from the receipt, on November 30, 2010, from one of the retail customers of notification of non-renewal of a block of the acquired business effective June 1, 2011. We do not expect the lapse of the contract to have a material impact on Assurant Solutions’ profitability in 2011. On October 1, 2008, the Company completed the acquisition of Signal Holdings LLC (“Signal”), a leading provider of wireless handset protection programs and repair services. The Company paid $257,400 in cash for the acquisition, transfer and conveyance of certain assets and assumed certain liabilities. Signal services extended service contracts for 4.2 million wireless subscribers. Underwriting and Risk Management We write a significant portion of our contracts on a retrospective commission basis. This allows us to adjust commissions based on claims experience. Under these commission arrangements, the compensation of our clients is based upon the actual losses incurred compared to premiums earned after a specified net allowance to us. We believe that these arrangements better align our clients’ interests with ours and help us to better manage risk exposure. Profits from our preneed life insurance programs are generally earned from interest rate spreads—the difference between the death benefit growth rates on underlying policies and the investment returns generated on the assets we hold related to those policies. To manage these spreads, we regularly adjust pricing to reflect changes in new money yields. Assurant Specialty Property December 31, 2010 Net earned premiums and other considerations by major product grouping: Homeowners (lender-placed and voluntary) Manufactured housing (lender-placed and voluntary) Other (1) TOTAL Segment net income Loss ratio (2) Expense ratio (3) Combined ratio (4) Equity (5) $ 1,342,791 220,309 390,123 1,953,223 424,287 35.1 % 39.5 % 73.3 % 1,134,432 For the Years Ended December 31, 2009 $ 1,369,031 219,960 358,538 1,947,529 405,997 34.1 % 41.5 % 74.7 % 1,184,798 $ $ $ $ $ $ (1) This primarily includes lender-placed flood, miscellaneous specialty property and renters insurance products. (2) The loss ratio is equal to policyholder benefits divided by net earned premiums and other considerations. (3) The expense ratio is equal to selling, underwriting and general expenses divided by net earned premiums and other considerations and fees and other income. (Fees and other income are not included in the above table) (4) The combined ratio is equal to total benefits, losses and expenses divided by net earned premiums and other considerations and fees and other income. (Fees and other income are not included in the above table) (5) Equity excludes accumulated other comprehensive income. Products and Services Assurant Specialty Property’s business strategy is to pursue long-term growth in lender-placed homeowners insurance and expand its strategy int2011-04-06T17:01:18+02:00http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=12http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=12PART I ITEM 1 Business insurance coverage, we initiate an extensive communication process with the mortgagee. If the mortgagee does not take action we will issue an insurance certificate on the property on behalf of the creditor. Marketing and Distribution Assurant Specialty Property establishes long-term relationships with leading mortgage lenders and servicers. The majority of our lenderplaced agreements are exclusive. Typically these agreements have terms of three to five years and allow us to integrate our systems with those of our clients. We offer our manufactured housing insurance programs primarily through manufactured housing lenders and retailers, along with independent specialty agents. The independent specialty agents distribute flood products and miscellaneous specialty property products. Renters insurance is distributed primarily through property management companies and affinity marketing partners. Lender-placed and voluntary manufactured housing insurance The next largest product line within Assurant Specialty Property is manufactured housing insurance, offered on a lender-placed and voluntary basis. Lender-placed insurance is issued after an insurance tracking process similar to that described above. The tracking is performed by Assurant Specialty Property using a proprietary insurance tracking administration system, or by the lenders themselves. A number of manufactured housing retailers in the U.S. use our proprietary premium rating technology to assist them in selling property coverages at the point of sale. Underwriting and Risk Management Our lender-placed homeowners insurance program and certain of our manufactured home products are not underwritten on an individual policy basis. Contracts with our clients require us to automatically issue these policies when a borrower’s insurance coverage is not maintained. These products are priced to factor in the lack of individual policy underwriting. We monitor pricing adequacy based on a variety of factors and adjust pricing as required, subject to regulatory constraints. Because several of our product lines (such as homeowners, manufactured home, and other property policies) are exposed to catastrophic risks, we purchase reinsurance coverage to protect the capital of Assurant Specialty Property and to mitigate earnings volatility. Our reinsurance program generally incorporates a provision to allow the reinstatement of coverage, which provides protection against the risk of multiple catastrophes in a single year. Other insurance We believe there are opportunities to apply our lender-placed business model to other products and services. We have developed products in adjacent and emerging markets, such as the lender-placed flood, lender-placed automobile and mandatory insurance rental markets. We also act as an administrator for the U.S. Government under the voluntary National Flood Insurance Program, for which we earn a fee for collecting premiums and processing claims. The business is 100% reinsured to the Federal Government. Assurant Health December 31, 2010 Net earned premiums and other considerations: Individual markets: Individual medical Short-term medical Subtotal Small employer group medical TOTAL Segment net income (loss) Loss ratio (1) Expense ratio (2) Combined ratio (3) Equity (4) For the Years Ended December 31, 2009 $ $ $ $ 1,289,181 85,824 1,375,005 489,117 1,864,122 54,029 69.9 % 29.7 % 98.1 % 402,166 $ $ $ $ 1,270,198 104,238 1,374,436 505,192 1,879,628 (30,220 ) 75.0 % 31.5 % 105.0 % 309,206 (1) The loss ratio is equal to policyholder benefits divided by net earned premiums and other considerations. (2) The expense ratio is equal to selling, underwriting and general expenses divided by net earned premiums and other considerations and fees and other income. (Fees and other income are not included in the above table) (3) The combined ratio is equal to total benefits, losses and expenses divided by net earned premiums and other considerations and fees and o2011-04-06T17:01:18+02:00http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=13http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=13PART I ITEM 1 Business Product and Services Assurant Health competes in the individual medical insurance market by offering medical insurance and short-term medical insurance to individuals and families. Our products are offered with different plan options to meet a broad range of customer needs and levels of affordability. Assurant Health also offers medical insurance to small employer groups. In March 2010, President Obama signed into law the Patient Protection and Affordable Care Act and its companion bill the Health Care and Education Reconciliation Act (together, the “Affordable Care Act”), which represent significant changes to the current U.S. health care system. The legislation is far-reaching and is intended to expand access to health insurance coverage over time. The legislation includes a requirement that most individuals obtain health insurance coverage beginning in 2014 and that most large employers offer coverage to their employees or they will be required to pay a financial penalty. In addition, the new laws encompass certain new taxes and fees, including limitations on the amount of compensation that is tax deductible and new fees which may not be deductible for income tax purposes. The legislation will also impose new requirements and restrictions, including, but not limited to, guaranteed coverage requirements, prohibitions on some annual and all lifetime limits on amounts paid on behalf of or to our members, increased restrictions on rescinding coverage, establishment of minimum medical loss ratio requirements, the establishment of state insurance exchanges and essential benefit packages, and greater limitations on product pricing. Although the National Association of Insurance Commissioners (the “NAIC”) has issued model regulations and the Department of Health and Human Services (“HHS”) has issued interim final regulations to implement the minimum medical loss ratio (“MLR”) and rebate provisions of the Affordable Care Act, certain issues remain to be fully resolved, including issues arising from possible further requests by state insurance commissioners for relief from the MLR and the response from the Secretary of HHS to such requests. During Second Quarter 2010, we completed an extensive review of our Assurant Health business and considered a number of possible future strategies. Three critical themes emerged from our review: we believe significant opportunities will exist to sell individual medical insurance products, although the dynamics and characteristics of the post-reform market will be different; specialty expertise will still be required; and we believe that we can earn adequate profits in this business over the longterm, without making large commitments of capital. In order to do so, we will have to reduce operating and distribution costs and modify our product lines. Such changes are underway. We may refine our strategy as new regulations are issued or additional regulatory agency actions are taken in the wake of the Affordable Care Act. The full impact of the Affordable Care Act will not be known for many years, as it becomes effective at various dates over the next several years. We believe that the Affordable Care Act will lead to sweeping and fundamental changes to the U.S. health care system that are expected to significantly affect the health insurance industry. Individual Medical Our medical insurance products are sold to individuals, primarily between the ages of 18 and 64, and their families, who do not have employer-sponsored coverage. We offer a wide variety of benefit plans at different price points, which allow customers to tailor their coverage to fit their unique needs. Small Employer Group Medical Our group medical insurance is primarily sold to small companies with two to fifty employees, although larger employer coverage is available. As of December 31, 2010, our average group size was approximately five employees. Marketing and Distribution Our health insurance products are principally marketed through a2011-04-06T17:01:18+02:00http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=14http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=14PART I ITEM 1 Business Assurant Employee Benefits December 31, 2010 Net Earned Premiums and Other Considerations: Group dental Group disability Group life TOTAL Segment net income Loss ratio (1) Expense ratio (2) Equity (3) $ 420,690 488,813 191,892 1,101,395 63,538 69.6 % 35.1 % 582,574 For the Years Ended December 31, 2009 $ 425,288 434,381 192,468 1,052,137 42,156 72.0 % 36.4 % 537,041 $ $ $ $ $ $ (1) The loss ratio is equal to policyholder benefits divided by net earned premiums and other considerations. (2) The expense ratio is equal to selling, underwriting and general expenses divided by net earned premiums and other considerations and fees and other income. (Fees and other income are not included in the above table) (3) Equity excludes accumulated other comprehensive income. Products and Services We focus on the needs of businesses with fewer than 500 employees. We believe that our small group risk selection expertise, administrative systems, and strong relationships with brokers who work primarily with small businesses give us a competitive advantage versus other carriers. We offer group disability, dental, vision, life and supplemental worksite products as well as individual dental products. The group products are offered with funding options ranging from fully employer-paid to fully employee-paid (voluntary). In addition, we reinsure disability and life products through our wholly owned subsidiary, Disability Reinsurance Management Services, Inc. (“DRMS”). Group Vision Fully-insured vision coverage is offered through our agreement with Vision Service Plan, Inc. (“VSP”), a leading national supplier of vision insurance. Our plans cover eye exams, glasses, and contact lenses and are usually sold in combination with one or more of our other products. Group Life Group term life insurance provided through the workplace provides benefits in the event of death. We also provide accidental death and dismemberment (“AD&D”) insurance. Insurance consists primarily of renewable term life insurance with the amount of coverage provided being either a flat amount, a multiple of the employee’s earnings, or a combination of the two. We also reinsure life policies written by other carriers through DRMS. Group Disability Group disability insurance provides partial replacement of lost earnings for insured employees who become disabled, as defined by their plan provisions. Our products include both short- and long-term disability coverage options. We also reinsure disability policies written by other carriers through our DRMS subsidiary. Supplemental Worksite Products In addition to the traditional voluntary products, we provide group critical illness, cancer, accident, and gap insurance. These products are generally paid for by the employee through payroll deduction, and the employee is enrolled in the coverage(s) at the worksite. Group Dental Dental benefit plans provide funding for necessary or elective dental care. Customers may select a traditional indemnity arrangement, a PPO arrangement, or a prepaid or managed care arrangement. Coverage is subject to deductibles, coinsurance and annual or lifetime maximums. In a prepaid plan, members must use participating dentists in order to receive benefits. Success in the group dental business is heavily dependent on a strong provider network. Assurant Employee Benefits owns and operates Dental Health Alliance, L.L.C., a leading dental PPO network. We also have an agreement with Aetna, extending through 2012, that allows us to use Aetna’s Dental Access network, which we believe increases the attractiveness of our products in the marketplace. Marketing and Distribution Our products and services are distributed through a group sales force located in 34 offices near major metropolitan areas. Our sales representatives distribute our products and services through independent brokers and employee-benefits advisors. Daily account management is provided through the local sales offices, further supported by regional 2011-04-06T17:01:18+02:00http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=15http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=15PART I ITEM 1 Business Underwriting and Risk Management The pricing of our products is based on the expected cost of benefits, calculated using assumptions for mortality, morbidity, interest, expenses and persistency, and other underwriting factors. Our block of business is diversified by industry and geographic location, which serves to limit some of the risks associated with changing economic conditions. Disability claims management focuses on helping claimants return to work through a supportive network of services that may include physical therapy, vocational rehabilitation, and workplace accommodation. We employ or contract with a staff of doctors, nurses and vocational rehabilitation specialists, and use a broad range of additional outside medical and vocational experts to assist our claim specialists. Ratings Independent rating organizations periodically review the financial strength of insurers, including our insurance subsidiaries. Financial strength ratings represent the opinions of rating agencies regarding the ability of an insurance company to meet its financial obligations to policyholders and contractholders. These ratings are not applicable to our common stock or debt securities. Ratings are an important factor in establishing the competitive position of insurance companies. Rating agencies also use an “outlook statement” of “positive”, “stable”, “negative” or “developing” to indicate a medium- or long-term trend in credit fundamentals which, if continued, may lead to a rating change. A rating may have a stable outlook to indicate that the rating is not expected to change; however, a stable rating does not preclude a rating agency from changing a rating at any time, without notice. Most of our active domestic operating insurance subsidiaries are rated by the A.M. Best Company (“A.M. Best”). In addition, six of our domestic operating insurance subsidiaries are also rated by Moody’s Investor Services (“Moody’s”) and seven are rated by Standard & Poor’s Inc., a division of McGraw Hill Companies, Inc. (“S&P”). For further information on the risks of ratings downgrades, see “Item 1A—Risk Factors—A.M. Best, Moody’s and S&P rate the financial strength of our insurance company subsidiaries.” The following table summarizes our outlook statement and financial strength ratings as of December 31, 2010: Outlook A.M. Best (1) Stable A AAA A AAA AA A AAAAAAANR-3 AANR-3 ANR-3 A Moody’s (2) Stable A2 A3 N/A N/A A2 N/A N/A N/A A3 N/A N/A A3 N/A N/A A3 N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A Standard & Poor’s (3) (4) COMPANY American Bankers Insurance Company American Bankers Life Assurance Company American Memorial Life Insurance Company American Reliable Insurance Company American Security Insurance Company Assurant Life of Canada Caribbean American Life Assurance Company Caribbean American Property Insurance Company John Alden Life Insurance Company Reliable Lloyds Standard Guaranty Insurance Company Time Insurance Company UDC Dental California Union Security Dental Care New Jersey Union Security Insurance Company Union Security Life Insurance Company of New York United Dental Care of Arizona United Dental Care of Colorado United Dental Care of Michigan United Dental Care of Missouri United Dental Care of New Mexico United Dental Care of Ohio United Dental Care of Texas United Dental Care of Utah Voyager Indemnity Insurance Company AAAN/A AN/A N/A N/A BBB+ N/A N/A BBB+ N/A N/A AN/A N/A N/A N/A N/A N/A N/A N/A N/A N/A (1) A.M. Best financial strength ratings range from “A++” (superior) to “S” (suspended). Ratings of A and A- fall under the “excellent” category, which is the second highest of ten ratings categories. A rating of NR-3 indicates that the company is not rated because the rating procedure is inapplicable. (2) Moody’s insurance financial strength ratings range from “Aaa” (exceptional) to “C” (extremely poor). A numeric modifier may be appended to ratings from “Aa” to “Caa” to indicate relative position within a category, wit2011-04-06T17:01:18+02:00http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=16http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=16PART I ITEM 1 Business Enterprise Risk Management As an insurer, we are exposed to a wide variety of financial, operational and other risks, as described in Item 1A, “Risk Factors.” Enterprise risk management (“ERM”) is, therefore, a key component of our business strategies, policies, and procedures. Our ERM process is an iterative approach with the following key phases: 1. 2. 3. 4. 5. Risk identification; High-level estimation of risk likelihood and severity; Risk prioritization at the business and enterprise levels; Scenario analysis and quantitative impact modeling for key enterprise risks; Utilization of quantitative results and subject matter expert opinion to help guide business strategy and decision making. activities. The ERMC develops risk assessment and risk management policies and procedures. It facilitates the identification, reporting and prioritizing of risks faced by the company, and is responsible for promoting a risk-aware culture throughout the organization. The ERMC also coordinates with each of the Company’s four Business Unit Risk Committees (“BURCs”), which meet regularly and are responsible for the identification of significant risks affecting their respective business unit. Those risks which meet our internally-defined escalation criteria, including emerging risks, are then reported to the ERMC. Our Board of Directors and senior management are responsible for overseeing significant enterprise risks. The ERMC reports regularly to the Chief Executive Officer and presents its work periodically to both the Board of Directors and the Audit Committee. Through the use of regular committee meetings, business unit and enterprise risk inventory templates, risk dashboards, hypothetical scenario analysis, and quantitative modeling, the Company strives to identify, track, quantify, communicate and manage our key risks within prescribed tolerances. Our ERM process continues to evolve, and, when appropriate, we incorporate methodology changes, policy modifications and emerging best practices on an ongoing basis. Through our ERM process and our enterprise risk quantification model we monitor a variety of risk metrics on an ongoing basis, with a particular focus on impact to net income (both GAAP and Statutory), company value and the potential need for capital infusions to subsidiaries under severe stress scenarios. The Company’s ERM activities are coordinated by an Enterprise Risk Management Committee (“ERMC”), which includes managers from across the Company with knowledge of the Company’s business Regulation The Company is subject to extensive federal, state and international regulation and supervision in the jurisdictions where it does business. Regulations vary from jurisdiction to jurisdiction. The following is a summary of significant regulations that apply to our businesses and is not intended to be a comprehensive review of every regulation to which the Company is subject. For information on the risks associated with regulations applicable to the Company, please see Item 1A, “Risk Factors.” To that end, the laws of the various states and other jurisdictions establish insurance departments with broad powers with respect to such things as: • licensing and authorizing companies and intermediaries (including agents and brokers) to transact business; • regulating capital, surplus and dividend requirements; • regulating underwriting limitations; • regulating companies’ ability to enter and exit markets or to provide, terminate or cancel certain coverages; • imposing statutory accounting and annual statement disclosure requirements; • approving policy forms and mandating certain insurance benefits; • regulating premium rates, including the ability to disapprove or reduce the premium rates companies may charge; • regulating claims practices; • regulating certain transactions between affiliates; • regulating the content of disclosures to consumers; • regulating the type, amounts and valuation of investments; • mandating assessments or o2011-04-06T17:01:18+02:00http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=17http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=17PART I ITEM 1 Business Dividend Payment Limitations The Company’s assets consist primarily of the capital stock of our subsidiaries. Accordingly, our future cash flows depend upon the availability of dividends and other statutorily permissible payments from our subsidiaries. The ability to pay such dividends and to make such other payments is regulated by the states in which our subsidiaries are domiciled. These dividend regulations vary from state to state and by type of insurance provided by the applicable subsidiary, but generally require our insurance subsidiaries to maintain minimum solvency requirements and limit the amount of dividends these subsidiaries can pay to the holding company. For more information, please see Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Regulatory Requirements.” Market Conduct Regulation Activities of insurers are highly regulated by state insurance laws and regulations, which govern the form and content of disclosure to consumers, advertising, sales practices and complaint handling. State regulatory authorities enforce compliance through periodic market conduct examinations. Guaranty Associations and Indemnity Funds Most states require insurance companies to support guaranty associations or indemnity funds, which are established to pay claims on behalf of insolvent insurance companies. These associations may levy assessments on member insurers. In some states member insurers can recover a portion of these assessments through premium tax offsets and/or policyholder surcharges. Risk Based Capital Requirements In order to enhance the regulation of insurer solvency, the NAIC has established certain risk-based capital standards applicable to life, health and property and casualty insurers. Risk-based capital, which regulators use to assess the sufficiency of an insurer’s statutory capital, is calculated by applying factors to various asset, premium, claim, expense and reserve items. Factors are higher for items which in the NAIC’s view have greater underlying risk. The NAIC periodically reviews the risk-based capital formula and changes to the formula could occur in the future. Insurance Regulatory Initiatives The NAIC and state insurance regulators have considered and are considering various proposals that may alter or increase state authority to regulate insurance companies and insurance holding companies. Please see Item 1A, “Risk Factors—Risks Related to Our Industry—Changes in regulation may reduce our profitability and limit our growth” for a discussion of the risks related to such initiatives. Investment Regulation Insurance company investments must comply with applicable laws and regulations that prescribe the kind, quality and concentration of investments. These regulations require diversification of insurance company investment portfolios and limit the amount of investments in certain asset categories. Federal Regulation Patient Protection and Affordable Care Act Although health insurance is generally regulated at the state level, recent legislative actions were taken at the federal level that impose added restrictions on our business, in particular Assurant Health and Assurant Employee Benefits. In March 2010, President Obama signed the Affordable Care Act into law. Provisions of the Affordable Care Act and related reforms have and will become effective at various dates over the next several years and will make sweeping and fundamental changes to the U.S. health care system that are expected to significantly affect the health insurance industry. Although we cannot predict or quantify the precise effects of the Affordable Care Act on our business, they will include, in particular, a requirement that we pay rebates to customers if the loss ratios for some of our products lines are less than specified percentages; the need to reduce commissions, and the consequent risk that insurance producers may sell less of our products th2011-04-06T17:01:18+02:00http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=18http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=18PART I ITEM 1 Business Employee Retirement Income Security Act Because we provide products and services for certain U.S. employee benefit plans, we are subject to regulation under the Employee Retirement Income Security Act of 1974, as amended (“ERISA”). ERISA places certain requirements on how our Company may do business with employers that maintain employee benefit plans covered by ERISA. Among other things, regulations under ERISA set standards for certain notice and disclosure requirements and for claim processing and appeals. In addition, some of our administrative services and other activities may also be subject to regulation under ERISA. International Regulation We are subject to regulation and supervision of our international operations in various jurisdictions. These regulations, which vary depending on the jurisdiction, include anti-corruption laws; solvency regulations; various privacy, insurance, tax, tariff and trade laws and regulations; and corporate, employment, intellectual property and investment laws and regulations. In addition to the U.S., the Company operates in Canada, the U.K., Argentina, Brazil, Puerto Rico, Chile, Germany, Spain, Italy, Mexico and China, and our operations are supervised by regulatory authorities of these jurisdictions. For example, our operations in the U.K. are subject to regulation by the Financial Services Authority (the “FSA”). Insurers authorized by the FSA are generally permitted to operate throughout the rest of the European Union, subject to satisfying certain FSA requirements and, in some cases, meeting additional local regulatory requirements. We are also subject to certain U.S. and foreign laws applicable to businesses generally, including anti-corruption laws. The Foreign Corrupt Practices Act of 1977 (the “FCPA”) regulates U.S. companies in their dealings with foreign officials, prohibiting bribes and similar practices. In addition, the U.K. Anti-Bribery Act, which should become effective during 2011, has wide jurisdiction over certain activities that affect the U.K. HIPAA, HITECH Act and Gramm-Leach-Bliley Act The Health Insurance Portability and Accountability Act of 1996, along with its implementing regulations (“HIPAA”), impose various requirements on health insurers, HMOs, health plans and health care providers. Among other things, Assurant Health is subject to HIPAA regulations requiring certain guaranteed issuance and renewability of health insurance coverage for individuals and small groups (generally groups with 50 or fewer employees) and limitations on exclusions based on pre-existing conditions. HIPAA also imposes requirements on health insurers, health plans and health care providers to ensure the privacy and security of protected health information. These privacy and security provisions were further expanded by the privacy provisions contained in the Health Information Technology for Economic and Clinical Health Act (the “HITECH Act”), which enhances penalties for violations of HIPAA and requires regulated entities to provide notice of security breaches of protected health information to individuals and HHS. In addition, certain of our activities are subject to the privacy regulations of the Gramm-LeachBliley Act, which, along with regulations adopted thereunder, generally requires insurers to provide customers with notice regarding how their non-public personal health and financial information is used, and to provide them with the opportunity to “opt out” of certain disclosures. Securities and Corporate Governance Regulation As a company with publicly-traded securities, Assurant is subject to certain legal and regulatory requirements applicable generally to public companies, including the rules and regulations of the U.S. Securities and Exchange Commission (the “SEC”) and the New York Stock Exchange (the “NYSE”) relating to public reporting and disclosure, accounting and financial reporting, and corporate governance matters. Additionally, Assurant, Inc. is subject 2011-04-06T17:01:18+02:00http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=19http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=19PART I ITEM 1A Risk Factors Sources of Liquidity For a discussion of the Company’s sources and uses of funds, see “Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources,” and Note 15 to the Consolidated Financial Statements contained elsewhere in this report. Financial Condition and Results of Operations,” and Note 23 to the Consolidated Financial Statements contained elsewhere in this report. Available Information Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, the Statements of Beneficial Ownership of Securities on Forms 3, 4 and 5 for our Directors and Officers and all amendments to such reports, filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, are available free of charge through the SEC website at www.sec.gov. These documents are also available free of charge through the Investor Relations page of our website (www.assurant.com) as soon as reasonably practicable after filing. Other information found on our website is not part of this or any other report filed with or furnished to the SEC. Taxation For a discussion of tax matters affecting the Company and its operations, see Note 8 to the Consolidated Financial Statements contained elsewhere in this report. Financial Information about Reportable Business Segments For financial information regarding reportable business segments of the Company, see “Item 7—Management’s Discussion and Analysis of ITEM 1A Risk Factors Certain factors may have a material adverse effect on our business, financial condition and results of operations and you should carefully consider them. It is not possible to predict or identify all such factors. Risks Related to Our Company Our revenues and profits may decline if we were unable to maintain relationships with significant clients, distributors and other parties important to the success of our business. Our relationships and contractual arrangements with significant clients, distributors, original equipment manufacturers and other parties with whom we do business are important to the success of our segments. Many of these arrangements are exclusive. For example, in Assurant Solutions, we have exclusive relationships with retailers and financial and other institutions through which we distribute our products, including an exclusive distribution relationship with SCI relating to the distribution of our preneed insurance policies. In Assurant Specialty Property, we have exclusive relationships with mortgage lenders and manufactured housing lenders, manufacturers and property managers. In Assurant Health, we have exclusive distribution relationships for our individual health insurance products with a major mutual insurance company as well as a relationship with a well-known association through which we provide many of our individual health insurance products. We also maintain contractual relationships with several separate networks of health and dental care providers, each referred to as a PPO, through which we obtain discounts. Typically, these relationships and contractual arrangements have terms ranging from one to five years. Although we believe we have generally been successful in maintaining our clients, distribution and associated relationships, if these parties decline to renew or seek to terminate these arrangements or seek to renew these contracts on terms less favorable to us, our results of operations and financial condition could be materially adversely affected. For example, a loss of one or more of the discount arrangements with PPOs could lead to higher medical or dental costs and/or a loss of members to other medical or dental plans. In addition, we are subject to the risk that these parties may face financial difficulties, reputational issues or problems with respect to their own products and services, which may lead to decreased sales of our products and services. Moreover, if one o2011-04-06T17:01:18+02:00http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=20http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=20PART I ITEM 1A Risk Factors customers market and distribute our products. Strong competition exists among insurers to form relationships with agents and brokers of demonstrated ability. We compete with other insurers for relationships with agents, brokers, and other intermediaries primarily on the basis of our financial position, support services, product features, and more generally through our ability to meet the needs of their clients, our customers. Independent agents and brokers are typically not exclusively dedicated to us, but instead usually also market the products of our competitors and therefore we face continued competition from our competitors’ products. Moreover, our ability to market our products and services depends on our ability to tailor our channels of distribution to comply with changes in the regulatory environment in which we and such agents and brokers operate. The minimum loss ratios imposed by the Affordable Care Act have compelled health insurers to decrease broker commission levels. Similarly, the Company recently decreased its commission levels for distribution channels that market Assurant Health’s individual medical and small employer group medical products. Although the Company believes that its revised commission schedule is competitive with those of other health insurers adapting to the new reform environment, this reduction could pressure our relationship with the distribution channels that we rely on to market our Assurant Health products and/or our ability to attract new brokers and agents, which could materially adversely affect our results of operations and financial condition. In addition, many of the agents and brokers who distribute Assurant Employee Benefits products make a large part of their living from sales of health insurance. To the extent that some of them decide to pursue other occupations, the resulting loss of distribution could have a material adverse impact on the sales of Assurant Employee Benefits’ products. We have our own sales representatives whose distribution process varies by segment. We depend in large part on our sales representatives to develop and maintain client relationships. Our inability to attract and retain effective sales representatives could materially adversely affect our results of operations and financial condition. (iv) in the case of business customers of Assurant Health or Assurant Employee Benefits, have fewer employees requiring insurance coverage due to reductions in their staffing levels; • clients are more likely to experience financial distress or declare bankruptcy or liquidation which could have an adverse impact on the remittance of premiums from such clients as well as the collection of receivables from such clients for items such as unearned premiums; • disability insurance claims and claims on other specialized insurance products tend to rise; • there is a higher loss ratio on credit card and installment loan insurance due to rising unemployment and disability levels; • there is an increased risk of fraudulent insurance claims; • insureds tend to increase their utilization of health and dental benefits if they anticipate becoming unemployed or losing benefits; and • substantial decreases in loan availability and origination could reduce the demand for credit insurance that we write or debt cancellation or debt deferment products that we administer, and on the placement of hazard insurance under our lender-placed insurance programs. In addition, general inflationary pressures may affect the costs of medical and dental care, as well as repair and replacement costs on our real and personal property lines, increasing the costs of paying claims. Inflationary pressures may also affect the costs associated with our preneed insurance policies, particularly those that are guaranteed to grow with the Consumer Price Index (or “CPI”). Conversely, deflationary pressures may affect the pricing of our products. Our earnings could be materially affected by an impairment o2011-04-06T17:01:18+02:00http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=21http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=21PART I ITEM 1A Risk Factors Catastrophe losses, including man-made catastrophe losses, could materially reduce our profitability and have a material adverse effect on our results of operations and financial condition. Our insurance operations expose us to claims arising out of catastrophes, particularly in our homeowners, life and other personal lines of business. We have experienced, and expect to experience, catastrophe losses that materially reduce our profitability or have a material adverse effect on our results of operations and financial condition. Catastrophes can be caused by various natural events, including, but not limited to, hurricanes, windstorms, earthquakes, hailstorms, severe winter weather, fires, epidemics and the long-term effects of climate change, or can be man-made catastrophes, including terrorist attacks or accidents such as airplane crashes. While the frequency and severity of catastrophes are inherently unpredictable, increases in the value and geographic concentration of insured property, the geographic concentration of insured lives, and the effects of inflation could increase the severity of claims from future catastrophes. Catastrophe losses can vary widely and could significantly exceed our expectations. They may cause substantial volatility in our financial results for any fiscal quarter or year and could materially reduce our profitability or materially adversely affect our financial condition. Our ability to write new business also could be affected. Because Assurant Specialty Property’s lender-placed homeowners and lender-placed manufactured housing insurance products are designed to automatically provide property coverage for client portfolios, our concentration in certain catastrophe-prone states like Florida, California and Texas may increase in the future. Furthermore, the withdrawal of other insurers from these or other states may lead to adverse selection and increased use of our products in these areas and may negatively affect our loss experience. The exact impact of the physical effects of climate change is uncertain. It is possible that changes in the global climate may cause long-term increases in the frequency and severity of storms, resulting in higher catastrophe losses, which could materially affect our results of operations and financial condition. Our group life and health insurance operations could be materially impacted by catastrophes such as a terrorist attack, a natural disaster, a pandemic or an epidemic that causes a widespread increase in mortality or disability rates or that causes an increase in the need for medical care. If the severity of such an event were sufficiently high, it could exceed our reinsurance coverage limits and could have a material adverse effect on our results of operations and financial condition. In addition, with respect to our preneed insurance policies, the average age of policyholders is approximately 73 years. This group is more susceptible to certain epidemics than the overall population, and an epidemic resulting in a higher incidence of mortality could have a material adverse effect on our results of operations and financial condition. We may also lose premium income due to a large-scale business interruption caused by a catastrophe combined with legislative or regulatory reactions to the event. A.M. Best, Moody’s, and S&P rate the financial strength of our insurance company subsidiaries, and a decline in these ratings could affect our standing in the insurance industry and cause our sales and earnings to decrease. Ratings are an important factor in establishing the competitive position of insurance companies. A.M. Best rates most of our domestic operating insurance subsidiaries. Moody’s rates six of our domestic operating insurance subsidiaries and S&P rates seven of our domestic operating insurance subsidiaries. These ratings are subject to periodic review by A.M. Best, Moody’s, and S&P, and we cannot assure that we will be able to retain them. In 2010 for exam2011-04-06T17:01:18+02:00http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=22http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=22PART I ITEM 1A Risk Factors Unfavorable conditions in the capital and credit markets may significantly and adversely affect our access to capital and our ability to pay our debts or expenses. The global capital and credit markets experienced extreme volatility and disruption during 2008 and through early 2009. In many cases, companies’ ability to raise money was severely restricted. Although conditions in the capital and credit markets have improved significantly, they could again deteriorate. Our ability to borrow or raise money is important if our operating cash flow is insufficient to pay our expenses, meet capital requirements, repay debt, pay dividends on our common stock or make investments. The principal sources of our liquidity are insurance premiums, fee income, cash flow from our investment portfolio and liquid assets, consisting mainly of cash or assets that are readily convertible into cash. Sources of liquidity in normal markets also include a variety of short- and long-term instruments. If our access to capital markets is restricted, our cost of capital could go up, thus decreasing our profitability and reducing our financial flexibility. Our results of operations, financial condition, cash flows and statutory capital position could be materially and adversely affected by disruptions in the capital markets. We employ asset/liability management strategies to reduce the adverse effects of interest rate volatility and to increase the likelihood that cash flows are available to pay claims as they become due. Our asset/liability management strategies may fail to eliminate or reduce the adverse effects of interest rate volatility, and significant fluctuations in the level of interest rates may have a material adverse effect on our results of operations and financial condition. If our investment portfolio is not appropriately matched with our insurance liabilities, we could also be forced to liquidate investments prior to maturity at a significant loss to pay claims and policyholder benefits. Our preneed insurance policies are generally whole life insurance policies with increasing death benefits. In extended periods of declining interest rates or rising inflation, there may be compression in the spread between the death benefit growth rates on these policies and the investment income that we can earn, resulting in a negative spread. As a result, declining interest rates or high inflation rates may have a material adverse effect on our results of operations and our overall financial condition. See “Item 7A—Quantitative and Qualitative Disclosures About Market Risk—Inflation Risk” for additional information. Assurant Employee Benefits calculates reserves for long-term disability and life waiver of premium claims using net present value calculations based on interest rates at the time reserves are established and expectations regarding future interest rates. Waiver of premium refers to a provision in a life insurance policy pursuant to which an insured with a disability that lasts for a specified period no longer has to pay premiums for the duration of the disability or for a stated period, during which time the life insurance coverage continues. If interest rates decline, reserves for open and/or new claims in Assurant Employee Benefits would need to be calculated using lower discount rates, thereby increasing the net present value of those claims and the required reserves. We expect this to happen in the first quarter of 2011. Depending on the magnitude of the decline, such changes could have a material adverse effect on our results of operations and financial condition. In addition, investment income may be lower than that assumed in setting premium rates. The value of our investments could decline, affecting our profitability and financial strength. Investment returns are an important part of our profitability. Significant fluctuations in the fixed maturity market could impair our profitability, financial condition and/or cash flows. Our investments are subject 2011-04-06T17:01:18+02:00http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=23http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=23PART I ITEM 1A Risk Factors our results of operations and financial condition. See “Item 7A— Quantitative and Qualitative Disclosures About Market Risk—Credit Risk” for additional information on the composition of our fixed maturity investment portfolio. We currently invest in a small amount of equity securities (approximately 3% of the fair value of our total investments as of December 31, 2010). However, we have had higher percentages in the past and may make more such investments in the future. Investments in equity securities generally provide higher expected total returns, but present greater risk to preservation of capital than our fixed maturity investments. Recent volatility in the equity markets has led, and may continue to lead, to a decline in the market value of our investments in equity securities. If treasury rates or credit spreads were to increase, the Company may have additional realized and unrealized investment losses and increases in other-than-temporary impairments. The determination that a security has incurred an other-than-temporary decline in value requires the judgment of management. Inherently, there are risks and uncertainties involved in making these judgments. Changes in facts, circumstances, or critical assumptions could cause management to conclude that further impairments have occurred. This could lead to additional losses on investments. For further details on net investment losses and other-than-temporary-impairments, please see Note 5 to the Consolidated Financial Statements included elsewhere in this report. Derivative instruments generally present greater risk than fixed maturity investments or equity investments because of their greater sensitivity to market fluctuations. Since August 1, 2003, we have been using derivative instruments to manage the exposure to inflation risk created by our preneed insurance policies that are tied to the CPI. However, the protection provided by these derivative instruments would be limited if there were a sharp increase in inflation on a sustained long-term basis which could have a material adverse effect on our results of operations and financial condition. weaken our financial strength and reduce our profitability. For more information, please see Item 1, “Business—Regulation—Environmental Regulation.” Our actual claims losses may exceed our reserves for claims, and this may require us to establish additional reserves that may materially reduce our earnings, profitability and capital. We maintain reserves to cover our estimated ultimate exposure for claims and claim adjustment expenses with respect to reported claims and incurred but not reported claims (“IBNR”) as of the end of each accounting period. Reserves, whether calculated under accounting principles generally accepted in the U.S. (“GAAP”), Statutory Accounting Principles (“SAP”) or accounting principles required in foreign jurisdictions, do not represent an exact calculation of exposure. Reserving is inherently a matter of judgment; our ultimate liabilities could exceed reserves for a variety of reasons, including changes in macroeconomic factors (such as unemployment and interest rates), case development and other factors. We also adjust our reserves from time to time as these factors and our claims experience changes. Reserve development and paid losses exceeding corresponding reserves could have a material adverse effect on our earnings. We face risks associated with our international operations. Our international operations face political, legal, operational and other risks that we may not face in our domestic operations. For example, we may face the risk of restrictions on currency conversion or the transfer of funds; burdens and costs of compliance with a variety of foreign laws; political or economic instability in countries in which we conduct business, including possible terrorist acts; foreign exchange rate fluctuations; diminished ability to legally enforce our contractual rights; differences in cul2011-04-06T17:01:18+02:00http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=24http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=24PART I ITEM 1A Risk Factors foreign-currency-denominated balances will result in increased net assets, net revenue, operating expenses, and net income or loss. Similarly, our net assets, net revenue, operating expenses, and net income or loss will decrease if the U.S. dollar strengthens against local currency. These fluctuations in currency exchange rates may result in gains or losses that materially and adversely affect our results of operations. This ability could be affected by factors such as inflation, changes in the regulatory environment, changes in industry practices, changes in legal, social or environmental conditions, or new technologies. The inability to accurately price for benefits, claims and other costs could materially adversely affect our results of operations and financial condition. Unanticipated changes in tax provisions or exposure to additional income tax liabilities could materially and adversely affect our results. During 2010, the Company had deferred tax assets related to realized and unrealized capital losses that were generated during 2009 and 2008. In accordance with applicable income tax guidance, the Company must determine whether its ability to realize the value of its deferred tax asset in the future is “more likely than not.” Under the income tax guidance, a deferred tax asset should be reduced by a valuation allowance if, based on the weight of all available evidence, it is more likely than not that some portion of the deferred tax asset will not be realized. The Company increased its valuation allowance by $9,050 during 2010, resulting in a balance of $90,738. The realization of deferred tax assets depends upon the existence of sufficient taxable income of the same character during the carryback or carryforward periods. In determining the appropriate valuation allowance, management made certain judgments relating to recoverability of deferred tax assets, use of tax loss and tax credit carryforwards, levels of expected future taxable income and available tax planning strategies. The assumptions in making these judgments are updated periodically on the basis of current business conditions affecting the Company and overall economic conditions. These management judgments are therefore subject to change due to factors that include, but are not limited to, changes in our ability to realize expected capital gains in the foreseeable future or in our ability to execute other tax planning strategies. Management will continue to assess and determine the need for, and the amount of, the valuation allowance in subsequent periods. Any change in the valuation allowance could have a material impact on our results of operations and financial condition. Additionally, certain limitations on the deductibility of employee compensation due to the Affordable Care Act may affect the deductibility of certain payments made to employees and service providers by various Assurant entities in amounts that have not been determined. Reinsurance may not be available or adequate to protect us against losses, and we are subject to the credit risk of reinsurers. As part of our overall risk and capacity management strategy, we purchase reinsurance for certain risks underwritten by our various operating segments. Although the reinsurer is liable to us for claims properly ceded under the reinsurance arrangements, we remain liable to the insured as the direct insurer on all risks reinsured. Ceded reinsurance arrangements therefore do not eliminate our obligation to pay claims. We are subject to credit risk with respect to our ability to recover amounts due from reinsurers. The inability to collect amounts due from reinsurers could materially adversely affect our results of operations and our financial condition. Reinsurance for certain types of catastrophes could become unavailable or prohibitively expensive for some of our businesses. In such a situation, we might also be adversely affected by state regulations that prohibit us from excluding ca2011-04-06T17:01:18+02:00http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=25http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=25PART I ITEM 1A Risk Factors such capabilities on unfavorable terms with a resulting material adverse effect on our results of operations and financial condition. Due to the structure of our commission program, we are exposed to risks related to the creditworthiness and reporting systems of some of our agents, third party administrators and clients in Assurant Solutions and Assurant Specialty Property. We are subject to the credit risk of some of the clients and/or agents with which we contract in Assurant Solutions and Assurant Specialty Property. We advance agents’ commissions as part of our preneed insurance product offerings. These advances are a percentage of the total face amount of coverage. There is a one-year payback provision against the agency if death or lapse occurs within the first policy year. If SCI, which receives the largest shares of such agent commissions, were unable to fulfill its payback obligations, this could have an adverse effect on our operations and financial condition. In addition, some of our clients, third party administrators and agents collect and report premiums or pay claims on our behalf. These parties’ failure to remit all premiums collected or to pay claims on our behalf on a timely and accurate basis could have an adverse effect on our results of operations. Failure to protect our clients’ confidential information and privacy could result in the loss of reputation and customers, reduce our profitability and/or subject us to fines, litigation and penalties, and the costs of compliance with privacy and security laws could adversely affect our business. Our businesses are subject to a variety of privacy regulations and confidentiality obligations. If we do not properly comply with privacy and security laws and regulations that require us to protect confidential information, we could experience adverse consequences, including loss of customers and related revenue, regulatory problems (including fines and penalties), loss of reputation and civil litigation, which could adversely affect our business and results of operations. As have other entities in the health care industry, we have incurred and will continue to incur substantial costs in complying with the requirements of applicable privacy and security laws. For more information on the privacy and security laws that apply to us, please see Item 1, “Business—Regulation.” We may be unable to grow our business as we would like if we cannot find suitable acquisition candidates at attractive prices or integrate them effectively. Historically, acquisitions and new ventures have played a significant role in the growth of some of our businesses. We may not be able to identify suitable acquisition candidates or new venture opportunities, to finance or complete such transactions on acceptable terms, or to integrate acquired businesses successfully. Acquisitions entail a number of risks including, among other things, inaccurate assessment of liabilities; difficulties in realizing projected efficiencies, synergies and cost savings; difficulties in integrating systems and personnel; failure to achieve anticipated revenues, earnings or cash flow; an increase in our indebtedness; and a limitation in our ability to access additional capital when needed. Our failure to adequately address these acquisition risks could materially adversely affect our results of operations and financial condition. We face significant competitive pressures in our businesses, which could reduce our profitability. We compete for customers and distributors with many insurance companies and other financial services companies for business and individual customers, employer and other group customers, agents, brokers and other distribution relationships. Some of our competitors may offer a broader array of products than our subsidiaries or have a greater diversity of distribution resources, better brand recognition, more competitive pricing, lower costs, greater financial strength, more resources, or higher ratings. M2011-04-06T17:01:18+02:00http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=26http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=26PART I ITEM 1A Risk Factors policyholders of the subsidiary would be entitled to payment in full from the subsidiary’s assets before we, as a stockholder, would be entitled to receive any distribution from the subsidiary. The payment of dividends by any of our regulated insurance company subsidiaries in excess of specified amounts (i.e., extraordinary dividends) must be approved by the subsidiary’s domiciliary state department of insurance. Ordinary dividends, for which no regulatory approval is generally required, are limited to amounts determined by a formula, which varies by state. The formula for the majority of the states in which our subsidiaries are domiciled is based on the prior year’s statutory net income or 10% of the statutory surplus as of the end of the prior year. Some states limit ordinary dividends to the greater of these two amounts, others limit them to the lesser of these two amounts and some states exclude prior year realized capital gains from prior year net income in determining ordinary dividend capacity. Some states have an additional stipulation that dividends may only be paid out of earned surplus. If insurance regulators determine that payment of an ordinary dividend or any other payments by our insurance subsidiaries to us (such as payments under a tax sharing agreement or payments for employee or other services) would be adverse to policyholders or creditors, the regulators may block such payments that would otherwise be permitted without prior approval. Future regulatory actions could further restrict the ability of our insurance subsidiaries to pay dividends. For more information on the maximum amount our subsidiaries could pay us in 2011 without regulatory approval, see “Item 5—Market For Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities—Dividend Policy.” Our credit facilities also contain limitations on our ability to pay dividends to our stockholders if we are in default or such dividend payments would cause us to be in default of our obligations under the credit facilities. Any additional material restrictions on the ability of insurance subsidiaries to pay dividends could adversely affect our ability to pay any dividends on our common stock and/or service our debt and pay our other corporate expenses. The success of our business strategy depends on the continuing service of key executives and the members of our senior management team, and any failure to adequately provide for the succession of senior management and other key executives could have an adverse effect on our results of operations. Our business and results of operations could be adversely affected if we fail to adequately plan for the succession of our senior management and other key executives. Although we have succession plans for key executives, this does not guarantee that they will stay with us. Risks Related to Our Industry Reform of the health insurance industry could make our health insurance business unprofitable. In March 2010, President Obama signed the Affordable Care Act into law. Provisions of the Affordable Care Act and related reforms have and will become effective at various dates over the next several years and will make sweeping and fundamental changes to the U.S. health care system that are expected to significantly affect the health insurance industry. For more information on the Affordable Care Act, please see Item 1, “Business—Regulation—Federal Regulation—Patient Protection and Affordable Care Act.” The Affordable Care Act requires Assurant Health, for some products, to increase benefits, to limit rescission to cases of intentional fraud and, eventually, to insure pre-existing conditions in all lines of insurance, among other things. If, for those products, Assurant Health’s actual loss ratios fall short of required minimum loss ratios (by state and legal entity), we are required to rebate the difference to consumers. We have made, and are continuing to make, significant ch2011-04-06T17:01:18+02:00http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=27http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=27PART I ITEM 1A Risk Factors We are subject to extensive laws and regulations, which increase our costs and could restrict the conduct of our business. Our insurance subsidiaries are subject to extensive regulation and supervision in the jurisdictions in which they do business. Such regulation is generally designed to protect the interests of policyholders. To that end, the laws of the various states and other jurisdictions establish insurance departments with broad powers over, among other things: licensing and authorizing the transaction of business; capital, surplus and dividends; underwriting limitations; companies’ ability to enter and exit markets; statutory accounting and other disclosure requirements; policy forms; coverage; companies’ ability to provide, terminate or cancel certain coverages; premium rates, including regulatory ability to disapprove or reduce the premium rates companies may charge; trade and claims practices; certain transactions between affiliates; content of disclosures to consumers; type, amount and valuation of investments; assessments or other surcharges for guaranty funds and companies’ ability to recover assessments through premium increases; and market conduct and sales practices. For a discussion of various laws and regulations affecting our business, please see Item 1, “Business—Regulation.” If regulatory requirements impede our ability to conduct certain operations, our results of operations and financial condition could be materially adversely affected. In addition, we may be unable to maintain all required licenses and approvals and our business may not fully comply with the wide variety of applicable laws and regulations, or the relevant regulators’ interpretation of these laws and regulations. In such events, the insurance regulatory authorities could preclude or temporarily suspend us from operating, limit some or all of our activities, or fine us. These types of actions could materially adversely affect our results of operations and financial condition. • new licensing requirements; • restrictions on the ability to offer certain types of insurance products; • prohibitions or limitations on provider financial incentives and provider risk-sharing arrangements; • more stringent standards of review for claims denials or coverage determinations; • guaranteed-issue requirements restricting our ability to limit or deny coverage; • new benefit mandates; • increased regulation relating to lender-placed insurance; • limitations on our ability to build appropriate provider networks and, as a result, manage health care and utilization due to “any willing provider” legislation, which requires us to take any provider willing to accept our reimbursement; • limitations on the ability to manage health care and utilization due to direct access laws that allow insureds to seek services directly from specialty medical providers without referral by a primary care provider; and • restriction of solicitation of insurance consumers by funeral board laws for prefunded funeral insurance coverage. There are currently several proposals to amend state insurance holding company laws to increase the scope of insurance holding company regulation. These include model laws proposed by the International Association of Insurance Supervisors and the NAIC that provide for uniform standards of insurer corporate governance, group-wide supervision of insurance holding companies, adjustments to risk-based capital ratios, and additional regulatory disclosure requirements for insurance holding companies. In addition, the NAIC has proposed a “Solvency Modernization Initiative” that focuses on capital requirements, corporate governance and risk management, statutory accounting and financial reporting, and reinsurance. We cannot predict the effect of these initiatives on the Company at this time. Changes in regulation may reduce our profitability and limit our growth. Legislation or other regulatory reform that increases the regulatory requireme2011-04-06T17:01:18+02:00http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=28http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=28PART I ITEM 1A Risk Factors The insurance industry can be cyclical, which may affect our results. Certain lines of insurance that we write can be cyclical. Although no two cycles are the same, insurance industry cycles have typically lasted for periods ranging from two to ten years. In addition, the upheaval in the global economy during 2008 and 2009 has been much more widespread and has affected all the businesses in which we operate. We expect to see continued cyclicality in some or all of our businesses in the future, which may have a material adverse effect on our results of operations and financial condition. Risks Related to Our Common Stock Given the recent economic climate, our stock may be subject to stock price and trading volume volatility. The price of our common stock could fluctuate or decline significantly and you could lose all or part of your investment. In recent years, the stock markets have experienced significant price and trading volume volatility. Company-specific issues and market developments generally in the insurance industry and in the regulatory environment may have caused this volatility. Our stock price could materially fluctuate or decrease in response to a number of events and factors, including but not limited to: quarterly variations in operating results; operating and stock price performance of comparable companies; changes in our financial strength ratings; limitations on premium levels or the ability to maintain or raise premiums on existing policies; regulatory developments and negative publicity relating to us or our competitors. In addition, broad market and industry fluctuations may materially and adversely affect the trading price of our common stock, regardless of our actual operating performance. Our certificate of incorporation or by-laws also contain provisions that permit our Board of Directors to issue one or more series of preferred stock, prohibit stockholders from filling vacancies on our Board of Directors, prohibit stockholders from calling special meetings of stockholders and from taking action by written consent, and impose advance notice requirements for stockholder proposals and nominations of directors to be considered at stockholder meetings. Additionally, applicable state insurance laws may require prior approval of an application to acquire control of a domestic insurer. State statutes generally provide that control over a domestic insurer is presumed to exist when any person directly or indirectly owns, controls, has voting power over, or holds proxies representing, 10% or more of the domestic insurer’s voting securities. However, the State of Florida, in which some of our insurance subsidiaries are domiciled, sets this threshold at 5%. Because a person acquiring 5% or more of our common stock would indirectly control the same percentage of the stock of our Florida subsidiaries, the insurance change of control laws of Florida would apply to such transaction and at 10% the laws of many other states would likely apply to such a transaction. Prior to granting such approval, a state insurance commissioner will typically consider such factors as the financial strength of the applicant, the integrity of the applicant’s board of directors and executive officers, the applicant’s plans for the future operations of the domestic insurer and any anti-competitive results that may arise from the consummation of the acquisition of control. We may also, under some circumstances involving a change of control, be obligated to repay our outstanding indebtedness under our revolving credit facility and other agreements. We or any possible acquirer may not have available financial resources necessary to repay such indebtedness in those circumstances, which may constitute an event of default resulting in acceleration of indebtedness and potential cross-default under other agreements. The threat of this could have the effect of delaying or preventing transactions involving a change of control, including tra2011-04-06T17:01:18+02:00http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=29http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=29PART I ITEM 3 Legal Proceedings ITEM 1B Unresolved Staff Comments None. ITEM 2 Properties We own eight properties, including five buildings whose locations serve as headquarters for our operating segments, two buildings that serve as operation centers for Assurant Solutions and Assurant Specialty Property and one building that serves as a claims training center for Assurant Specialty Property. Assurant Solutions and Assurant Specialty Property share headquarters buildings located in Miami, Florida and Atlanta, Georgia. Assurant Specialty Property has operations centers located in Florence, South Carolina and Springfield, Ohio. Assurant Solutions’ preneed business also has a headquarters building in Rapid City, South Dakota. Assurant Employee Benefits has a headquarters building in Kansas City, Missouri. Assurant Health has a headquarters building in Milwaukee, Wisconsin. We lease office space for various offices and service centers located throughout the U.S. and internationally, including our New York, New York corporate office and our data center in Woodbury, Minnesota. Our leases have terms ranging from month-to-month to twenty-five years. We believe that our owned and leased properties are adequate for our current business operations. ITEM 3 Legal Proceedings The Company is involved in litigation in the ordinary course of business, both as a defendant and as a plaintiff. See Note 26 to the Consolidated Financial Statements for a description of certain matters. The Company may from time to time be subject to a variety of legal and regulatory actions relating to our current and past business operations. While the Company cannot predict the outcome of any pending or future litigation, examination or investigation, we do not believe that the outcome of pending matters will have a material adverse effect individually or in the aggregate, on the Company’s financial position, results of operations, or cash flows. ASSURANT, INC.  2010 Form 10K 232011-04-06T17:01:18+02:00http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=30http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=30PART II ITEM 5 Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities PART II ITEM 5 Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Stock Performance Graph The following chart compares the total stockholder returns (stock price increase plus dividends) on our common stock from December 31, 2005 through December 31, 2010 with the total stockholder returns for the S&P 400 Midcap Index, as the broad equity market index, and the S&P COMPARISON OF CUMULATIVE TOTAL RETURN $200 400 Multi-Line Insurance Index and S&P 500 Multi-Line Insurance Index, as the published industry indexes. The graph assumes that the value of the investment in the common stock and each index was $100 on December 31, 2005 and that all dividends were reinvested. $150 $100 $50 $0 12/31/05 Assurant, Inc 12/31/06 12/31/07 12/31/08 S&P MidCap 400 Index 12/31/09 S&P 500 Multi-line Insurance Index 12/31/10 S&P 400 Multi-line Insurance Index TOTAL RETURN TO STOCKHOLDERS INCLUDES REINVESTMENT OF DIVIDENDS Base Period 12/31/05 100 100 100 100 Indexed returns Years Ending 12/31/10 94.98 132.16 17.83 105.59 Company/Index Assurant, Inc. S&P 400 MidCap Index S&P 500 Multi-line Insurance Index* S&P 400 Multi-line Insurance Index* 12/31/06 128.01 110.32 107.58 121.75 12/31/07 156.25 119.12 93.71 109.98 12/31/08 70.97 75.96 10.61 78.01 12/31/09 71.36 104.36 14.47 90.12 24 ASSURANT, INC.  2010 Form 10K2011-04-06T17:01:18+02:00http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=31http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=31PART II ITEM 5 Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Annual return percentage Years Ending 12/31/09 12/31/10 0.56 33.09 37.38 26.64 36.35 23.23 15.52 17.17 Company/Index Assurant, Inc. S&P 400 MidCap Index S&P 500 Multi-line Insurance Index* S&P 400 Multi-line Insurance Index* * 12/31/06 28.01 10.32 7.58 21.75 12/31/07 22.06 7.98 (12.89) (9.67) 12/31/08 (54.58) (36.23) (88.68) (29.07) S&P 400 Multi-line Insurance Index is comprised of mid-cap companies, while the S&P 500 Multi-line Insurance Index is comprised of large-cap companies. Common Stock Price Our common stock is listed on the NYSE under the symbol “AIZ.” The following table sets forth the high and low intraday sales prices per share of our common stock as reported by the NYSE for the periods indicated. Year Ended December 31, 2010 First Quarter Second Quarter Third Quarter Fourth Quarter Year Ended December 31, 2009 First Quarter Second Quarter Third Quarter Fourth Quarter $ $ $ $ High 34.60 38.01 41.24 41.87 High 31.44 29.60 32.49 33.37 $ $ $ $ Low 29.08 32.47 33.95 33.43 Low 16.34 20.88 21.65 28.94 $ $ $ $ Dividends 0.15 0.16 0.16 0.16 Dividends 0.14 0.15 0.15 0.15 $ $ $ $ $ $ $ $ $ $ $ $ Holders On February 15, 2011, there were approximately 333 registered holders of record of our common stock. The closing price of our common stock on the NYSE on February 15, 2011 was $40.33. Shares Repurchased Total Number of Shares Purchased as Part of Publicly Announced Programs (1) — 1,304,915 2,121,554 3,426,469 1,783,816 1,982,400 2,300,000 6,066,216 1,185,000 52,000 — 1,237,000 — 2,305,960 2,189,000 4,494,960 15,224,645 Approximate Dollar Value of Shares that may yet be Purchased under the Programs (2) $ 770,685 730,958 661,569 661,569 599,045 528,829 446,581 446,581 403,721 401,740 401,740 401,740 401,740 320,510 238,040 238,040 $ 238,040 Period in 2010 January 1 – January 31 February 1 – February 28 March 1 – March 31 Total first quarter April 1 – April 30 May 1 – May 31 June 1 – June 30 Total second quarter July 1 – July 31 August 1 – August 31 September 1 – September 30 Total third quarter October 1 – October 31 November 1 – November 30 December 1 – December 31 Total fourth quarter TOTAL THROUGH DECEMBER 31 Total Number of Shares Purchased — 1,304,915 2,121,554 3,426,469 1,783,816 1,982,400 2,300,000 6,066,216 1,185,000 52,000 — 1,237,000 — 2,305,960 2,189,000 4,494,960 15,224,645 $ $ Average Price Paid Per Share — 30.46 32.73 31.86 35.07 35.44 35.78 35.46 36.19 38.11 — 36.27 — 35.35 37.69 36.44 35.01 (1) Shares purchased pursuant to the November 10, 2006 publicly announced share repurchase authorization of up to $600,000 of outstanding common stock, which was increased by an authorization on January 22, 2010 for the repurchase of up to an additional $600,000 of outstanding common stock. (2) The Company repurchased 843,000 shares of its outstanding common shares from January 1, 2011 to January 14, 2011 at a cost of $32,453. On January 18, 2011, the Company’s Board of Directors authorized the Company to repurchase up to an additional $600,000 of its outstanding common stock making the total authorization available at that date $805,587. ASSURANT, INC.  2010 Form 10K 252011-04-06T17:01:18+02:00http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=32http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=32PART II ITEM 6 Selected Financial Data Dividend Policy On January 14, 2011, our Board of Directors declared a quarterly dividend of $0.16 per common share payable on March 14, 2011 to stockholders of record as of February 28, 2011. We paid dividends of $0.16 on December 13, 2010, September 14, 2010 and June 8, 2010 and $0.15 per common share on March 8, 2010. We paid dividends of $0.15 on December 14, 2009, September 15, 2009 and June 9, 2009 and $0.14 per common share on March 9, 2009. Any determination to pay future dividends will be at the discretion of our Board of Directors and will be dependent upon: our subsidiaries’ ability to make dividend and/or other statutorily permissible payments to us; our results of operations and cash flows; our financial position and capital requirements; general business conditions; legal, tax, regulatory and contractual restrictions on the payment of dividends; and other factors our Board of Directors deems relevant. We are a holding company and, therefore, our ability to pay dividends, service our debt and meet our other obligations depends primarily on the ability of our regulated U.S. domiciled insurance subsidiaries to pay dividends and make other statutorily permissible payments to us. Our insurance subsidiaries are subject to significant regulatory and contractual restrictions limiting their ability to declare and pay dividends. See “Item 1A—Risk Factors—Risks Relating to Our Company—The inability of our subsidiaries to pay sufficient dividends to us could prevent us from meeting our obligations and paying future stockholder dividends.” For the calendar year 2011, the maximum amount of dividends that our regulated U.S. domiciled insurance subsidiaries could pay to us under applicable laws and regulations without prior regulatory approval is approximately $614,362. Dividends or returns of capital paid by our subsidiaries totaled $886,200 in 2010. We may seek approval of regulators to pay dividends in excess of any amounts that would be permitted without such approval. However, there can be no assurance that we would obtain such approval if sought. Payments of dividends on shares of common stock are subject to the preferential rights of preferred stock that our Board of Directors may create from time to time. For more information regarding restrictions on the payment of dividends by us and our insurance subsidiaries, including pursuant to the terms of our revolving credit facilities, see “Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources.” In addition, our $350,000 revolving credit facility restricts payments of dividends if an event of default under the facility has occurred or a proposed dividend payment would cause an event of default under the facility. Management believes the Company will have sufficient liquidity to satisfy its needs over the next twelve months, including the ability to pay interest on our Senior Notes and dividends on our common shares. ITEM 6 Selected Financial Data FIVEYEAR SUMMARY OF SELECTED FINANCIAL DATA 2010 Consolidated Statement of Operations Data: Revenues Net earned premiums and other considerations Net investment income Net realized gains (losses) on investments (1) Amortization of deferred gain on disposal of businesses Fees and other income TOTAL REVENUES Benefits, losses and expenses Policyholder benefits (2) Amortization of deferred acquisition costs and value of businesses acquired Underwriting, general and administrative expenses Interest expense Goodwill impairment (3) TOTAL BENEFITS, LOSSES AND EXPENSES Income before provision for income taxes and cumulative effect of change in accounting principle Provision for income taxes (4) Net income before cumulative effect of change in accounting principle Cumulative effect of change in accounting principle (5) NET INCOME 2009 As of and for the years ended December 31, 2008 2007 2006 $ 7,403,039 $ 703,190 48,403 10,406 362,684 8,527,722 3,2011-04-06T17:01:18+02:00http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=33http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=33PART II ITEM 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations As of and for the years ended December 31, 2008 2007 2006 2010 Earnings per share: Basic Net income before cumulative effect of change in accounting principle Cumulative effect of change in accounting principle Net income Diluted Net income before cumulative effect of change in accounting principle Cumulative effect of change in accounting principle Net income Dividends per share Share data: Weighted average shares outstanding used in per share calculations Plus: Dilutive securities Weighted average shares used in diluted per share calculations 2009 $ $ 2.52 $ — 2.52 $ 3.65 — 3.65 $ $ 3.79 — 3.79 $ $ 5.45 — 5.45 $ $ 5.64 0.01 5.65 $ $ $ 2.50 $ — 2.50 $ 0.63 $ 3.63 — 3.63 0.59 $ $ $ 3.76 — 3.76 0.54 $ $ $ 5.38 — 5.38 0.46 $ $ $ 5.55 0.01 5.56 0.38 110,632,551 840,663 111,473,214 118,036,632 459,008 118,495,640 118,005,967 968,712 118,974,679 119,934,873 1,624,694 121,559,567 127,000,784 1,934,251 128,935,035 2010 Selected Consolidated Balance Sheet Data: Cash and cash equivalents and investments Total assets Policy liabilities (6) Debt Mandatorily redeemable preferred stock Total stockholder’s equity Per share data: Total book value per share (7) $ $ $ $ $ $ $ 14,655,994 26,397,018 16,520,321 972,164 5,000 4,780,537 $ $ $ $ $ $ 2009 14,476,384 25,860,667 15,869,524 972,058 8,160 4,853,249 $ $ $ $ $ $ As of and for the years ended December 31, 2008 2007 2006 13,107,476 24,514,586 15,806,235 971,957 11,160 3,709,505 $ $ $ $ $ $ 14,552,115 26,750,316 15,903,289 971,863 21,160 4,088,903 $ $ $ $ $ $ 13,416,817 25,165,148 14,513,106 971,774 22,160 3,832,597 31.22 46.31 $ 41.27 $ 31.53 $ 34.65 $ (1) Included in net realized gains (losses) are other-than-temporary impairments of $11,167, $38,660, $340,153 and $48,184 for 2010, 2009, 2008 and 2007, respectively. During 2006, we recorded an investment gain of $98,342 related to the sale of our equity interest in PHCS. (2) During 2008, we incurred losses of $132,615 associated with hurricanes Gustav and Ike. (3) Following the completion of our annual goodwill impairment analysis, we recorded an impairment charge of $306,381 related to Assurant Employee Benefits and Assurant Health and a charge of $83,000 related to Assurant Employee Benefits during the fourth quarters of 2010 and 2009, respectively. The impairment charges resulted in a decrease to net income but did not have any related tax benefit. (4) During 2008, we recorded a $84,864 tax benefit due to the sale of a non-operating subsidiary and the related deferred tax assets on a capital loss carryover. (5) On January 1, 2006, we adopted the share based compensation guidance. As a result, we recognized a cumulative adjustment of $1,547. (6) Policy liabilities include future policy benefits and expenses, unearned premiums and claims and benefits payable. (7) Total stockholders’ equity divided by the basic shares of common stock outstanding. At December 31, 2010, 2009 and 2008 there were 103,227,238, 117,591,250, and 117,640,936 shares, respectively, of common stock outstanding. At December 31, 2007 and 2006 there were 118,012,036 and 122,772,350 shares of common stock outstanding. ITEM 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and accompanying notes which appear elsewhere in this report. It contains forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those discussed below and elsewhere in this report, particularly under the headings “Item 1A—Risk Factors” and “Forward-Looking Statements.” ASSURANT, INC.  2010 Form 10K 272011-04-06T17:01:18+02:00http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=34http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=34PART II ITEM 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations General We report our results through five segments: Assurant Solutions, Assurant Specialty Property, Assurant Health, Assurant Employee Benefits, and Corporate and Other. The Corporate and Other segment includes activities of the holding company, financing expenses, net realized gains (losses) on investments, interest income earned from short-term investments held, interest income from excess surplus of insurance subsidiaries not allocated to other segments, run-off Asbestos business, and additional costs associated with excess of loss reinsurance and ceded to certain subsidiaries in the London market between 1995 and 1997. The Corporate and Other segment also includes the amortization of deferred gains associated with the portions of the sales of FFG and LTC, which were sold through reinsurance agreements as described below. The following discussion covers the twelve months ended December 31, 2010 (“Twelve Months 2010”), twelve months ended December 31, 2009 (“Twelve Months 2009”) and twelve months ended December 31, 2008 (“Twelve Months 2008”). Please see the discussion that follows, for each of these segments, for a more detailed analysis of the fluctuations. Executive Summary Net income decreased $151,397, or 35%, to $279,177 for Twelve Months 2010 from $430,574 for Twelve Months 2009. Twelve Months 2010 includes $107,075 (after-tax) of improved operating segment results and $66,300 (after-tax) of increased realized gains on investments, compared with Twelve Months 2009. However, results decreased primarily due to a non-cash goodwill impairment charge of $306,381 in Twelve Months 2010 compared with an $83,000 non-cash goodwill impairment charge in Twelve Months 2009. In addition, Twelve Months 2009 includes an $83,542 (after-tax) favorable legal settlement. Assurant Solutions net income decreased to $103,206 for Twelve Months 2010 compared with $120,052 for Twelve Months 2009. Excluding a $30,948 (after-tax) intangible asset impairment charge, net income increased $14,102. This charge was related to a client notification in Fourth Quarter 2010 of a non renewal of a block of domestic service contract business effective June 1, 2011. During 2010, Assurant Solutions continued to focus on developing new client relationships and distribution channels while managing expenses. These efforts generated increased gross written premiums of $232,578 compared with prior year. In our domestic business, we are diversifying our client base by growing the Original Equipment Manufacturer channel. The Twelve Months 2010 international combined ratio improved 480 basis points compared with Twelve Months 2009, led by improvements in the United Kingdom (“U.K.”). In addition, we added new international wireless clients in markets we believe continues to offer growth opportunities. We also added new Latin American service contracts and credit insurance clients, a trend we expect will continue in 2011. Growth in Europe is proving to be more challenging, but we believe our product offerings position us well for when the European economy recovers. Our preneed life insurance business continued to deliver strong results as new sales and operating profits improved 43% and 15%, respectively, over prior year. We expect this business to continue its solid performance in 2011. Assurant Specialty Property produced another strong year as segment results increased to $424,287 for Twelve Months 2010, from $405,997 for Twelve Months 2009. Assurant Specialty Property implemented many process improvements in 2010 that controlled expenses while adding new clients and tracking more loans. During 2010 and 2009, the lack of major catastrophic storm activity has helped drive strong results. However, during the fourth quarter of 2010, we experienced $9,811 (after-tax) of catastrophe-related losses due to wind and hail storms in Arizona. Loan counts, a key performance indicator, in2011-04-06T17:01:18+02:00http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=35http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=35PART II ITEM 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations Critical Factors Affecting Results Our results depend on the appropriateness of our product pricing and underwriting, the accuracy of the reserves we establish for future policyholder benefits and claims, returns on invested assets and our ability to manage our expenses. Therefore, factors affecting these items may have a material adverse effect on our results of operations or financial condition. For a listing of those factors see “Item 1A—Risk Factors.” and international economic and political conditions and other factors beyond our control. Fluctuations in interest rates affect our returns on, and the market value of, fixed maturity and short-term investments. Beginning January 1, 2011, Assurant Health will be required to start accruing for rebates to customers if the minimum loss ratio for some of its products is less than 80%. The rebate accrual will be reflected as a reduction to net earned premiums in the Statement of Operations. The fair market value of the fixed maturity securities in our portfolio and the investment income from these securities fluctuate depending on general economic and market conditions. The fair market value generally increases or decreases in an inverse relationship with fluctuations in interest rates, while net investment income realized by us from future investments in fixed maturity securities will generally increase or decrease with interest rates. We also have investments that carry pre-payment risk, such as mortgage-backed and asset-backed securities. Interest rate fluctuations may cause actual net investment income and/or cash flows from such investments to differ from estimates made at the time of investment. In periods of declining interest rates, mortgage prepayments generally increase and mortgage-backed securities, commercial mortgage obligations and bonds are more likely to be prepaid or redeemed as borrowers seek to borrow at lower interest rates. Therefore, in these circumstances we may be required to reinvest those funds in lowerinterest investments. Revenues We generate revenues primarily from the sale of our insurance policies and service contracts and from investment income earned on our investments. Sales of insurance policies are recognized in revenue as earned premiums while sales of administrative services are recognized as fee income. Effective January 1, 2009, new preneed life insurance policies in which death benefit increases are determined at the discretion of the Company are accounted for as universal life contracts under the universal life insurance accounting guidance. For contracts sold prior to January 1, 2009, these types of preneed life insurance sales were accounted for and will continue to be accounted for under limited pay insurance guidance. The change from reporting certain preneed life insurance policies in accordance with the universal life insurance guidance versus the limited pay insurance guidance is not material to the consolidated statement of operations or balance sheets. Under the universal life insurance guidance, income earned on new preneed life insurance policies is presented within policy fee income net of policyholder benefits. Under the limited pay insurance guidance, the consideration received on preneed policies is presented separately as net earned premiums, with policyholder benefits expense being shown separately. Our premium and fee income is supplemented by income earned from our investment portfolio. We recognize revenue from interest payments, dividends and sales of investments. Currently, our investment portfolio is primarily invested in fixed maturity securities. Both investment income and realized capital gains on these investments can be significantly affected by changes in interest rates. Interest rate volatility can increase or reduce unrealized gains or unrealized losses in our portfolios. Interest rates are highly sensitive to many factors, includ2011-04-06T17:01:18+02:00http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=36http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=36PART II ITEM 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations Reserves do not represent precise calculations of expected future claims, but instead represent our best estimates at a point in time of the ultimate costs of settlement and administration of a claim or group of claims, based upon actuarial assumptions and projections using facts and circumstances known at the time of calculation. Many of the factors affecting reserve adequacy are not directly quantifiable and not all future events can be anticipated when reserves are established. Reserve estimates are refined as experience develops. Adjustments to reserves, both positive and negative, are reflected in the statement of operations in the period in which such estimates are updated. Because establishment of reserves is an inherently uncertain process, there can be no certainty that ultimate losses will not exceed existing claims reserves. Future loss development could require reserves to be increased, which could have a material adverse effect on our earnings in the periods in which such increases are made. The following table provides reserve information of our major product lines for the years ended December 31, 2010 and 2009: December 31, 2010 Claims and Benefits Payable Incurred But Future Policy Not Reported Benefits and Unearned Reserves Expenses Premiums Case Reserves December 31, 2009 Claims and Benefits Payable Incurred But Not Reported Unearned Reserves Premiums Case Reserve Future Policy Benefits and Expenses Long Duration Contracts: Preneed funeral life insurance policies and investment-type annuity contracts $ 3,862,431 $ 78,986 $ 12,009 $ 4,085 $ 3,629,601 $ 37,672 $ 10,431 $ 4,018 Life insurance no longer offered 467,574 649 1,577 265 478,839 681 1,639 339 Universal life and other products no longer offered 246,177 197 272 8,727 263,360 168 233 8,744 FFG, LTC and other disposed businesses 3,435,762 39,119 33,535 567,557 2,879,224 41,531 25,542 421,605 Medical 87,588 9,340 7,515 11,044 93,447 11,665 18,137 13,737 All other 5,621 324 18,465 5,115 5,162 335 18,197 6,225 Short Duration Contracts: Group term life — 4,550 209,514 36,486 — 3,710 218,191 37,419 Group disability — 2,567 1,251,999 152,275 — 7,705 1,274,378 143,052 Medical — 104,169 104,288 186,102 — 112,603 169,260 190,366 Dental — 4,400 3,079 18,063 — 4,334 5,709 19,464 Property and Warranty — 1,887,759 168,952 349,479 — 1,896,897 173,009 368,242 Credit Life and Disability — 307,430 61,808 69,644 — 366,313 81,726 77,581 Extended Service Contracts — 2,363,836 2,855 40,373 — 2,482,683 2,350 50,207 All other — 260,673 8,211 17,875 — 187,267 10,013 16,513 TOTAL $ 8,105,153 $ 5,063,999 $ 1,884,079 $ 1,467,090 $ 7,349,633 $ 5,153,564 $ 2,008,815 $ 1,357,512 For a description of our reserving methodology, see Note 13 to the Consolidated Financial Statements included elsewhere in this report. Long Duration Contracts Reserves for future policy benefits represent the present value of future benefits to policyholders and related expenses less the present value of future net premiums. Reserve assumptions reflect best estimates for expected investment yield, inflation, mortality, morbidity, expenses and withdrawal rates. These assumptions are based on our experience to the extent it is credible, modified where appropriate to reflect current trends, industry experience and provisions for possible unfavorable deviation. We also record an unearned revenue reserve which represents premiums received which have not yet been recognized in our income statements. Historically, premium deficiency testing has not resulted in a material adjustment to deferred acquisition costs or reserves. Such adjustments could occur however, if economic or mortality conditions significantly deteriorated. 30 ASSURANT, INC.  2010 Form 10K Risks related to the reserves recorded for certain discontinued individual life, annuity, and long-term care insurance policies have been 100% ceded via reinsurance. While the Comp2011-04-06T17:01:18+02:00http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=37http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=37PART II ITEM 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations experience and make adjustments to our reserves and assumptions where necessary. Below are further discussions on the reserving process for our major short duration products. Group Disability and Group Term Life Case or claim reserves are set for active individual claims on group long term disability policies and for waiver of premium benefits on group term life policies. Reserve factors used to calculate these reserves reflect assumptions regarding disabled life mortality and claim recovery rates, claim management practices, awards for social security and other benefit offsets and yield rates earned on assets supporting the reserves. Group long term disability and group term life waiver of premium reserves are discounted because the payment pattern and ultimate cost are fixed and determinable on an individual claim basis. Our reserves discount rate for claims incurred prior to 2011 is 5.25%. Though our final determination has not yet been made, our current estimate is that claims incurred after 2011 will be 50 to 100 basis points lower, which will ultimately increase policyholder benefits. Factors considered when setting IBNR reserves include patterns in elapsed time from claim incidence to claim reporting, and elapsed time from claim reporting to claim payment. Key sensitivities at December 31, 2010 for group long term disability claim reserves include the discount rate and claim termination rates. Claims and Benefits Payable Group disability, discount rate decreased by 100 basis points $ 1,475,253 Group disability, as reported $ 1,404,274 Group disability, discount rate increased by 100 basis points $ 1,340,328 Claims and Benefits Payable Group disability, claim termination rate 10% lower $ 1,440,519 Group disability, as reported $ 1,404,274 Group disability, claim termination rate 10% higher $ 1,371,305 The discount rate is also a key sensitivity for group term life waiver of premium reserves. Group term life, discount rate decreased by 100 basis points Group term life, as reported Group life, discount rate increased by 100 basis points $ $ $ Claims and Benefits Payable 255,162 246,000 237,765 Medical IBNR reserves calculated using generally accepted actuarial methods represent the largest component of reserves for Medical claims and benefits payable. The primary methods we use in their estimation are the loss development method and the projected claim method for recent claim periods. Under the loss development method, we estimate ultimate losses for each incident period by multiplying the current cumulative losses by the appropriate loss development factor. The projected claim method is used when development methods do not provide enough data to reliably estimate reserves and utilize expected ultimate loss ratios to calculate the required reserve. Where appropriate, we use variations on each method or a blend of the two. Reserves for our various product lines are calculated using experience data where credible. If sufficient experience data is not available, data from other similar blocks may be used. Industry data provides additional benchmarks when historical experience is too limited. Reserve factors may also be adjusted to reflect factors not reflected in historical experience, such as changes in claims inventory levels, changes in provider negotiated rates or cost savings initiatives, increasing or decreasing medical cost trends, product changes and demographic changes in the underlying insured population. Key sensitivities as of December 31, 2010 for medical reserves include claims processing levels, claims under case management, medical inflation, seasonal effects, medical provider discounts and product mix. Medical, loss development factors 1% lower Medical, as reported Medical, loss development factors 1% higher * $ $ $ Claims and Benefits Payable* 303,390 290,390 278,390 This refers to loss development factors for the most recent 2011-04-06T17:01:18+02:00http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=38http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=38PART II ITEM 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations The data is typically analyzed using quarterly paid losses and/or quarterly case-incurred losses. Some product groupings may also use annual paid loss and/or annual case-incurred losses, as well as other actuarially accepted methods. Each of these data groupings produces an indication of the loss reserves for the product or product grouping. The process to select the best estimate differs by line of business. The single best estimate is determined based on many factors, including but not limited to: • the nature and extent of the underlying assumptions; • the quality and applicability of historical data—whether internal or industry data; • current and future market conditions—the economic environment will often impact the development of loss triangles; • the extent of data segmentation—data should be homogeneous yet credible enough for loss development methods to apply; and • the past variability of loss estimates—the loss estimates on some product lines will vary from actual loss experience more than others. Most of our credit insurance business is written on a retrospective commission basis, which permits management to adjust commissions based on claims experience. Thus, any adjustment to prior years’ incurred claims in this line of business is partially offset by a change in contingent commissions, which is included in the selling, underwriting and general expenses line in our results of operations. While management has used its best judgment in establishing its estimate of required reserves, different assumptions and variables could lead to significantly different reserve estimates. Two key measures of loss activity are loss frequency, which is a measure of the number of claims per unit of insured exposure, and loss severity, which is a measure of the average size of claims. Factors affecting loss frequency include the effectiveness of loss controls and safety programs and changes in economic activity or weather patterns. Factors affecting loss severity include changes in policy limits, retentions, rate of inflation and judicial interpretations. If the actual level of loss frequency and severity are higher or lower than expected, the ultimate reserves required will be different than management’s estimate. The effect of higher and lower levels of loss frequency and severity levels on our ultimate costs for claims occurring in 2010 would be as follows: Ultimate cost of claims occurring in 2010 $ 550,004 $ 539,376 $ 528,852 $ 518,431 $ 508,010 $ 497,486 $ 486,858 Change in cost of claims occurring in 2010 $ 31,573 $ 20,945 $ 10,421 $ 0 $ (10,421) $ (20,945) $ (31,573) Change in both loss frequency and severity for all Property and Warranty 3% higher 2% higher 1% higher Base scenario 1% lower 2% lower 3% lower Reserving for Asbestos and Other Claims Our property and warranty line of business includes exposure to asbestos, environmental and other general liability claims arising from our participation in various reinsurance pools from 1971 through 1985. This exposure arose from a short duration contract that we discontinued writing many years ago. We carry case reserves, as recommended by the various pool managers, and IBNR reserves totaling $35,668 (before reinsurance) and $25,461 (net of reinsurance) at December 31, 2010. We believe the balance of case and IBNR reserves for these liabilities are adequate. However, any estimation of these liabilities is subject to greater than normal variation and uncertainty due to the general lack of sufficiently detailed data, reporting delays and absence of a generally accepted actuarial methodology for those exposures. There are significant unresolved industry legal issues, including such items as whether coverage exists and what constitutes a claim. In addition, the determination of ultimate damages and the final allocation of losses to financially responsible parties are highly uncertain. However, based2011-04-06T17:01:18+02:00http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=39http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=39PART II ITEM 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations In June 2009, ARIC and AGIL, wholly-owned subsidiaries of the Company, entered into a settlement agreement with Willis Limited, a subsidiary of Willis Group Holdings Limited (“Willis Limited”). The settlement agreement related to an action commenced in 2007 in the English Commercial Court pertaining to the placement of personal accident reinsurance. Under the settlement agreement, Willis Limited paid ARIC and AGIL a total of $139,000, which was recorded in the Corporate and Other segment. Acquisition costs relating to monthly pay credit insurance business consist mainly of direct marketing 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 and group dental consist primarily of compensation to sales representatives. These acquisition costs are front-end loaded; thus, they are deferred and amortized over the estimated terms of the underlying contracts. Acquisition costs on the majority of individual medical contracts issued from 2003 through 2006, all individual medical contracts issued after 2006 and all small group medical contracts consist primarily of commissions to agents and brokers and compensation to representatives. These contracts are considered short duration because the terms of the contract are not fixed at issue and they are not guaranteed renewable. As a result, these costs are not deferred, but rather are recorded in the statement of operations in the period in which they are incurred. DAC Deferred acquisition costs (“DAC”) represent expenses incurred in prior periods primarily for the production of new business, that have been deferred for financial reporting purposes. Acquisition costs primarily consist of commissions, policy issuance expenses, premium tax and certain direct marketing expenses. The DAC asset is tested annually to ensure that future premiums or gross profits are sufficient to support the amortization of the asset. Such testing involves the use of best estimate assumptions to determine if anticipated future policy premiums and investment income are adequate to cover all DAC and related claims, benefits and expenses. To the extent a deficiency exists, it is recognized immediately by a charge to the statement of operations and a corresponding reduction in the DAC asset. If the deficiency is greater than unamortized DAC, a liability will be accrued for the excess deficiency. Investments We regularly monitor our investment portfolio to ensure investments that may be other-than-temporarily impaired are identified in a timely fashion, properly valued, and charged against earnings in the proper period. The determination that a security has incurred an other-thantemporary 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 financial 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 sufficient to allow for recovery for equity securities, or and the intent to sell or whether it is more likely than not that the Company will be required to sell for fixed 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. The impairment of a fixed 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 fixed maturity securiti2011-04-06T17:01:18+02:00http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=40http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=40PART II ITEM 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations 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 benefits 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. The ceding of insurance does not discharge our primary liability to our insureds. The following table sets forth our reinsurance recoverables as of the dates indicated: Reinsurance recoverables December 31, 2010 December 31, 2009 $ 4,997,316 $ 4,231,734 We have used reinsurance to exit certain businesses, including blocks of individual life, annuity, and long-term care business. The reinsurance recoverables relating to these dispositions amounted to $3,488,908 and $2,790,765 at December 31, 2010 and 2009, respectively. Ceded future policyholder benefits and expense Ceded unearned premium Ceded claims and benefits payable Ceded paid losses TOTAL In the ordinary course of business, we are involved in both the assumption and cession of reinsurance with non-affiliated companies. The following table provides details of the reinsurance recoverables balance for the years ended December 31: $ 2010 3,344,066 $ 796,944 823,731 32,575 4,997,316 $ 2009 2,786,916 698,985 680,836 64,997 4,231,734 $ We utilize reinsurance for loss protection and capital management, business dispositions and, in Assurant Solutions and Assurant Specialty Property, client risk and profit 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 insurers,” and “Item 7A—Quantitative and Qualitative Disclosures About Market Risk—Credit Risk.” Deferred Taxes Deferred income taxes are recorded for temporary differences between the financial 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 differences 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. The valuation allowance is sufficient to reduce the asset to the amount that is more likely than not to be realized. The Company has significant deferred tax assets resulting from capital loss carryforwards and other temporary differences that may reduce taxable income in future periods. The detailed components of our deferred tax assets, liabilities and valuation allowance are included in Note 8 to our consolidated financial statements. During 2008, the Company realized a tax benefit of $174,864 upon the sale of a non-operating subsidiary, United Family Life Insurance Company (“UFLIC”), and recorded an offsetting valuation allowance of $90,000. During 2009, the Company recognized $16,000 of other comprehensive income which reduced the valuation allowance to $74,000. During 2010, the Company recognized $6,000 of expense which increased the valuation allowance to $80,000. The increase in the valuation allowance was primarily related to fluctuations in gains resulting from certain tax planning strategies as well as fluctuations in gross unrealized gains. The gross deferred tax asset for cumulative realized and unrealized capital losses as of December 31, 2010 is $246,300, including the carryover from the loss on the sale of UFLIC. The realization of deferred tax assets depends upon the existence of sufficient taxa2011-04-06T17:01:18+02:00http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=41http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=41PART II ITEM 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations income from gross unrealized gains in its investment portfolio. The Company is also able to rely on the use of various tax planning strategies to forecast taxable gains in the foreseeable future. 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 differences, future taxable income exclusive of reversing temporary differences and carry forwards, taxable income in carry back years and tax-planning strategies. We have identified certain prudent and feasible strategies which could generate taxable future capital gain income. Tax planning strategies are actions that management ordinarily might not take, but would take, if necessary, to realize a tax benefit for a carryforward before it expires. Examples include, but are not limited to, changing the character of taxable or deductible amounts from ordinary income or loss to capital gain or loss or accelerating taxable amounts. While no commitments to implement any strategy have been made, these strategies have been considered in the analysis of the recoverability of the Company’s deferred tax assets and the reduction of the valuation allowance. The gross deferred tax asset related to net operating loss carryforwards on international subsidiaries is $52,897. Management believes that it is more likely than not that some of this asset will not be realized in the foreseeable future. Therefore, a cumulative valuation allowance of $9,971 has been recorded as of December 31, 2010. The Company is dependent on income of the same character in the same jurisdiction to support the deferred tax assets related to net operating loss carryforwards of international subsidiaries. As of December 31, 2010, the Company had a cumulative valuation allowance of $90,738 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. The 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 capital loss carryovers and international subsidiaries, a valuation allowance has not been established. Future reversal of the valuation allowance will be recognized either when the benefit is realized or when we determine that it is more likely than not that the benefit 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 statement 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 statement 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. The assumptions used in making these judgments are updated periodically by management based on current business conditions that affect the Company and overall economic conditions. These 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 Factor2011-04-06T17:01:18+02:00http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=42http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=42PART II ITEM 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations Certain of our reporting units have a very limited number of peer companies. A Guideline Company Method is used to value the reporting unit based upon its relative performance to its peer companies, based on several measures, including price to trailing 12 month earnings, price to projected earnings, price to tangible net worth and return on equity. A Dividend Discount Method (“DDM”) is used to value each reporting unit based upon the present value of expected cash flows available for distribution over future periods. Cash flows were discounted using a market participant weighted average cost of capital estimated for a reporting unit. 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 unit. A Guideline Transaction Method values the reporting unit based on available data concerning the purchase prices paid in acquisitions of companies operating in the insurance industry. The application of certain financial multiples calculated from these transactions provides an indication of estimated fair value of the reporting units. While all three valuation methodologies were considered in assessing fair value, the DDM was weighed more heavily since in the current economic environment, management believes that expected cash flows are the most important factor in the valuation of a business enterprise. In addition, recent dislocations in the economy, the scarcity of M&A transactions in the insurance marketplace and the relative lack of directly comparable companies particularly for Assurant Solutions, make the other methods less credible. Following the 2010 goodwill assessment, the Company concluded that the net book values of the Assurant Employee Benefits and Assurant Health reporting units exceeded their estimated fair values. Based on the results of the Step 2 test, the Company recorded impairment charges of $102,078 and $204,303 related to the Assurant Employee Benefits and Assurant Health reporting units, respectively, representing their entire goodwill asset balances. During 2009, the Company concluded that the net book value of the Assurant Employee Benefits reporting unit exceeded its estimated fair value and recorded an $83,000 impairment charge after performing a Step 2 test. The 2010 impairments at Assurant Employee Benefits and Assurant Health reflect the effects of the Affordable Care Act, the low interest rate environment, continuing high unemployment, the slow pace of the economic recovery and increased net book value primarily related to their investment portfolios. The 2009 impairment at Assurant Employee Benefits reflected the challenging near term growth environment for the business and an increased net book value, primarily related to their investment portfolio. Management remains confident in the long-term prospects of both the Assurant Employee Benefits and Assurant Health reporting units. See Note 6 and 11 for further information. The two reporting units that passed the 2010 Step 1 test, Assurant Solutions and Assurant Specialty Property, had estimated fair values that exceeded their net book values by 1.9% and 62.9%, respectively. Assurant Solutions passed the 2010 Step 1 test, by a slim margin mainly due to a significant increase in its net book value. The low interest rate environment in 2010 resulted in a significant increase in net unrealized gains in Assurant Solutions’ fixed income investments. The determination of fair value of our reporting units requires significant estimates and assumptions. These estimates and assumptions primarily include, but are not limited to, earnings and required capital projections 36 ASSURANT, I2011-04-06T17:01:18+02:00http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=43http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=43PART II ITEM 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations companies to make additional disclosures about plan assets for defined benefit pension and other postretirement benefit plans. The additional disclosure requirements include how investment allocation decisions are made, the major categories of plan assets and the inputs and valuation techniques used to measure the fair value of plan assets. The adoption of this new guidance did not have an impact on the Company’s financial position or results of operations. See Note 22 for further information. On October 1, 2009, the Company adopted the new guidance on measuring the fair value of liabilities. When the quoted price in an active market for an identical liability is not available, this new guidance requires that either the quoted price of the identical or similar liability when traded as an asset or another valuation technique that is consistent with the fair value measurements and disclosures guidance be used to fair value the liability. The adoption of this new guidance did not have an impact on the Company’s financial position or results of operations. On April 1, 2009, the Company adopted the new OTTI guidance. This new guidance amends the previous guidance for debt securities and modifies the presentation and disclosure requirements for debt and equity securities. In addition, it amends the requirement for an entity to positively assert the intent and ability to hold a debt security to recovery to determine whether an OTTI exists and replaces this provision with the assertion that an entity does not intend to sell or it is not more likely than not that the entity will be required to sell a security prior to recovery of its amortized cost basis. Additionally, this new guidance modifies the presentation of certain OTTI debt securities to only present the impairment loss within the results of operations that represents the credit loss associated with the OTTI with the remaining impairment loss being presented within other comprehensive income (loss) (“OCI”). At adoption, the Company recorded a cumulative effect adjustment to reclassify the non-credit component of previously recognized OTTI securities which resulted in an increase of $43,117 (after-tax) in retained earnings and a decrease of $43,117 (after-tax) in AOCI. See Note 5 for further information. On April 1, 2009, the Company adopted the new guidance on determining fair value in illiquid markets. This new guidance clarifies how to estimate fair value when the volume and level of activity for an asset or liability have significantly decreased. This new guidance also clarifies how to identify circumstances indicating that a transaction is not orderly. Under this new guidance, significant decreases in the volume and level of activity of an asset or liability, in relation to normal market activity, requires further evaluation of transactions or quoted prices and exercise of significant judgment in arriving at fair values. This new guidance also requires additional interim and annual disclosures. The adoption of this new guidance did not have an impact on the Company’s financial position or results of operations. On April 1, 2009, the Company adopted the new fair value of financial instruments guidance. This new guidance requires disclosures about the fair value of financial instruments already required in annual financial statements to be included within interim financial statements. This new guidance also requires disclosure of the methods and assumptions used to estimate fair value. The adoption of this new guidance did not have an impact on the Company’s financial position or results of operations. See Note 6 for further information. On January 1, 2009, the Company adopted the revised business combinations guidance. The revised guidance retains the fundamental requirements of the previous guidance in that the acquisition method of accounting be used for all business combinations, that an ac2011-04-06T17:01:18+02:00http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=44http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=44PART II ITEM 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations On January 1, 2008, the Company adopted the fair value measurements and disclosures guidance. This guidance defined fair value, addressed how companies should measure fair value when they are required to use a fair value measure for recognition or disclosure purposes under GAAP and expanded disclosures about fair value measurements. This guidance was applied prospectively for financial assets and liabilities measured on a recurring basis as of January 1, 2008 except for certain financial assets that were measured at fair value using a transaction price. For these financial instruments, which the Company has, this guidance required limited retrospective adoption and thus the difference between the fair values using a transaction price and the fair values using an exit price of the relevant financial instruments was shown as a cumulative-effect adjustment to the January 1, 2008 retained earnings balance. At adoption, the Company recognized a $4,400 decrease to other assets, and a corresponding decrease of $2,860 (after-tax) to retained earnings. See Notes 5 and 6 for further information regarding these financial instruments and the fair value disclosures, respectively. contracts. Under this amended guidance, acquisition costs are defined as costs that are related directly to the successful acquisition of new or renewal insurance contracts. The amendments are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2011. Therefore, the Company is required to adopt this guidance on January 1, 2012. Prospective application as of the date of adoption is required; however retrospective application to all prior periods presented upon the date of adoption is also permitted, but not required. Early adoption is permitted, but only at the beginning of an entity’s annual reporting period. The Company is currently evaluating the requirements of the amendments and the potential impact, if any, on the Company’s financial position and results of operations. In September 2009, the FASB issued new guidance on multiple deliverable revenue arrangements. This new guidance requires entities to use their best estimate of the selling price of a deliverable within a multiple deliverable revenue arrangement if the entity and other entities do not sell the deliverable separate from the other deliverables within the arrangement. In addition it requires both qualitative and quantitative disclosures. This new guidance is effective for new or materially modified arrangements in fiscal years beginning on or after June 15, 2010. Earlier application is permitted as of the beginning of a fiscal year. The Company did not apply the guidance early, thus it is required to adopt this new guidance on January 1, 2011. The adoption of this new guidance will not have an impact on the Company’s financial position or results of operations. Recent Accounting Pronouncements—Not Yet Adopted In October 2010, the Financial Accounting Standards Board (“FASB”) issued amendments to existing guidance on accounting for costs associated with acquiring or renewing insurance contracts. The amendments modify the definition of the types of costs incurred by insurance entities that can be capitalized in the acquisition of new and renewal 38 ASSURANT, INC.  2010 Form 10K2011-04-06T17:01:18+02:00http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=45http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=45PART II ITEM 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations Results of Operations Assurant Consolidated Overview The table below presents information regarding our consolidated results of operations: 2010 Revenues: Net earned premiums and other considerations Net investment income Net realized gains (losses) on investments Amortization of deferred gains on disposal of businesses Fees and other income Total revenues Benefits, losses and expenses: Policyholder benefits Selling, underwriting and general expenses (1) Interest expense Total benefits, losses and expenses Segment income before provision for income taxes and goodwill impairment Provision for income taxes Segment income before goodwill impairment Goodwill impairment NET INCOME $ 7,403,039 $ 703,190 48,403 10,406 362,684 8,527,722 3,640,978 3,913,273 60,646 7,614,897 912,825 327,267 585,558 306,381 279,177 $ For the Years Ended December 31, 2009 2008 7,550,335 $ 698,838 (53,597) 22,461 482,464 8,700,501 3,867,982 3,979,244 60,669 7,907,895 792,606 279,032 513,574 83,000 430,574 7,925,348 774,347 (428,679) 29,412 300,800 8,601,228 4,019,147 3,957,850 60,953 8,037,950 563,278 115,482 447,796 — 447,796 $ $ (1) Includes amortization of DAC and VOBA and underwriting, general and administrative expenses. Year Ended December 31, 2010 Compared to the Year Ended December 31, 2009 Net income decreased $151,397, or 35%, to $279,177 for Twelve Months 2010 from $430,574 for Twelve Months 2009. Twelve Months 2010 includes $107,075 (after-tax) of improved segment results and $66,300 (after-tax) of increased realized gains on investments, compared with Twelve Months 2009. However, results decreased primarily due to a non-cash goodwill impairment charge of $306,381 in Twelve Months 2010 compared with an $83,000 non-cash goodwill impairment charge in Twelve Months 2009. In addition, Twelve Months 2009 includes an $83,542 (after-tax) favorable legal settlement. Year Ended December 31, 2009 Compared to the Year Ended December 31, 2008 Net income decreased $17,222, or 4%, to $430,574 for Twelve Months 2009 from $447,796 for Twelve Months 2008. The decrease was primarily due to a $(30,220) net loss for Assurant Health for Twelve Months 2009 compared with net income of $120,254 for Twelve Months 2008. In addition, Twelve Months 2009 includes a non-cash goodwill impairment charge of $83,000. These negative items were partially offset by lower net realized losses on investments of $243,803 (after-tax) as Twelve Months 2009 includes $34,838 (after-tax) compared with $278,641 (after-tax) in Twelve Months 2008. ASSURANT, INC.  2010 Form 10K 392011-04-06T17:01:18+02:00http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=46http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=46PART II ITEM 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations Assurant Solutions Overview The table below presents information regarding Assurant Solutions’ segment results of operations: 2010 Revenues: Net earned premiums and other considerations Net investment income Fees and other income Total revenues Benefits, losses and expenses: Policyholder benefits Selling, underwriting and general expenses (5) Total benefits, losses and expenses Segment income before provision for income taxes Provision for income taxes SEGMENT NET INCOME Net earned premiums and other considerations: Domestic: Credit Service contracts Other (1) Total Domestic International: Credit Service contracts Other (1) Total International Preneed (4) TOTAL Fees and other income: Domestic: Debt protection Service contracts Other (1) Total Domestic International Preneed (4) TOTAL Gross written premiums (2): Domestic: Credit Service contracts Other (1) Total Domestic International: Credit Service contracts Other (1) Total International TOTAL Preneed (face sales) Combined ratio (3): Domestic International $ 2,484,299 397,297 228,052 3,109,648 889,387 2,052,628 2,942,015 167,633 64,427 103,206 189,357 1,291,725 49,017 1,530,099 346,475 459,166 18,001 823,642 130,558 2,484,299 33,049 110,386 8,839 152,274 28,930 46,848 228,052 422,825 1,193,423 65,732 1,681,980 968,878 523,382 22,407 1,514,667 3,196,647 734,884 100.5 % 105.9 % $ For the Years Ended December 31, 2009 2008 2,671,041 391,229 216,550 3,278,820 1,029,151 2,055,348 3,084,499 194,321 74,269 120,052 241,293 1,411,953 84,939 1,738,185 320,462 415,694 15,731 751,887 180,969 2,671,041 40,058 102,410 18,534 161,002 27,730 27,818 216,550 526,532 1,012,670 92,111 1,631,313 843,225 462,964 26,567 1,332,756 2,964,069 512,366 97.2 % 110.7 % $ 2,813,407 420,615 182,508 3,416,530 1,198,758 2,041,892 3,240,650 175,880 63,697 112,183 279,497 1,364,886 60,159 1,704,542 368,442 355,248 20,175 743,865 365,000 2,813,407 34,459 79,298 26,661 140,418 32,919 9,171 182,508 604,101 1,530,284 71,393 2,205,778 827,457 477,652 27,381 1,332,490 3,538,268 445,313 100.6 % 108.2 % $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ (1) This includes emerging products and run-off products lines. (2) Gross written premiums does not necessarily translate to an equal amount of subsequent net earned premiums since Assurant Solutions reinsures a portion of its premiums to insurance subsidiaries of its clients. (3) The combined ratio is equal to total benefits, losses and expenses divided by net earned premiums and other considerations and fees and other income excluding the preneed business. (4) Effective January 1, 2009, new preneed life insurance policies in which death benefit adjustments are determined at the discretion of the Company are accounted for as universal life contracts. For contracts sold prior to January 1, 2009, these preneed life insurance policies were accounted for and will continue to be accounted for under the limited pay insurance guidance. In accordance with the universal life insurance guidance, income earned on new preneed life insurance policies is presented within policy fee income net of policyholder benefits. Under the limited pay insurance guidance, the consideration received on preneed policies is presented separately as net earned premiums, with policyholder benefits expense being shown separately. The change from reporting certain preneed life insurance policies in accordance with the universal life insurance guidance versus the limited pay insurance guidance is not material to the statement of operations or balance sheet. (5) 2010 selling, underwriting and general expenses includes a $47,612 intangible asset impairment charge. 40 ASSURANT, INC.  2010 Form 10K2011-04-06T17:01:18+02:00http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=47http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=47PART II ITEM 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations Year Ended December 31, 2010 Compared to the Year Ended December 31, 2009 Net Income Segment net income decreased $16,846, or 14%, to $103,206 for Twelve Months 2010 from $120,052 for Twelve Months 2009 primarily due to an intangible asset impairment charge of $30,948 (after-tax) related to a fourth quarter 2010 client notification of non-renewal of a block of domestic service contract business effective June 1, 2011. Absent this item, net income increased $14,102, or 12%, as a result of improved underwriting results in our international and preneed businesses. International results improved primarily due to favorable loss experience in our U.K. credit insurance business and growth in Latin America. These items were partially offset by decreased underwriting results primarily attributable to the run-off of certain lines of business, and a $6,048 (after-tax) change in the value of our consumer price index caps (derivative instruments that protect against inflation risk in our preneed products). Additionally, Twelve Months 2009 net income included a $10,800 (after-tax) restructuring charge. Second Quarter 2009. Preneed face sales increased $222,518 primarily due to increased consumer buying in advance of a less favorable tax rate change in certain Canadian provinces, as well as growth from our exclusive distribution partnership with Services Corporation International (“SCI”) the largest funeral provider in North America, and increased sales initiatives. Total Benefits, Losses and Expenses Total benefits, losses and expenses decreased $142,484, or 5%, to $2,942,015 for Twelve Months 2010 from $3,084,499 for Twelve Months 2009. Policyholder benefits decreased $139,764 primarily due to improved loss experience in our U.K. credit business and in our domestic service contract business from existing and run-off clients, the run-off of preneed policies sold before January 1, 2009, and the continued run-off of our domestic credit business. Selling, underwriting and general expenses decreased $2,720. Commissions, taxes, licenses and fees, of which amortization of DAC is a component, decreased $42,585 as commission expense related to our domestic service contract business declined due to lower net earned premiums, partially offset by increased commission expense in our international business due to higher net earned premiums in that business coupled with the unfavorable impact of foreign exchange rates. General expenses increased $39,865 primarily due to the above-mentioned $47,612 (pre-tax) intangible asset impairment charge, the amortization of previously capitalized upfront client commission payments, as we continue to grow our international business and distribution channels, and the unfavorable impact of foreign exchange rates. Partially offsetting these increases was cost savings realized in Twelve Months 2010 as a result of a restructuring in Twelve Months 2009. This restructuring added $16,500 to expenses in Twelve Months 2009. Total Revenues Total revenues decreased $169,172, or 5%, to $3,109,648 for Twelve Months 2010 from $3,278,820 for Twelve Months 2009. The decrease was the result of lower net earned premiums of $186,742, which was primarily attributable to the continued run-off of: certain domestic extended service contract business as earnings from former clients that are no longer in business; preneed policies sold before January 1, 2009; and domestic credit insurance business. Partially offsetting these decreases was the addition of new domestic service contract business clients and growth in both our international credit and service contracts businesses, which also benefited from the favorable impact of foreign exchange rates. We expect net earned premiums in 2011 to decline $170,000 due to the run-off of domestic credit insurance business and former large extended services contract clients that are no longer in business. Fees and other 2011-04-06T17:01:18+02:00http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=48http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=48PART II ITEM 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations premiums written in prior periods and from a one-time campaign with Ford Motor Company conducted and completed in Second Quarter 2009. This increase was partially offset by unfavorable changes in foreign exchange rates as the U.S. dollar strengthened against international currencies, combined with the continued runoff of our domestic credit insurance business. Also contributing to the decrease in revenues was lower net investment income of $29,386, or 7%, primarily due to lower average invested assets and lower investment yields. These decreases were partially offset by an increase in fees and other income of $34,042, or 19%, primarily from the application of the universal life insurance accounting guidance for our Preneed business and the continued growth of our service contract businesses resulting from acquisitions made in the latter part of 2008. Gross written premiums decreased $574,199, or 16%, to $2,964,069 for Twelve Months 2009 from $3,538,268 for Twelve Months 2008. This decrease was driven primarily by lower domestic service contract business of $517,614, primarily due to a client bankruptcy and decreased retail and auto sales due to the slowdown in consumer spending. Gross written premiums from our domestic credit insurance business decreased $77,569, due to the continued runoff of this product line. Gross written premiums from our international service contract business decreased $14,688, primarily the result of unfavorable changes in foreign exchange rates. This was partially offset by growth from both new and existing clients, consistent with our international expansion strategy. Gross written premiums from our international credit business increased $15,768 primarily driven by growth in several countries due to strong growth from new and existing clients. This was partially offset by unfavorable changes in foreign exchange rates and the slowdown in the U.K. mortgage market. Preneed face sales were $67,053 higher due to growth from our exclusive distribution partnership with SCI and increased sales initiatives. Total Benefits, Losses and Expenses Total benefits, losses and expenses decreased $156,151, or 5%, to $3,084,499 for Twelve Months 2009 from $3,240,650 for Twelve Months 2008. Policyholder benefits decreased $169,607, primarily due to the above mentioned application of universal life insurance accounting guidance, in our Preneed business. Also contributing to the decrease were lower losses from a discontinued credit life product in Brazil and improved loss experience in our domestic service contract business from existing and run-off clients. This was partially offset by unfavorable loss experience in our U.K. credit insurance business primarily resulting from higher unemployment rates than the prior year. During the Twelve Months 2009, we ceased distributing unemployment insurance-related products through the internet but losses from similar products sold through more traditional distribution channels increased as a result of the prolonged high unemployment in the U.K. Selling, underwriting and general expenses increased $13,456. General expenses increased $82,616, primarily due to higher expenses associated with recent domestic extended service contract business acquisitions and restructuring charges relating to our international businesses of $10,600 and $5,900 for our domestic businesses. Commissions, taxes, licenses and fees, of which amortization of DAC is a component, decreased $69,160, primarily due to the corresponding favorable change in foreign exchange rates in our international business and reduced commission expense resulting from acquisitions completed in the latter part of 2008. Also contributing to the decrease was the above-mentioned application of universal life insurance accounting guidance in our Preneed business. These declines in Twelve Months 2009 were partially offset by an $18,000 reduction i2011-04-06T17:01:18+02:00http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=49http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=49PART II ITEM 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations Assurant Specialty Property Overview The table below presents information regarding Assurant Specialty Property’s segment results of operations: 2010 Revenues: Net earned premiums and other considerations Net investment income Fees and other income Total revenues Benefits, losses and expenses: Policyholder benefits Selling, underwriting and general expenses Total benefits, losses and expenses Segment income before provision for income tax Provision for income taxes SEGMENT NET INCOME Net earned premiums and other considerations by major product groupings: Homeowners (lender placed and voluntary) Manufactured housing (lender placed and voluntary) Other (1) TOTAL Ratios: Loss ratio (2) Expense ratio (3) Combined ratio (4) (1) (2) (3) (4) For the Years Ended December 31, 2009 2008 $ 1,947,529 110,337 56,890 2,114,756 664,182 832,528 1,496,710 618,046 212,049 405,997 1,369,031 219,960 358,538 1,947,529 34.1 % 41.5 % 74.7 % $ 2,048,238 123,043 50,000 2,221,281 785,403 817,848 1,603,251 618,030 212,827 405,203 1,471,012 225,209 352,017 2,048,238 38.3 % 39.0 % 76.4 % $ 1,953,223 107,092 69,147 2,129,462 684,652 797,996 1,482,648 646,814 222,527 424,287 1,342,791 220,309 390,123 1,953,223 35.1 % 39.5 % 73.3 % $ $ $ $ $ $ $ $ $ Primarily includes lender placed flood, miscellaneous specialty property and renters insurance products. The loss ratio is equal to policyholder benefits divided by net earned premiums and other considerations. The expense ratio is equal to selling, underwriting and general expenses divided by net earned premiums and other considerations and fees and other income. The combined ratio is equal to total benefits, losses and expenses divided by net earned premiums and other considerations and fees and other income. Year Ended December 31, 2010 Compared to the Year Ended December 31, 2009 Net Income Segment net income increased $18,290, or 5%, to $424,287 for Twelve Months 2010 from $405,997 for Twelve Months 2009. The improvement is primarily due to an improved expense ratio as a result of lower commission expense due to increases in client-ceded premiums and operational improvements. Results for Twelve Months 2010 include $14,797 (after tax) of reportable catastrophe losses, including losses from Arizona wind and hailstorms in fourth quarter 2010 and Tennessee storms during second quarter 2010. There were no reportable catastrophes during Twelve Months 2009. Total Revenues Total revenues increased $14,706, or 1%, to $2,129,462 for Twelve Months 2010 from $2,114,756 for Twelve Months 2009. Growth in lender placed homeowners, lender-placed flood and renters insurance products gross earned premiums and increased fee income were partially offset by increased ceded lender placed homeowners’ premiums and lower real estate owned premiums. Total Benefits, Losses and Expenses Total benefits, losses and expenses decreased $14,062, or 1%, to $1,482,648 for Twelve Months 2010 from $1,496,710 for Twelve Months 2009. The decrease was primarily due to lower selling, underwriting, and general expenses of $34,532 compared with Twelve Months 2009, partially offset by increased policyholder benefits of $20,470. The overall loss ratio increased 100 basis points primarily due to $22,764 of reportable catastrophes in Twelve Months 2010 and the non-recurrence of a $9,023 subrogation reimbursement in Twelve Months 2009. These items are partially offset by lower small-scale weather related losses. Commissions, taxes, licenses and fees decreased $37,676, primarily due to client contract changes that resulted in lower commission expenses and a release of a premium tax reserve. General expenses increased $3,144 primarily due to increased employee related expenses. Year Ended December 31, 2009 Compared to the Year Ended December 31, 2008 Net Income Segment net income was relatively flat at $405,997 for Twelve Months 2009 compared to $405,203 for Twelve Mo2011-04-06T17:01:18+02:00http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=50http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=50PART II ITEM 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations losses from California wildfires. There were no reportable catastrophe losses in Twelve Months 2009, however, net earned premiums decreased $65,461 (after-tax) compared with Twelve Months 2008 primarily related to reduced real estate owned insurance business and higher reinsurance costs. Total Revenues Total revenues decreased $106,525, or 5%, to $2,114,756 for Twelve Months 2009 from $2,221,281 for Twelve Months 2008. The decrease in revenues is primarily due to decreased net earned premiums of $100,709, or 5%. The decrease is primarily attributable to lower lender-placed homeowners insurance net earned premiums due to decreased premiums from real estate owned property, several lost clients due to the financial industry consolidation and a $29,434 increase in catastrophe reinsurance costs. Increased placement rates in our nonreal estate owned lender-placed business and increased average insured values partially offset these negative effects. Total Benefits, Losses and Expenses Total benefits, losses and expenses decreased $106,541 or 7%, to $1,496,710 for Twelve Months 2009 from $1,603,251 for Twelve Months 2008. The decrease was due to lower policyholder benefits of $121,221 partially offset by higher selling, underwriting, and general expenses of $14,680. The decrease in policyholder benefits was due to a decrease in reportable catastrophe losses of $132,600, net of reinsurance, related to Hurricanes Ike and Gustav and $7,770 related to California wildfire losses in Twelve Months 2008. There were no reportable catastrophe losses in Twelve Months 2009. Commissions, taxes, licenses and fees decreased $32,022, primarily due to the decline in net earned premiums. General expenses increased $46,702 primarily due to additional services provided to our clients, such as loss drafts, along with investment in technology and infrastructure initiatives. In addition, Twelve Months 2009 included $3,800 in severance costs related to a reduction in force, including the closure of our California operations center. Twelve Months 2009 combined ratio was 74.7% compared with 76.4% for Twelve Months 2008. Assurant Health Overview The table below presents information regarding Assurant Health’s segment results of operations: 2010 Revenues: Net earned premiums and other considerations Net investment income Fees and other income Total revenues Benefits, losses and expenses: Policyholder benefits Selling, underwriting and general expenses Total benefits, losses and expenses Segment income (loss) before provision for income tax Provision (benefit) for income taxes SEGMENT NET INCOME LOSS Net earned premiums and other considerations: Individual Markets: Individual medical Short-term medical Subtotal Small employer group: TOTAL Membership by product line: Individual Markets: Individual medical Short-term medical Subtotal Small employer group: TOTAL Ratios: Loss ratio (1) Expense ratio (2) Combined ratio (3) $ 1,864,122 48,540 40,133 1,952,795 1,302,928 565,060 1,867,988 84,807 30,778 54,029 $ For the Years Ended December 31, 2009 2008 1,879,628 47,658 39,879 1,967,165 1,410,171 604,698 2,014,869 (47,704 ) (17,484 ) 30,220  $ 1,951,955 57,464 38,917 2,048,336 1,258,188 604,605 1,862,793 185,543 65,289 120,254 $ $ $ $ $ 1,289,181 85,824 1,375,005 489,117 1,864,122 $ $ 1,270,198 104,238 1,374,436 505,192 1,879,628 $ $ 1,276,743 101,435 1,378,178 573,777 1,951,955 557 60 617 144 761 69.9 % 29.7 % 98.1 % 568 78 646 121 767 75.0 % 31.5 % 105.0 % 578 92 670 131 801 64.5 % 30.4 % 93.6 % (1) The loss ratio is equal to policyholder benefits divided by net earned premiums and other considerations. (2) The expense ratio is equal to selling, underwriting and general expenses divided by net earned premiums and other considerations and fees and other income. (3) The combined ratio is equal to total benefits, losses and expenses divided by net earned premiums and other considera2011-04-06T17:01:18+02:00http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=51http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=51PART II ITEM 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations The Affordable Care Act In March 2010, President Obama signed the Affordable Care Act. Provisions of the Affordable Care Act have and will become effective at various dates over the next several years. During Second Quarter 2010, management completed an extensive review of the Assurant Health segment and considered a number of possible future strategies. On the basis of this review, management believes that opportunities continue to exist in the individual medical marketplace and initiated various modifications necessary to operate in the new environment. In November 2010, HHS issued interim final regulations with respect to the Affordable Care Act, with a comment period continuing into first quarter 2011. As a result, the impact of the Affordable Care Act is clearer but not yet fully known. Management continues to modify its business model to adapt to these new regulations and will continue to monitor HHS and state regulatory activity for clarification and additional regulations. Given the sweeping nature of the changes represented by the Affordable Care Act, our results of operations and financial position could be materially adversely affected. For more information, see Item 1, “Risk Factors—Risk related to our industry—Recently enacted legislation reforming the U.S. health care system may have a material adverse effect on our financial condition and results of operations.” the benefit loss ratio decreased to 69.9% from 75.0%. The decrease was primarily due to a $26,802 benefit from a reserve release related to a legal settlement and favorable claim reserve development during Twelve Months 2010 compared to last year, partially offset by higher estimated claim experience in small employer group business. Twelve Months 2009 also includes charges of $49,800 relating to unfavorable rulings in two claim-related lawsuits. Selling, underwriting and general expenses decreased $39,638, or 7%, primarily due to reduced employeerelated and advertising expenses, lower amortization of deferred acquisition costs, and reduced commission expense due to lower sales of new policies. Twelve Months 2010 includes restructuring charges of $13,417 that were the result of expense management initiatives to help transition the business for the post-health care reform. Twelve Months 2009 also included a restructuring charge of $4,500. Year Ended December 31, 2009 Compared to the Year Ended December 31, 2008 Net (Loss)/Income Segment results decreased $150,474, or 125%, to a net loss of $(30,220) for Twelve Months 2009 from net income of $120,254 for Twelve Months 2008. The decrease is primarily attributable to deteriorating claims experience caused by higher medical benefits utilization in all products, $32,370 (after-tax) of charges relating to reserve increases for outcomes in two unfavorable claim-related lawsuits, H1N1-related medical services, unfavorable claim reserve development, the continuing decline in small employer group net earned premiums and increased expenses including $2,925 (after-tax) of restructuring costs. Total Revenues Total revenues decreased $81,171, or 4%, to $1,967,165 for Twelve Months 2009 from $2,048,336 for Twelve Months 2008. Net earned premiums and other considerations from our individual medical business decreased $6,545, or less than 1%, while net earned premiums and other considerations from our small employer group business decreased $68,585, or 12%, both due to a continued high level of policy lapses which were partially offset by premium rate increases. The decline in small employer group business is also due to increased competition and our adherence to strict underwriting guidelines. Also, net investment income decreased $9,806 due to lower yields and lower average invested assets. Total Benefits, Losses and Expenses Total benefits, losses and expenses increased $152,076, or 8%, to $2,014,869 for Twelve Months 2009 from $1,862,793 fo2011-04-06T17:01:18+02:00http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=52http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=52PART II ITEM 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations Assurant Employee Benefits Overview The table below presents information regarding Assurant Employee Benefits’ segment results of operations: 2010 Revenues: Net earned premiums and other considerations Net investment income Fees and other income Total revenues Benefits, losses and expenses: Policyholder benefits Selling, underwriting and general expenses Total benefits, losses and expenses Segment income before provision for income tax Provision for income taxes SEGMENT NET INCOME Net earned premiums and other considerations: By major product groupings: Group dental Group disability single premiums for closed blocks (3) All other group disability Group life TOTAL Ratios: Loss ratio (1) Expense ratio (2) $ 1,101,395 132,388 25,152 1,258,935 766,049 395,759 1,161,808 97,127 33,589 63,538 $ For the Years Ended December 31, 2009 2008 1,052,137 133,365 28,343 1,213,845 757,070 392,901 1,149,971 63,874 21,718 42,156 $ 1,111,748 147,027 26,139 1,284,914 775,684 400,816 1,176,500 108,414 37,857 70,557 $ $ $ $ $ 420,690 — 488,813 191,892 1,101,395 69.6 % 35.1 % $ $ 425,288 — 434,381 192,468 1,052,137 72.0 % 36.4 % $ $ 435,115 11,447 459,208 205,978 1,111,748 69.8 % 35.2 % (1) The loss ratio is equal to policyholder benefits divided by net earned premiums and other considerations. (2) The expense ratio is equal to selling, underwriting and general expenses divided by net earned premiums and other considerations and fees and other income. (3) This represents single premium on closed blocks of group disability business. For closed blocks of business we receive a single, upfront premium and in turn we record a virtually equal amount of claim reserves. We then manage the claims using our claim management practices. Year Ended December 31, 2010 Compared to the Year Ended December 31, 2009 Net Income Segment net income increased 51% to $63,538 for Twelve Months 2010 from $42,156 for Twelve Months 2009. The increase in net income was primarily attributable to favorable loss experience in all product lines. Favorable disability results and life mortality, as well as dental pricing actions, contributed to the improvement. Twelve Months 2010 includes restructuring charges of $4,349 (after-tax) compared to restructuring charges of $2,445 (after-tax) in Twelve Months 2009. Total Revenues Total revenues increased 4% to $1,258,935 for Twelve Months 2010 from $1,213,845 for Twelve Months 2009. Net earned premiums increased 5% or $49,258 mainly due to assumed premiums from two new clients in our DRMS distribution channel and the acquisition of a block of business from Shenandoah Life Insurance Company, all added in Fourth Quarter 2009. This was partially offset by decreases in our direct products as a result of a challenging sales and persistency environment which continues to affect revenue growth. Total Benefits, Losses and Expenses Total benefits, losses and expenses increased 1% to $1,161,808 for Twelve Months 2010 from $1,149,971 for Twelve Months 2009. The loss ratio decreased to 69.6% in Twelve Months 2010 from 72.0% in Twelve Months 2009 primarily due to higher net earned premiums and favorable loss experience across the disability, life, and dental products. Disability incidence and life mortality levels continue to be very favorable compared to prior year. The expense ratio decreased to 35.1% for Twelve Months 2010 from 36.4% for Twelve Months 2009 driven by higher net earned premiums and expense management initiatives partially offset by restructuring charges. Twelve Months 2010 includes $6,690 in restructuring charges compared to $3,760 in Twelve Months 2009. Year Ended December 31, 2009 Compared to the Year Ended December 31, 2008 Net Income Segment net income decreased $28,401 or 40%, to $42,156 for Twelve Months 2009 from $70,557 for Twelve Months 2008. The decrease in net income was primarily driven by lower net earned premiums and less favorable 2011-04-06T17:01:18+02:00http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=53http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=53PART II ITEM 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations average invested assets and lower investment yields. In addition, net income includes a reserve release related to annual reserve adequacy studies of $2,102 (after-tax) in Twelve Months 2009 compared with $3,485 (after-tax) in Twelve Months 2008. venture partnership income while Twelve Months 2009 includes a loss of $237 from real estate joint venture partnerships. Total Revenues Total revenues decreased 5% to $1,213,845 for Twelve Months 2009 from $1,284,914 for Twelve Months 2008. Twelve Months 2008 net earned premiums include $11,447 of single premiums on closed blocks of business. Excluding single premiums on closed blocks of business, net earned premiums decreased 4%, or $48,164, driven by decreases in all products. The overall decrease is due to increased lapses and fewer covered lives due to higher unemployment, along with a difficult sales environment which presents a challenge to revenue growth. Although we added two new clients in the fourth quarter of 2009, assumed premiums from our DRMS distribution channel decreased $7,626 or 5% for Twelve Months 2009 compared to the prior year, excluding single premiums from closed blocks of business. An additional $4,594 of assumed premiums in the fourth quarter of 2009 is attributable to the acquisition of a block of business from Shenandoah Life Insurance Company. Net investment income decreased 9% or $13,662 due to a decrease in average invested assets and lower investment yields. In addition, Twelve Months 2008 included $1,294 in real estate joint Total Benefits, Losses and Expenses Total benefits, losses and expenses decreased 2 % to $1,149,971 for Twelve Months 2009 from $1,176,500 for Twelve Months 2008. The loss ratio increased to 72.0% from 69.8%, primarily driven by less favorable experience across all products with the exception of assumed disability business through our Disability RMS distribution channel. Overall, disability recovery rates were less favorable for Twelve Months 2009 compared with the prior year, although incidence remained steady. Group life and dental experience were less favorable when compared with the prior year. Dental experience was impacted by higher utilization in Twelve Months 2009. Our annual reserve adequacy studies led to a release of $3,234, for Twelve Months 2009 resulting in a reduction to benefits and expenses compared with $5,362 in Twelve Months 2008. Excluding the single premiums on closed blocks of business in the prior year, the expense ratio increased to 36.4% from 35.2% driven by lower net earned premiums as well as additional costs incurred with new client additions and $3,760 of restructuring costs in Twelve Months 2009. We continued to manage expenses and experienced a 2% or $7,915 decrease for Twelve Months 2009 in selling, underwriting and general expenses compared with Twelve Months 2008. Corporate and Other The table below presents information regarding the Corporate and Other segment’s results of operations: 2010 Revenues: Net investment income Net realized gains (losses) on investments Amortization of deferred gains on disposal of businesses Fees and other income Total revenues Benefits, losses and expenses: Policyholder benefits Selling, underwriting and general expenses Interest expense Total benefits, losses and expenses Segment loss before benefit for income taxes Benefit for income taxes SEGMENT NET LOSS $ For the Years Ended December 31, 2009 2008 16,249 $ (53,597) 22,461 140,802 125,915 7,408 93,769 60,669 161,846 (35,931) (11,520) 24,411 $ 26,198 (428,679) 29,412 3,236 (369,833) 1,114 92,689 60,953 154,756 (524,589) (264,188) 260,401 17,873 $ 48,403 10,406 200 76,882 (2,038) 101,830 60,646 160,438 (83,556) (24,054) 59,502 $ $ Year Ended December 31, 2010 Compared to the Year Ended December 31, 2009 Net Loss Segment net loss increased $35,091 to $(59,502) for Twelve Months 2010 compared to a net loss of $(24,411) for2011-04-06T17:01:18+02:00http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=54http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=54PART II ITEM 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations Total Benefits, Losses and Expenses Total benefits, losses and expenses remained relatively flat at $160,438 for Twelve Months 2010 compared with $161,846 for Twelve Months 2009. tax expense from the change in deferred tax asset valuation allowance, previously disclosed executive compensation expense (severance and special retirement bonus) of $4,550 (after-tax) and a decline in net investment income of $6,467 (after-tax). Year Ended December 31, 2009 Compared to the Year Ended December 31, 2008 Net Loss Segment net loss improved $235,990 to $(24,411) for Twelve Months 2009 compared with $(260,401) for Twelve Months 2008. Segment results improved mainly due to a decline in net realized losses on investments of $243,803 (after-tax) and the above-mentioned $83,542 (after-tax) favorable legal settlement with Willis Limited. Segment results also include a $3,500 (after-tax) penalty to settle the previously disclosed SEC investigation regarding a finite reinsurance arrangement. Expenses related to the SEC investigation, which included reimbursements of certain SEC investigation related expenses through our director and officer insurance coverage, were $4,076 (after-tax) lower in Twelve Months 2009 compared with Twelve Months 2008. These improvements were partially offset by a tax benefit of $88,994 related to the sale of an inactive subsidiary included in Twelve Months 2008, $9,914 of Total Revenues Total revenues increased $495,748, to $125,915 for Twelve Months 2009 compared with $(369,833) for Twelve Months 2008. The increase in revenues is mainly due to an improvement of $375,082 in net realized losses on investments and the above-mentioned favorable legal settlement with Willis Limited. Included in net realized losses on investments were other-than-temporary impairments (“OTTI”) of $38,660 and $340,153 for Twelve Months 2009 and Twelve Months 2008, respectively. These increases were partially offset by a decline of $9,949 in net investment income as a result of lower short-term interest rates and lower average invested assets and $6,951 in lower amortization of deferred gains on disposal of businesses. Total Benefits, Losses and Expenses Total expenses increased $7,090, to $161,846 in Twelve Months 2009 compared with $154,756 in Twelve Months 2008. The increase in expenses is mainly due to additional executive compensation expense of $7,000. Goodwill Impairment The goodwill impairment test has two steps. Step 1 of the test identifies potential impairments at the reporting unit level, which for the Company is the same as our operating segments, by comparing the estimated fair value of each reporting unit to its net book value. If the estimated fair value of a reporting unit exceeds its net book value, there is no impairment of goodwill and Step 2 is unnecessary. However, if the net book value exceeds the estimated fair value, then Step 1 is failed, and Step 2 is performed to determine the amount of the potential impairment. Step 2 utilizes acquisition accounting guidance and requires the fair value calculation of all individual assets and liabilities of the reporting unit (excluding goodwill, but including any unrecognized intangible assets). The net fair value of assets less liabilities is then compared to the reporting unit’s total estimated fair value as calculated in Step 1. The excess of fair value over the net asset value equals the implied fair value of goodwill. The implied fair value of goodwill is then compared to the carrying value of goodwill to determine the reporting unit’s goodwill impairment. See “Item 7-Management’s Discussion and Analysis of Financial Condition and Results of Operations-Critical Factors Affecting Results-Critical Accounting Estimates-Valuation and Recoverability of Goodwill” and Notes 6 and 11 to the Consolidated Financial Statements contained elsewhere in this report for more information. Investments The 2011-04-06T17:01:18+02:00http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=55http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=55PART II ITEM 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations Major categories of net investment income were as follows: 2010 572,909 $ 33,864 88,894 3,248 5,259 19,019 5,577 728,770 (25,580) 703,190 $ Years Ended December 31, 2009 2008 558,639 $ 584,712 38,189 45,775 92,116 95,013 3,329 3,717 7,933 16,256 17,453 27,395 8,359 26,990 726,018 799,858 (27,180) (25,511) 698,838 $ 774,347 Fixed maturity securities Equity securities Commercial mortgage loans on real estate Policy loans Short-term investments Other investments Cash and cash equivalents Total investment income Investment expenses NET INVESTMENT INCOME $ $ Net investment income increased $4,352, or 1%, to $703,190 at December 31, 2010 from $698,838 at December 31, 2009. The increase is due to higher invested assets partially offset by lower investment yields. Net investment income decreased $75,509, or 10%, to $698,838 at December 31, 2009 from $774,347 at December 31, 2008. The decrease is due to lower overall investment yields. The credit markets improved throughout 2010. As a result, many securities in the portfolio have shown improved market values throughout the period. This has led to a net unrealized gain position of $617,538 as of December 31, 2010, compared to $281,327 as of December 31, 2009. As of December 31, 2010, the Company owned $178,997 of securities guaranteed by financial guarantee insurance companies. Included in this amount was $155,244 of municipal securities, with a credit rating of A+ both with and without the guarantee. The Company has exposure to sub-prime and related mortgages within our fixed maturity security portfolio. At December 31, 2010, approximately 2.3% of our residential mortgage-backed holdings had exposure to sub-prime mortgage collateral. This represented approximately 0.2% of the total fixed income portfolio and 0.7% of the total unrealized gain position. Of the securities with sub-prime exposure, approximately 26% are rated as investment grade. All residential mortgage-backed securities, including those with sub-prime exposure, are reviewed as part of the ongoing other-than-temporary impairment monitoring process. As required by the fair value measurements and disclosures guidance, the Company has identified and disclosed its financial assets in a fair value hierarchy, which consists of the following three levels: • Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access. • Level 2 inputs utilize other than quoted prices included in Level 1 that are observable for the asset, either directly or indirectly, for substantially the full term of the asset. Level 2 inputs include quoted prices for similar assets in active markets, quoted prices for identical or similar assets in markets that are not active and inputs other than quoted prices that are observable in the marketplace for the asset. The observable inputs are used in valuation models to calculate the fair value for the asset. • Level 3 inputs are unobservable but are significant to the fair value measurement for the asset, and include situations where there is little, if any, market activity for the asset. These inputs reflect management’s own assumptions about the assumptions a market participant would use in pricing the asset. A review of fair value hierarchy classifications is conducted on a quarterly basis. Changes in the observability of valuation inputs may result in a reclassification of levels for certain securities within the fair value hierarchy. Level 2 securities are valued using various observable market inputs obtained from a pricing service. The pricing service prepares estimates of fair value measurements for our Level 2 securities using proprietary valuation models which include observable market inputs. Observable market inputs are the assumptions market participants would use in pricing the asset or liability based on market data obtaine2011-04-06T17:01:18+02:00http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=56http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=56PART II ITEM 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations Management evaluates the following factors in order to determine whether the market for a financial asset is inactive. The factors include, but are not limited to: • There are few recent transactions, • Little information is released publicly, • The available prices vary significantly over time or among market participants, • The prices are stale (i.e., not current), and • The magnitude of the bid-ask spread. Illiquidity did not have a material impact in the fair value determination of the Company’s financial assets. The Company generally obtains one price for each financial asset. The Company performs a monthly analysis to assess if the evaluated prices represent a reasonable estimate of their fair value. This process involves quantitative and qualitative analysis and is overseen by investment and accounting professionals. Examples of procedures performed include, but are not limited to, initial and on-going review of pricing service methodologies, review of the prices received from the pricing service, review of pricing statistics and trends, and comparison of prices for certain securities with two different appropriate price sources for reasonableness. Following this analysis, the Company generally uses the best estimate of fair value based upon all available inputs. On infrequent occasions, a non-pricing service source may be more familiar with the market activity for a particular security than the pricing service. In these cases the price used is taken from the non-pricing service source. The pricing service provides information to indicate which securities were priced using market observable inputs so that the Company can properly categorize our financial assets in the fair value hierarchy. the collateral received, with additional collateral obtained, as necessary. The Company is subject to the risk of loss to the extent there is a loss on the re-investment of cash collateral. As of December 31, 2010 and 2009, our collateral held under securities lending, of which its use is unrestricted, was $122,219 and $218,129, respectively, while our liability to the borrower for collateral received was $122,931 and $220,279, respectively. The difference between the collateral held and obligations under securities lending is recorded as an unrealized loss and is included as part of AOCI. All securities with unrealized losses have been in a continuous loss position for twelve months or longer as of December 31, 2010 and December 31, 2009. The Company includes the available-for-sale investments purchased with the cash collateral in its evaluation of other-than-temporary impairments. Cash proceeds that the Company receives as collateral for the securities it lends and subsequent repayment of the cash are regarded by the Company as cash flows from financing activities, since the cash received is considered a borrowing. Since the Company reinvests the cash collateral generally in investments that are designated as available-for-sale, the reinvestment is presented as cash flows from investing activities. The Company began engaging in transactions during 2010 in which securities issued by the U.S. government and government agencies and authorities, are purchased under agreements to resell (“reverse repurchase agreements”). The Company may take possession of the securities purchased under reverse repurchase agreements. Collateral, greater than or equal to 100% of the fair value of the securities purchased, plus accrued interest, is pledged in the form of cash and cash equivalents or other securities, as provided for in the underlying agreement to selected broker/dealers. The use of the cash collateral pledged is unrestricted. Interest earned on the collateral pledged is recorded as investment income. As of December 31, 2010, we had $14,370 of receivables under securities loan agreements which is included in other assets on the consolidated balance she2011-04-06T17:01:18+02:00http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=57http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=57PART II ITEM 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations including increasing capital requirements for our insurance subsidiaries which, in turn, could negatively affect our capital resources. For 2011, the maximum amount of distributions our U.S. insurance subsidiaries could pay, under applicable laws and regulations without prior regulatory approval, is approximately $614,362. In total, we have taken dividends, net of infusions, of $832,300 from our operating companies during 2010. We anticipate that we will be able to take dividends in 2011 of at least equal to operating company earnings. Liquidity As of December 31, 2010, we had approximately $878,622 in capital at the holding company. Excluding our $250,000 capital buffer against tail-event risks, we have $628,622 in deployable capital. Dividends or returns of capital paid by our subsidiaries were $886,200, $703,099 and 453,303 for the years ended December 31, 2010, 2009 and 2008, respectively. We use these cash inflows primarily to pay expenses, to make interest payments on indebtedness, to make dividend payments to our stockholders, to make subsidiary capital contributions, to fund acquisitions and to repurchase our outstanding shares. In addition to paying expenses and making interest payments on indebtedness, our capital management strategy provides for several uses of the cash generated by our subsidiaries, including without limitation, returning capital to shareholders through share repurchases and dividends, investing in our businesses to support growth in targeted areas, and making prudent and opportunistic acquisitions. During 2010, 2009 and 2008 we made share repurchases and dividends of $602,568, $101,545 and $122,672, respectively. The primary sources of funds for our subsidiaries consist of premiums and fees collected, the proceeds from the sales and maturity of investments and investment income. Cash is primarily used to pay insurance claims, agent commissions, operating expenses and taxes. We generally invest our subsidiaries’ excess funds in order to generate investment income. We conduct periodic asset liability studies to measure the duration of our insurance liabilities, to develop optimal asset portfolio maturity structures for our significant lines of business and ultimately to assess that cash flows are sufficient to meet the timing of cash needs. These studies are conducted in accordance with formal company-wide Asset Liability Management (“ALM”) guidelines. To complete a study for a particular line of business, models are developed to project asset and liability cash flows and balance sheet items under a large, varied set of plausible economic scenarios. These models consider many factors including the current investment portfolio, the required capital for the related assets and liabilities, our tax position and projected cash flows from both existing and projected new business. Alternative asset portfolio structures are analyzed for significant lines of business. An investment portfolio maturity structure is then selected from these profiles given our return hurdle and risk preference. Sensitivity testing of significant liability assumptions and new business projections is also performed. Our liabilities have limited policyholder optionality which results in policyholder behavior that is relatively insensitive to the interest rate environment. In addition, our investment portfolio is largely comprised of highly liquid fixed maturity securities with a sufficient component of such securities invested that are near maturity which may be sold with minimal risk of loss to meet cash needs. Therefore, we believe we have limited exposure to disintermediation risk. Generally, our subsidiaries’ premiums, fees and investment income, along with planned asset sales and maturities, provide sufficient cash to pay claims and expenses. However, there are instances when unexpected cash needs arise in excess of that available from usual op2011-04-06T17:01:18+02:00http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=58http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=58PART II ITEM 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations The Pension Protection Act of 2006 (“PPA”) requires certain qualified plans, like the Assurant Pension Plan, to meet specified funding thresholds. If these funding thresholds are not met, there are negative consequences to the Assurant Pension Plan and participants. If the funded percentage falls below 80%, full payment of lump sum benefits as well as implementation of amendments improving benefits are restricted. As of January 1, 2010, the Assurant Pension Plan’s funded percentage was 113% on a PPA calculated basis. Therefore, benefit and payment restrictions did not occur during 2010. The 2010 funded measure will also be used to determine restrictions, if any, that can occur during the first nine months of 2011. Due to the funding status of the Assurant Pension Plan in 2010, no restrictions will exist before October 2011 (the time that the January 1, 2011 actuarial valuation needs to be completed). Also, based on the estimated funded status as of January 1, 2011, we do not anticipate any restrictions on benefits for the remainder of 2011. The Assurant Pension Plan was under-funded by $96,278 and $87,977 (based on the fair value of the assets compared to the projected benefit obligation) on a GAAP basis at December 31, 2010 and 2009, respectively. This equates to an 85% and 84% funded status at December 31, 2010 and 2009, respectively. The change in underfunded status is mainly due to a decrease in the discount rate used to determine the projected benefit obligation, which is partially offset by better than expected asset performance. In prior years we established a funding policy in which service cost plus 15% of the Assurant Pension Plan deficit is contributed annually. During 2010, we contributed $40,000 in cash to the Assurant Pension Plan. We expect to contribute at least $40,000 in cash to the Assurant Pension Plan over the course of 2011. See Note 22 to the Consolidated Financial Statements included elsewhere in this report for the components of the net periodic benefit cost. The impact of a 25 basis point change in the discount rate on the 2011 projected benefit expense would result in a change of $2,300 for the Assurant Pension Plan and the various non-qualified pension plans and $300 for the retirement health benefit plan. The impact of a 25 basis point change in the expected return on assets assumption on the 2011 projected benefit expense would result in a change of $1,400 for the Assurant Pension Plan and the various non-qualified pension plans and $100 for the retirement health benefits plan. and the issuance of multi-bank, syndicated letters of credit and/or letters of credit from a sole issuing bank in an aggregate amount of $350,000 and is available until December 2012, provided the Company is in compliance with all covenants. The agreement has a sublimit for letters of credit issued under the agreement of $50,000. The proceeds of these loans may be used for the Company’s commercial paper program or for general corporate purposes. The Company did not use the commercial paper program during the twelve months ended December 31, 2010 and 2009 and there were no amounts relating to the commercial paper program outstanding at December 31, 2010 and December 31, 2009. The Company made no borrowings using the 2009 Credit Facility and no loans are outstanding at December 31, 2010. The Company does have $24,396 of letters of credit outstanding under the 2009 Credit Facility as of December 31, 2010. The 2009 Credit Facility contains restrictive covenants, all of which were met as of December 31, 2010. These covenants include (but are not limited to): (i) Maintenance of a maximum debt to total capitalization ratio on the last day of any fiscal quarter of not greater than 35%, and (ii) Maintenance of a consolidated adjusted net worth in an amount not less than the “Minimum Amount”. For the purpose of this calculation the “Minimum Amount” is a2011-04-06T17:01:18+02:00http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=59http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=59PART II ITEM 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations Cash Flows We monitor cash flows at the consolidated, holding company and subsidiary levels. Cash flow forecasts at the consolidated and subsidiary levels are provided on a monthly basis, and we use trend and variance analyses to project future cash needs making adjustments to the forecasts when needed. The table below shows our recent net cash flows: 2010 Net cash provided by (used in): Operating activities (1) Investing activities Financing activities NET CHANGE IN CASH (1) Includes effect of exchange rates changes on cash and cash equivalents. For the Years Ended December 31, 2009 2008 278,963 $ 141,467 (142,562) 277,868 $ 976,857 (329,003) (412,134) 235,720 $ $ 540,313 $ (8,876) (699,473) 168,036 $ Cash Flows for the Years Ended December 31, 2010, 2009 and 2008 Operating Activities We typically generate operating cash inflows from premiums collected from our insurance products and income received from our investments while outflows consist of policy acquisition costs, benefits paid, and operating expenses. These net cash flows are then invested to support the obligations of our insurance products and required capital supporting these products. Our cash flows from operating activities are affected by the timing of premiums, fees, and investment income received and expenses paid. Net cash provided by operating activities was $540,313 and $278,963 for the years ended December 31, 2010 and 2009, respectively. The increased operating activity cash flow is primarily due to an increase in net written premiums in our Assurant Solutions and Assurant Specialty Property segments. Net cash provided by operating activities was $278,963 and $976,857 for the years ended December 31, 2009 and 2008, respectively. The decrease in cash provided by operating activities was primarily due to reduced gross written premium and greater claim payments made in 2009, primarily the result of deteriorating economic conditions and payments associated with hurricanes Ike and Gustav which occurred in the second half of 2008. Investing Activities Net cash (used in) provided by investing activities was $(8,876) and $141,467 for the years ended December 31, 2010 and 2009, respectively. The change in investing activities is primarily due to an increase in purchases of fixed maturity securities and changes in our short-term investments. Net cash provided by (used in) investing activities was $141,467 and $(329,003) for the years ended December 31, 2009 and 2008, respectively. The change in investing activities was primarily due to fewer purchases of short-term investments, commercial mortgage loans, fixed maturity securities and equity securities, partially offset by a decrease in sales of fixed maturity and equity securities. Financing Activities Net cash used in financing activities was $699,473 and $142,562 for the years ended December 31, 2010 and 2009, respectively. The increase in cash used in financing activities is primarily due to increased repurchases of our common stock and changes in our obligation under securities lending. Net cash used in financing activities was $142,562 and $412,134 for the years ended December 31, 2009 and 2008, respectively. The decrease in cash used in financing activities was primarily due to the change in obligation under securities lending, fewer repurchases of common stock and a decrease in the redemption of mandatorily redeemable preferred stock. The table below shows our cash outflows for interest and dividends for the periods indicated: 2010 Security Interest paid on mandatory redeemable preferred stock and debt Common stock dividends TOTAL $ $ 60,539 $ 69,618 130,157 $ For the Years Ended December 31, 2009 2008 60,569 $ 69,596 130,165 $ 60,859 63,672 124,531 ASSURANT, INC.  2010 Form 10K 532011-04-06T17:01:18+02:00http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=60http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=60PART II ITEM 7A Quantitative and Qualitative Disclosures About Market Risk Commitments and Contingencies We have obligations and commitments to third parties as a result of our operations. These obligations and commitments, as of December 31, 2010, are detailed in the table below by maturity date as of the dates indicated: Total Contractual obligations: $ Insurance liabilities (1) Debt and related interest Mandatory redeemable preferred stock (2) Operating leases Pension obligations and postretirement benefit Commitments: Purchase commitments Investment purchases outstanding: Commercial mortgage loans on real estate Other investments Liability for unrecognized tax benefit TOTAL OBLIGATIONS AND COMMITMENTS $ 19,445,211 $ 1,796,813 5,000 133,572 551,050 100,000 25,140 3,524 22,249 22,082,559 $ Less than 1 year 1,738,096 $ 60,188 5,000 30,224 39,807 100,000 25,140 3,524 5,149 2,007,128 $ 1-3 years 1,614,593 $ 120,375 — 43,011 80,222 — — — 8,851 1,867,052 $ As of December 31, 2010 3-5 years More than 5 years 1,446,706 $ 564,125 — 29,349 110,945 — — — 8,249 2,159,374 $ 14,645,816 1,052,125 — 30,988 320,076 — — — — 16,049,005 (1) Insurance liabilities reflect estimated cash payments to be made to policyholders. (2) During February 2011, all outstanding mandatory redeemable preferred stock shares were redeemed. Liabilities for future policy benefits and expenses of $8,105,153 and claims and benefits payable of $3,351,169 have been included in the commitments and contingencies table. Significant uncertainties relating to these liabilities include mortality, morbidity, expenses, persistency, investment returns, inflation, contract terms and the timing of payments. Letters of Credit In the normal course of business, letters of credit are issued primarily to support reinsurance arrangements. These letters of credit are supported by commitments with financial institutions. We had approximately $24,946 and $28,566 of letters of credit outstanding as of December 31, 2010 and December 31, 2009, respectively. Off-Balance Sheet Arrangements The Company does not have any off-balance sheet arrangements that are reasonably likely to have a material effect on the financial condition, results of operations, liquidity, or capital resources of the Company. ITEM 7A Quantitative and Qualitative Disclosures About Market Risk As a provider of insurance products, effective risk management is fundamental to our ability to protect both our customers’ and stockholders’ interests. We are exposed to potential loss from various market risks, in particular interest rate risk and credit risk. Additionally, we are exposed to inflation risk and to a lesser extent foreign currency risk. Interest rate risk is the possibility that the fair value of liabilities will change more or less than the market value of investments in response to changes in interest rates, including changes in investment yields and changes in spreads due to credit risks and other factors. Credit risk is the possibility that counterparties may not be able to meet payment obligations when they become due. We assume counterparty credit risk in many forms. A counterparty is any person or entity from which cash or other forms of consideration are expected to extinguish a liability or obligation to us. Primarily, our credit risk exposure is concentrated in our fixed maturity investment portfolio and, to a lesser extent, in our reinsurance recoverables. Inflation risk is the possibility that a change in domestic price levels produces an adverse effect on earnings. This typically happens when either invested assets or liabilities, but not both is indexed to inflation. Foreign exchange risk is the possibility that changes in exchange rates produce an adverse effect on earnings and equity when measured in domestic currency. This risk is largest when assets backing liabilities payable in one currency are invested in financial instruments of another currency. Our general principle is to invest in assets that match the currenc2011-04-06T17:01:18+02:00http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=61http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=61PART II ITEM 7A Quantitative and Qualitative Disclosures About Market Risk Interest Rate Risk Interest rate risk arises as we invest substantial funds in interest-sensitive fixed income assets, such as fixed maturity securities, mortgage-backed and asset-backed securities and commercial mortgage loans, primarily in the United States and Canada. There are two forms of interest rate risk—price risk and reinvestment risk. Price risk occurs when fluctuations in interest rates have a direct impact on the market valuation of these investments. As interest rates rise, the market value of these investments falls, and conversely, as interest rates fall, the market value of these investments rise. Reinvestment risk occurs when fluctuations in interest rates have a direct impact on expected cash flows from mortgage-backed and assetbacked securities. As interest rates fall, an increase in prepayments on these assets results in earlier than expected receipt of cash flows forcing us to reinvest the proceeds in an unfavorable lower interest rate environment. Conversely, as interest rates rise, a decrease in prepayments on these assets results in later than expected receipt of cash flows forcing us to forgo reinvesting in a favorable higher interest rate environment. We manage interest rate risk by selecting investments with characteristics such as duration, yield, currency and liquidity tailored to the anticipated cash outflow characteristics of our insurance and reinsurance liabilities. Our group long-term disability reserves are also sensitive to interest rates. Group long-term disability and group term life waiver of premium reserves are discounted to the valuation date at the valuation interest rate. The valuation interest rate is determined by taking into consideration actual and expected earned rates on our asset portfolio. The interest rate sensitivity relating to price risk of our fixed maturity securities is assessed using hypothetical scenarios that assume several positive and negative parallel shifts of the yield curves. We have assumed that the United States and Canadian yield curve shifts are of equal direction and magnitude. The individual securities are repriced under each scenario using a valuation model. For investments such as callable bonds and mortgage-backed and asset-backed securities, a prepayment model was used in conjunction with a valuation model. Our actual experience may differ from the results noted below particularly due to assumptions utilized or if events occur that were not included in the methodology. The following tables summarize the results of this analysis for bonds, mortgage-backed and asset-backed securities held in our investment portfolio as of the dates indicated: INTEREST RATE MOVEMENT ANALYSIS OF MARKET VALUE OF FIXED MATURITY SECURITIES INVESTMENT PORTFOLIO As of December 31, 2010 Total market value % Change in market value from base case $ Change in market value from base case As of December 31, 2009 Total market value % Change in market value from base case $ Change in market value from base case -100 11,388,823 7.31 % 776,271 -100 10,680,018 7.16 % 713,246 -50 10,995,378 3.61 % 382,826 -50 10,316,329 3.51 % 349,557 0 10,612,552 —% — 0 9,966,772 —% — 50 10,246,251 $ (3.45)% (366,301) $ 50 9,632,477 $ (3.35)% (334,295) $ 100 9,900,718 (6.71)% (711,834) 100 9,315,290 (6.45)% (651,482) $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ The interest rate sensitivity relating to reinvestment risk of our fixed maturity securities is assessed using hypothetical scenarios that assume purchases in the primary market and considers the effects of interest rates on sales. The effects of embedded options including call or put features are not considered. Our actual results may differ from the results noted below particularly due to assumptions utilized or if events occur that were not included in the methodology. The following tables summarize the results of this analysis on our reported portfolio yield as of the dates indicated: INTEREST 2011-04-06T17:01:18+02:00http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=62http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=62PART II ITEM 7A Quantitative and Qualitative Disclosures About Market Risk The following table presents our fixed maturity investment portfolio by ratings of the nationally recognized securities rating organizations as of the dates indicated: Rating Aaa/Aa/A Baa Ba B and lower TOTAL December 31, 2010 Fair Value Percentage of Total 6,488,208 61 % $ 3,227,216 30 % 618,465 6% 278,663 3% 10,612,552 100 % $ December 31, 2009 Fair Value Percentage of Total 6,152,842 62 % 2,953,964 30 % 647,321 6% 212,645 2% 9,966,772 100 % $ $ We are also exposed to the credit risk of our reinsurers. When we reinsure, we are still liable to our insureds regardless of whether we get reimbursed by our reinsurer. As part of our overall risk and capacity management strategy, we purchase reinsurance for certain risks underwritten by our various business segments as described above under “Item 7— Management’s Discussion and Analysis of Financial Condition and Results of Operations—Reinsurance.” The Company had $4,997,316 and $4,231,734 of reinsurance recoverables as of December 31, 2010 and 2009, respectively, the majority of which are protected from credit risk by various types of risk mitigation mechanisms such as trusts, letters of credit or by withholding the assets in a modified coinsurance or co-funds-withheld arrangement. For example, reserves of $1,185,687 and $2,303,221 as of December 31, 2010 and $1,221,513 and $1,569,252 as of December 31, 2009, relating to two large coinsurance arrangements with The Hartford and John Hancock (a subsidiary of Manulife Financial Corporation), respectively, related to sales of businesses are held in trusts. If the value of the assets in these trusts falls below the value of the associated liabilities, The Hartford and John Hancock, as the case may be, will be required to put more assets in the trusts. We may be dependent on the financial condition of The Hartford and John Hancock, whose A.M. Best ratings are currently A and A+, respectively. A.M. Best recently placed a negative outlook on the financial strength ratings of John Hancock and a stable outlook on the financial strength ratings of The Hartford. For recoverables that are not protected by these mechanisms, we are dependent solely on the credit of the reinsurer. Occasionally, the credit worthiness of the reinsurer becomes questionable. See “Item 1A—Risk Factors—Risks Related to Our Company—Reinsurance may not be available or adequate to protect us against losses, and we are subject to the credit risk of reinsurers” and “—We have sold businesses through reinsurance that could again become our direct financial and administrative responsibility if the purchasing Companies were to become insolvent”. A majority of our reinsurance exposure has been ceded to companies rated A- or better by A.M. Best. Inflation Risk Inflation risk arises as we invest substantial funds in nominal assets, which are not indexed to the level of inflation, whereas the underlying liabilities are indexed to the level of inflation. Approximately 7% and 9% of Assurant preneed insurance policies, with reserves of $316,033 and $341,956 as of December 31, 2010 and 2009, respectively, have death benefits that are guaranteed to grow with the CPI. In times of rapidly rising inflation, the credited death benefit growth on these liabilities increases relative to the investment income earned on the nominal assets resulting in an adverse impact on earnings. We have partially mitigated this risk by purchasing derivative contracts with payments tied to the CPI. See “—Derivatives”. In addition, we have inflation risk in our individual and small employer group health insurance businesses to the extent that medical costs increase with inflation, and we have not been able to increase premiums to keep pace with inflation. Foreign Exchange Risk We are exposed to foreign exchange risk arising from our international operations, mainly in Canada. We also have foreign exchange risk exposure to the British pound, Brazilian Rea2011-04-06T17:01:18+02:00http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=63http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=63PART II ITEM 8 Financial Statements and Supplementary Data As of December 31, 2009 Foreign exchange spot rate at December 31, 2009, US Dollar to Canadian Dollar Total market value % change of market value from base case $ change of market value from base case -10 % 9,852,603 $ (1.15)% (114,169) $ -5 % 9,909,688 $ (0.57)% (57,084) $ 0 9,966,772 —% — 5% 10 % $ 10,023,856 $ 10,080,941 0.57 % 1.15 % $ 57,084 $ 114.169 $ $ The foreign exchange risk sensitivity of our consolidated net income is assessed using hypothetical test scenarios that assume earnings in Canadian dollars are recognized evenly throughout a period. Our actual results may differ from the results noted below particularly due to assumptions utilized or if events occur that were not included in the methodology. For more information on this risk. Please see FOREIGN EXCHANGE MOVEMENT ANALYSIS OF NET INCOME “Item 1A—Risk Factors-Risk Related to Our Company—Fluctuations in the exchange rate of the U.S. dollar and other foreign currencies may materially and adversely affect our results of operations”. The following tables summarize the results of this analysis on our reported net income as of the dates indicated: As of December 31, 2010 Foreign exchange daily average rate for the year ended December 31, 2010, US Dollar to Canadian Dollar Net income % change of net income from base case $ change of net income from base case $ $ -10 % 274,761 $ (1.58)% (4,416) $ -5 % 276,969 $ (0.79)% (2,208) $ 0 279,177 —% — $ $ 5% 281,385 $ 0.79 % 2,208 $ 10 % 283,593 1.58 % 4,416 As of December 31, 2009 Foreign exchange daily average rare for the year ended December 31, 2009, US Dollar to Canadian Dollar Net Income % change of net income from base case $ change of net income from base case -10 % 427,843 $ (0.63)% (2,731) $ -5 % 429,208 $ (0.32)% (1.366) $ 0 430.574 —% — 5% 431.940 $ 0.32 % 1,366 $ 10 % 433,305 0.63 % 2,731 $ $ $ $ Derivatives Derivatives are financial instruments whose values are derived from interest rates, foreign exchange rates, financial indices or the prices of securities or commodities. Derivative financial instruments may be exchange-traded or contracted in the over-the-counter market and include swaps, futures, options and forward contracts. Under insurance statutes, our insurance companies may use derivative financial instruments to hedge actual or anticipated changes in their assets or liabilities, to replicate cash market instruments or for certain income-generating activities. These statutes generally prohibit the use of derivatives for speculative purposes. We generally do not use derivative financial instruments. We have purchased contracts to cap the inflation risk exposure inherent in some of our preneed insurance policies. In accordance with the guidance on embedded derivatives, we have bifurcated the modified coinsurance agreement with The Hartford into its debt host and embedded derivative (total return swap) and recorded the embedded derivative at fair value in the consolidated balance sheets. The invested assets related to this modified coinsurance agreement are included in other investments on the consolidated balance sheets. ITEM 8 Financial Statements and Supplementary Data The consolidated financial statements and financial statement schedules in Part IV, Item 15(a) 1 and 2 of this report are incorporated by reference into this Item 8. ASSURANT, INC.  2010 Form 10K 572011-04-06T17:01:18+02:00http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=64http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=64PART II ITEM 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure ITEM 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure There have been no disagreements with accountants on accounting and financial disclosure. ITEM 9A Controls and Procedures Disclosure Controls and Procedures The management of Assurant is responsible for establishing and maintaining effective disclosure controls and procedures, as defined under Rules 13a-15 and 15d-15 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). As of December 31, 2010, an evaluation was performed under the supervision and with the participation of the Company’s management, including the chief executive officer and chief financial officer, of the effectiveness of the design and operation of Assurant’s disclosure controls and procedures. Based on that evaluation, management concluded that Assurant’s disclosure controls and procedures as of December 31, 2010, were effective to provide reasonable assurance that information required to be disclosed by Assurant in the reports Assurant files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the applicable rules and forms and that it is accumulated and communicated to our management, as appropriate, to allow timely decisions regarding required disclosure. Management’s Annual Report on Internal Control Over Financial Reporting The management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting for the Company as defined in Rule 13a-15(f ) under the Exchange Act. A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States. A company’s internal control over financial reporting includes policies and procedures that (1) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. The Company’s management assessed its internal control over financial reporting as of December 31, 2010 using criteria established in “Internal Control—Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission. Management, including the Company’s chief executive officer and its chief financial officer, based on their evaluation of the Company’s internal control over financial reporting (as defined in Exchange Act Rule 13a-15(f )), have concluded that the Company’s internal control over financial reporting was effective as of December 31, 2010. The effectiveness of the Company’s internal control over financial reporting as of December 31, 2010 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which appears herein. There have be2011-04-06T17:01:18+02:00http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=65http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=65PART III ITEM 12 Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters PART III ITEM 10 Directors, Executive Officers and Corporate Governance The information regarding executive officers in our upcoming 2011 Proxy Statement (“2011 Proxy Statement”) under the caption “Executive Officers” is incorporated herein by reference. The information regarding directors in the 2011 Proxy Statement, under the caption “Election of Directors” in “Proposal One” is incorporated herein by reference. The information regarding compliance with Section 16(a) of the Exchange Act in the 2011 Proxy Statement, under the caption “Section 16(a) Beneficial Ownership Reporting Compliance” is incorporated herein by reference. The information regarding the Compensation Committee, the Nominating and Corporate Governance Committee and the Audit Committee in the 2011 Proxy Statement under the captions “Nominating and Corporate Governance Committee” and “Audit Committee” in “Corporate Governance” is incorporated herein by reference. Code of Ethics The Assurant Code of Ethics applies to all directors, officers and employees of Assurant, including the principal executive officer, principal financial officer and principal accounting officer. The Code of Ethics and our Corporate Governance Guidelines are posted in the “Corporate Governance” subsection of the “Investor Relations” section of our website at www.assurant.com which is not incorporated by reference herein. We intend to post any amendments to or waivers from the Code of Ethics that apply to our executive officers or directors on our website. ITEM 11 Executive Compensation The information in the 2011 Proxy Statement under the captions “Compensation Discussion and Analysis”, “Compensation of Named Executive Officers” and “Compensation of Directors” is incorporated herein by reference. The information in the 2011 Proxy Statement regarding the Compensation Committee under the captions “Compensation Committee”, “Compensation Committee Interlocks and Insider Participation” and “Compensation Committee Report” in “Corporate Governance” is incorporated herein by reference. ITEM 12 Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters The information in the 2011 Proxy Statement under the captions “Securities Authorized for Issuance Under Equity Compensation Plans,” “Security Ownership of Certain Beneficial Owners” and “Security Ownership of Management” is incorporated herein by reference. ASSURANT, INC.  2010 Form 10K 592011-04-06T17:01:18+02:00http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=66http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=66PART III ITEM 13 Certain Relationships and Related Transactions, and Director Independence ITEM 13 Certain Relationships and Related Transactions, and Director Independence The information in the 2011 Proxy Statement under the captions “Transactions with Related Persons” and “Director Independence” in “Corporate Governance” is incorporated herein by reference. ITEM 14 Principal Accounting Fees and Services The information in the 2011 Proxy Statement under the caption “Fees of Principal Accountants” in “Audit Committee Matters” is incorporated herein by reference. 60 ASSURANT, INC.  2010 Form 10K2011-04-06T17:01:18+02:00http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=67http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=67PART IV ITEM 15 Exhibits and Financial Statement Schedules PART IV ITEM 15 Exhibits and Financial Statement Schedules (a)1. Consolidated Financial Statements The following consolidated financial statements of Assurant, Inc., incorporated by reference into Item 8, are attached hereto: Consolidated Financial Statements of Assurant, Inc. Report of Independent Registered Public Accounting Firm Assurant, Inc. Consolidated Balance Sheets at December 31, 2010 and 2009 Assurant, Inc. Consolidated Statements of Operations For Years Ended December 31, 2010, 2009 and 2008 Assurant, Inc. Consolidated Statements of Changes in Stockholders’ Equity For Years Ended December 31, 2010, 2009 and 2008 Assurant, Inc. Consolidated Statements of Cash Flows For Years Ended December 31, 2010, 2009 and 2008 Assurant, Inc. Notes to Consolidated Financial Statements-December 31, 2010, 2009 and 2008 F-1 F-2 F-3 F-4 F-6 F-7 (a)2. Consolidated Financial Statement Schedules The following consolidated financial statement schedules of Assurant, Inc. are attached hereto: Schedule I—Summary of Investments other than Investments in Related Parties F-59 Schedule II—Parent Only Condensed Financial Statements F-60 Schedule III—Supplementary Insurance Information F-63 Schedule IV—Reinsurance F-64 Schedule V—Valuation and Qualifying Accounts F-65 *All other schedules are omitted because they are not applicable, not required, or the information is included in the financial statements or the notes thereto. (a)3. Exhibits reflect the allocation of risk among the parties to such agreements and (iv) may apply materiality standards different from what may be viewed as material to investors. Accordingly, these representations and warranties may not describe the Company’s actual state of affairs at the date hereof and should not be relied upon. The following exhibits either (a) are filed with this report or (b) have previously been filed with the SEC and are incorporated herein by reference to those prior filings. Exhibits are available upon request at the investor relations section of our website, located at www.assurant.com. Pursuant to the rules and regulations of the SEC, the Company has filed or incorporated by reference certain agreements as exhibits to this Annual Report on Form 10-K. These agreements may contain representations and warranties by the parties. These representations and warranties have been made solely for the benefit of the other party or parties to such agreements and (i) may have been qualified by disclosures made to such other party or parties, (ii) were made only as of the date of such agreements or such other date(s) as may be specified in such agreements and are subject to more recent developments, which may not be fully reflected in the Company’s public disclosure, (iii) may ASSURANT, INC.  2010 Form 10K 612011-04-06T17:01:18+02:00http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=68http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=68PART IV ITEM 15 Exhibits and Financial Statement Schedules Exhibit Number 3.1 3.2 4.1 4.2 4.3 10.1 10.2 10.3 10.4 10.5 10.6 10.7 10.8 10.9 10.10 10.11 10.12 10.13 10.14 10.15 10.16 10.17 10.18 10.19 10.20 10.21 10.22 10.23 10.24 10.25 10.26 Exhibit Description Restated Certificate of Incorporation of the Registrant (incorporated by reference from Exhibit 3.1 to the Registrant’s Form 10-Q, originally filed on August 5, 2010). Amended and Restated By-Laws of the Registrant (incorporated by reference from Exhibit 3.2 to the Registrant’s Form 10-Q, originally filed on August 5, 2010). Specimen Common Stock Certificate (incorporated by reference from Exhibit 4.1 to the Registrant’s Registration Statement on Form S-1/A (File No. 333-109984) and amendments thereto, originally filed on January 13, 2004). Senior Debt Indenture dated as of February 18, 2004 between Assurant, Inc. and SunTrust Bank, as Trustee (incorporated by reference from Exhibit 10.27 to Registrant’s Form 10-K, originally filed on March 30, 2004). Pursuant to Item 601(b)(4)(iii) of Regulation S-K, the Registrant hereby agrees to furnish to the SEC, upon request, a copy of any other instrument defining the rights of holders of long-term debt of the Registrant and its subsidiaries. Assurant, Inc. 2004 Long-Term Incentive Plan (incorporated by reference from Exhibit 10.3 to the Registrant’s Registration Statement on Form S-1/A (File No. 333-109984) and amendments thereto, originally filed on January 13, 2004).* Amendment No. 1 to the Assurant, Inc. 2004 Long-Term Incentive Plan (incorporated by reference from Exhibit 10.3 to the Registrant’s Form 10-Q, originally filed on November 14, 2005).* Amendment No. 2 to the Assurant, Inc. 2004 Long-Term Incentive Plan (incorporated by reference from Exhibit 10.4 to the Registrant’s Form 10-K, originally filed on March 1, 2007).* Amended Form of CEO/Director Delegated Authority Restricted Stock Agreement under the Assurant, Inc. 2004 Long Term Incentive Plan, effective January 11, 2007 (incorporated by reference from Exhibit 10.6 to the Registrant’s Form 10-K, originally filed on March 1, 2007).* Amended and Restated Supplemental Executive Retirement Plan (incorporated by reference from Exhibit 10.5 to the Registrant’s Form 10-K, originally filed on March 3, 2008).* Amendment No. 1 to the Amended and Restated Supplemental Executive Retirement Plan, effective as of January 1, 2009 (incorporated by reference from Exhibit 10.6 to the Registrant’s Form 10-K, originally filed on February 27, 2009).* Amendment No. 2 to the Amended and Restated Supplemental Executive Retirement Plan, effective as of January 1, 2010.* Amended and Restated Assurant, Inc. Long Term Equity Incentive Plan (incorporated by reference from Exhibit 10.1 to the Registrant’s Form 8-K, originally filed on May 17, 2010).* Form of Assurant, Inc. Restricted Stock Unit Award Agreement for Time-based Awards under the Assurant, Inc. Long Term Equity Incentive Plan (incorporated by reference from Exhibit 10.1 to the Registrant’s Form 8-K, originally filed on March 16, 2009).* Form of Assurant, Inc. Restricted Stock Unit Award Agreement for Time-based Awards under the Assurant, Inc. Long Term Equity Incentive Plan (incorporated by reference from Exhibit 10.8 to the Registrant’s Form 10-K, originally filed on February 27, 2009).* Form of Assurant, Inc. Restricted Stock Unit Award Agreement for Performance-based Awards under the Assurant, Inc. Long Term Equity Incentive Plan (incorporated by reference from Exhibit 10.9 to the Registrant’s Form 10-K, originally filed on February 27, 2009).* Form of Assurant, Inc. Restricted Stock Unit Award Agreement for Performance-based Awards (incorporated by reference from Exhibit 10.1 to the Registrant’s Form 8-K, originally filed on March 16, 2010).* Form of Assurant, Inc. Restricted Stock Unit Award Agreement for Time-based Awards to Directors (incorporated by reference from Exhibit 10.3 to the Registrant’s Form 10-Q, originally filed on May 5, 2010).* Form2011-04-06T17:01:18+02:00http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=69http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=69PART IV ITEM 15 Exhibits and Financial Statement Schedules Exhibit Number 10.27 10.28 10.29 10.30 10.31 10.32 10.33 10.34 10.35 10.36 10.37 10.38 12.1 12.2 21.1 23.1 24.1 31.1 31.2 32.1 32.2 101 † Exhibit Description Form of Directors Stock Agreement under Directors Compensation Plan (incorporated by reference from Exhibit 10.23 to the Registrant’s Form 10-K, originally filed on March 10, 2006).* Form of Directors Stock Appreciation Rights Agreement under the Directors Compensation Plan (incorporated by reference from Exhibit 10.24 to the Registrant’s Form 10-K, originally filed on March 10, 2006).* Amended and Restated Assurant Long Term Incentive Plan (incorporated by reference from Exhibit 10.29 to the Registrant’s Form 10-K, originally filed on March 1, 2007).* Amended Form of Restricted Stock Agreement under the Assurant Long Term Incentive Plan, effective January 11, 2007 (incorporated by reference from Exhibit 10.31 to the Registrant’s Form 10-K, originally filed on March 1, 2007).* Amended Form of Stock Appreciation Rights Agreement under the Assurant Long Term Incentive Plan, effective January 11, 2007 (incorporated by reference from Exhibit 10.33 to the Registrant’s Form 10-K, originally filed on March 1, 2007).* Amended and Restated Assurant Deferred Compensation Plan (incorporated by reference from Exhibit 10.33 to the Registrant’s Form 10-K, originally filed on March 3, 2008).* American Security Insurance Company Investment Plan Document (incorporated by reference from Exhibit 10.34 to the Registrant’s Form 10-K, originally filed on March 3, 2008). Consulting, Non-Compete and Payments Agreement, dated July 19, 1999, among Fortis, Inc., Allen R. Freedman and Fortis Insurance N.V. (incorporated by reference from Exhibit 10.19 to the Registrant’s Registration Statement on Form S-1 (File No. 333-109984) and amendments thereto, originally filed on October 24, 2003).* Retirement Agreement, dated July 19, 1999, among Fortis, Inc., Allen R. Freedman and Fortis Insurance N.V., as amended (incorporated by reference from Exhibit 10.20 to the Registrant’s Registration Statement on Form S-1 (File No. 333-109984) and amendments thereto, originally filed on October 24, 2003).* Reinsurance Agreement, dated May 5, 2009, by and between American Security Insurance Company, American Bankers Insurance Company of Florida, Standard Guaranty Insurance Company and Ibis Re Ltd. (incorporated by reference from Exhibit 10.1 to the Registrant’s Form 8-K, originally filed on May 5, 2009). Reinsurance Agreement, dated May 5, 2009, by and between American Security Insurance Company, American Bankers Insurance Company of Florida, Standard Guaranty Insurance Company and Ibis Re Ltd. (incorporated by reference from Exhibit 10.2 to the Registrant’s Form 8-K, originally filed on May 5, 2009). Letter Agreement, dated October 11, 2010, by and between Assurant, Inc. and Alan Colberg.* Computation of Ratio of Earnings to Fixed Charges as of December 31, 2010. Computation of Other Ratios as of December 31, 2010. Subsidiaries of the Registrant. Consent of PricewaterhouseCoopers LLP. Power of Attorney. Rule 13a-14(a)/15d-14(a) Certification of Principal Executive Officer. Rule 13a-14(a)/15d-14(a) Certification of Principal Financial Officer. Certification of Chief Executive Officer of Assurant, Inc. pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. Certification of Chief Financial Officer of Assurant, Inc. pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. The following materials from the Company’s Annual Report on Form 10-K for the year ended December 31, 2010, formatted in XBRL (Extensible Business Reporting Language): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statement of Operations, (iii) the Consolidated Statement of Changes in Stockholders’ Equity, (iv) the Consolidated Statement of Cash Flows, and (v) Notes to Consolidated Financial Statements, tagg2011-04-06T17:01:18+02:00http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=70http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=70PART IV ITEM 15 Exhibits and Financial Statement Schedules Signatures Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on February 23, 2011. ASSURANT, INC. /s/ROBERT B. POLLOCK By: Name: Title: Robert B. Pollock President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the following persons on behalf of the registrant in the capacities indicated on February 23, 2011. Signature /s/ROBERT B. POLLOCK Robert B. Pollock /s/MICHAEL J. PENINGER Michael J. Peninger /s/JOHN A. SONDEJ John A. Sondej * Elaine D. Rosen * Beth L. Bronner * Howard L. Carver * Juan N. Cento * Allen R. Freedman * Lawrence V. Jackson * David B. Kelso * Charles J. Koch * H. Carroll Mackin * John Michael Palms * John A.C. Swainson Title President, Chief Executive Officer and Director (Principal Executive Officer) Executive Vice President and Chief Financial Officer (Principal Financial Officer) Senior Vice President and Controller (Principal Accounting Officer) Non-Executive Board Chair Director Director Director Director Director Director Director Director Director Director *By: Name: /s/MICHAEL J. PENINGER Michael J. Peninger Attorney-in-Fact 64 ASSURANT, INC.  2010 Form 10K2011-04-06T17:01:18+02:00http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=71http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=71Report of Independent Registered Public Accounting Firm To the Board of Directors and Stockholders of Assurant, Inc.: In our opinion, the consolidated financial statements listed in the index appearing under Item 15(a)1 present fairly, in all material respects, the financial position of Assurant, Inc. and its subsidiaries (the “Company”) at December 31, 2010 and 2009, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2010 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedules listed in the index appearing under Item 15(a)2 present fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2010, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for these financial statements and financial statement schedules, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Annual Report on Internal Control Over Financial Reporting, appearing under Item 9A. Our responsibility is to express opinions on these financial statements, on the financial statement schedules, and on the Company’s internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions. As discussed in Note 2 to the consolidated financial statements, the Company changed the manner in which it accounts for other-than temporary impairment of debt securities on April 1, 2009 and its method of accounting related to fair value measurements on January 1, 2008. A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and2011-04-06T17:01:18+02:00http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=72http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=72Consolidated Balance Sheets AT DECEMBER 31, 2010 AND 2009 (in thousands except number of shares and per share amounts) December 31, 2010 December 31, 2009 ASSETS Investments: Fixed maturity securities available for sale, at fair value (amortized cost—$10,009,320 in 2010 and $9,684,083 in 2009) Equity securities available for sale, at fair value (cost—$452,648 in 2010 and $514,349 in 2009) Commercial mortgage loans on real estate, at amortized cost Policy loans Short-term investments Collateral held under securities lending Other investments Total investments Cash and cash equivalents Premiums and accounts receivable, net Reinsurance recoverables Accrued investment income Deferred acquisition costs Property and equipment, at cost less accumulated depreciation Deferred income taxes, net Goodwill Value of business acquired Other assets Assets held in separate accounts TOTAL ASSETS $ 10,612,552 466,954 1,320,964 56,142 358,702 122,219 567,945 13,505,478 1,150,516 542,927 4,997,316 147,069 2,493,422 267,169 76,430 619,779 82,208 514,333 2,000,371 26,397,018 8,105,153 5,063,999 3,351,169 275,409 104,333 65,894 154,493 122,931 1,353,863 41,702 972,164 5,000 2,000,371 21,616,481 $ 9,966,772 512,987 1,428,027 56,407 453,469 218,129 522,041 13,157,832 1,318,552 507,933 4,231,734 155,757 2,504,654 275,420 167,240 926,398 94,632 548,183 1,972,332 25,860,667 7,349,633 5,153,564 3,366,327 218,060 96,001 67,700 164,899 220,279 1,388,279 30,126 972,058 8,160 1,972,332 21,007,418 $ $ $ $ LIABILITIES Future policy benefits and expenses Unearned premiums Claims and benefits payable Commissions payable Reinsurance balances payable Funds withheld under reinsurance Deferred gain on disposal of businesses Obligation under securities lending Accounts payable and other liabilities Tax payable Debt Mandatorily redeemable preferred stock Liabilities related to separate accounts TOTAL LIABILITIES Commitments and contingencies (Note 26) STOCKHOLDERS’ EQUITY Common stock, par value $0.01 per share, 800,000,000 shares authorized, 102,000,371 and 116,648,714 shares outstanding at December 31, 2010 and 2009, respectively Additional paid-in capital Retained earnings Accumulated other comprehensive income Treasury stock, at cost; 43,344,638 and 28,119,993 shares at December 31, 2010 and 2009, respectively Total stockholders’ equity TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY See the accompanying notes to the consolidated financial statements. 1,453 2,993,957 3,264,025 285,524 (1,764,422) 4,780,537 26,397,018 1,447 2,962,883 3,054,466 65,925 (1,231,472) 4,853,249 25,860,667 $ $ F-2 ASSURANT, INC.  2010 Form 10K2011-04-06T17:01:18+02:00http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=73http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=73Consolidated Statements of Operations YEARS ENDED DECEMBER 31, 2010, 2009 AND 2008 (in thousands except number of shares and per share amounts) 2010 $ 7,403,039 $ 703,190 59,570 (10,244) (923) (11,167) 10,406 362,684 8,527,722 3,640,978 1,521,238 2,392,035 60,646 306,381 7,921,278 606,444 327,267 279,177 2.52 2.50 0.63 110,632,551 840,663 111,473,214 Years Ended December 31, 2009 2008 7,550,335 $ 698,838 (14,937) (35,905) (2,755) (38,660) 22,461 482,464 8,700,501 3,867,982 1,601,880 2,377,364 60,669 83,000 7,990,895 709,606 279,032 430,574 3.65 3.63 0.59 118,036,632 459,008 118,495,640 7,925,348 774,347 (88,526) (340,153) — (340,153) 29,412 300,800 8,601,228 4,019,147 1,671,680 2,286,170 60,953 — 8,037,950 563,278 115,482 447,796 3.79 3.76 0.54 118,005,967 968,712 118,974,679 Revenues Net earned premiums and other considerations Net investment income Net realized gains (losses) on investments, excluding other-than-temporary impairment losses Total other-than-temporary impairment losses Portion of gain recognized in other comprehensive income, before taxes Net other-than-temporary impairment losses recognized in earnings Amortization of deferred gain on disposal of businesses Fees and other income TOTAL REVENUES Benefits, losses and expenses Policyholder benefits Amortization of deferred acquisition costs and value of business acquired Underwriting, general and administrative expenses Interest expense Goodwill impairment TOTAL BENEFITS, LOSSES AND EXPENSES Income before provision for income taxes Provision for income taxes NET INCOME Earnings per share Basic Diluted Dividends per share Share data: Weighted average shares outstanding used in basic per share calculations Plus: Dilutive securities WEIGHTED AVERAGE SHARES USED IN DILUTED PER SHARE CALCULATIONS See the accompanying notes to the consolidated financial statements. $ $ $ $ $ $ $ $ $ $ $ $ ASSURANT, INC.  2010 Form 10K F-32011-04-06T17:01:18+02:00http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=74http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=74Consolidated Statements of Changes in Stockholders’ Equity AT DECEMBER 31, 2010, 2009 AND 2008 Additional Paid-in Retained Common Capital Earnings Stock $ 1,438 $ 2,904,970 $ 2,269,107 5 (6,621) — — 24,129 — — — — — — 5,682 — — — — — (63,672) — (2,860) 447,796 Accumulated Other Comprehensive Income (loss) $ 53,911 — — — — — — — (in thousands except number of shares) Balance, January 1, 2008 Stock plan exercises Stock plan compensation expense Change in tax benefit from share-based payment arrangements Dividends Acquisition of common stock Cumulative effect of change in accounting principles (Note 2) Comprehensive loss: Net income Other comprehensive loss: Net change in unrealized gains on securities, net of taxes of $269,502 Net change in foreign currency translation, net of taxes of 24,961 Amortization of pension and postretirement unrecognized net periodic benefit cost and change in funded status, net of taxes of $49,914 Total other comprehensive loss Total comprehensive loss: Balance, December 31, 2008 $ Stock plan exercises Stock plan compensation expense Change in tax benefit from share-based payment arrangements Dividends Acquisition of common stock Cumulative effect of change in accounting principles (Note 2) Comprehensive income: Net income Other comprehensive income: Net change in unrealized losses on securities, net of taxes of $(353,445) Net change in other-than-temporary impairment gains recognized in other comprehensive income, net of taxes of $(7,556) Net change in foreign currency translation, net of taxes of $(17,551) Amortization of pension and postretirement unrecognized net periodic benefit cost and change in funded status, net of taxes of $6,579 Total other comprehensive income Total comprehensive income: Balance, December 31, 2009 $ Stock plan exercises Stock plan compensation expense Change in tax benefit from share-based payment arrangements Dividends Acquisition of common stock Treasury Stock Total $ (1,140,523) $ 4,088,903 — (6,616) — 24,129 — — (59,000) — — 5,682 (63,672) (59,000) (2,860) 447,796 — — — — — — (501,784) (130,379) — — (501,784) (130,379) — — — 1,443 $ 2,928,160 4 6,225 — 30,288 — — — — — (1,790) — — — — $ 2,650,371 — — — (69,596) — 43,117 430,574 $ (92,694) (724,857) (277,061) (670,946) $ (1,199,523) $ 3,709,505 — — 6,229 — — 30,288 — — — (43,117) — — — (31,949) — — (1,790) (69,596) (31,949) — 430,574 (92,694) — — — — 708,309 — 708,309 14,033 — — — 69,856 — — 14,033 69,856 — — — (12,210) 1,447 $ 2,962,883 6 3,195 — 34,591 — — — (6,712) — — $ 3,054,466 — — — (69,618) — $ 65,925 — — — — — (12,210) 779,988 1,210,562 $ (1,231,472) $ 4,853,249 — 3,201 — 34,591 — — (532,950) (6,712) (69,618) (532,950) — F-4 ASSURANT, INC.  2010 Form 10K2011-04-06T17:01:18+02:00http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=75http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=75(in thousands except number of shares) Common Stock — Additional Paid-in Capital — Retained Earnings 279,177 Accumulated Other Comprehensive Income (loss) — Treasury Stock — Total 279,177 Comprehensive income: Net income Other comprehensive income: Net change in unrealized gains on securities, net of taxes of $(109,263) Net change in other-than-temporary impairment gains recognized in other comprehensive income, net of taxes of $(3,388) Net change in foreign currency translation, net of taxes of $(6,803) Amortization of pension and postretirement unrecognized net periodic benefit cost and change in funded status, net of taxes of $7,303 Total other comprehensive income Total comprehensive income: Balance, December 31, 2010 $ See the accompanying notes to the consolidated financial statements. — — — 218,705 — 218,705 6,292 — — — 8,186 — — 6,292 8,186 — — — (13,584) 1,453 $ 2,993,957 $ 3,264,025 $ 285,524 (13,584) 219,599 498,776 $ (1,764,422) $ 4,780,537 — ASSURANT, INC.  2010 Form 10K F-52011-04-06T17:01:18+02:00http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=76http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=76Consolidated Statement of Cash Flows YEARS ENDED DECEMBER 31, 2010, 2009 AND 2008 (in thousands) 2010 $ 279,177 (761,453) (35,318) 49,797 (83,303) 9,844 578,714 (58,361) 56,075 7,738 (4,191) (7,889) (17,296) (10,406) 126,602 (48,403) 34,591 6,712 306,381 47,612 64,119 540,742 1,774,912 94,798 380 — 867,850 (2,921,075) (23,702) (51,211) (11,560) 91,588 95,768 (24,345) 373 97,348 8,876 (3,160) (6,712) (522,546) (69,618) (97,348) (14,370) 14,281 699,473 (429) (168,036) 1,318,552 1,150,516 $ 341,148 60,539 $ $ $ Years Ended December 31, 2009 2008 430,574 (212,187) 2,657 254,374 (42,849) (6,896) (185,053) (137,791) (18,514) 5,330 26,304 15,566 (11,092) (22,461) 113,799 53,597 30,288 1,790 83,000 — (110,511) 269,925 1,315,003 78,030 1,548 — 624,113 (2,123,394) (48,935) (55,885) 4,923 72,122 254,590 (18,839) 1,964 36,227 141,467 (3,000) (1,790) (31,949) (69,596) (36,227) — — 142,562 9,038 277,868 1,040,684 1,318,552 $ 328,264 60,569 $ $ $ 447,796 (107,384) 109,870 91,764 (22,564) 320 276,837 (20,965) (30,230) (9,591) (7,856) 43,416 (237,172) (29,412) 91,609 428,679 24,129 (5,682) — — (44,429) 999,135 2,072,455 238,423 739 31,853 583,869 (2,346,371) (316,604) (56,068) (365,398) (78,157) (332,345) (31,690) (1,366) 271,657 329,003 (10,000) 5,682 (59,000) (63,672) (285,144) — — 412,134 (22,278) 235,720 804,964 1,040,684 349,191 60,859 Operating activities Net income Adjustments to reconcile net income to net cash provided by operating activities: Change in reinsurance recoverable Change in premiums and accounts receivable Change in deferred acquisition costs and value of business acquired Change in intangible assets Change in accrued investment income Change in insurance policy reserves and expenses Change in accounts payable and other liabilities Change in commissions payable Change in reinsurance balances payable Change in funds withheld under reinsurance Change in securities classified as trading Change in income taxes Amortization of deferred gain on disposal of businesses Depreciation and amortization Net realized (gains) losses on investments Stock based compensation expense Change in tax benefit from share-based payment arrangements Goodwill impairment Other intangible asset impairment Other NET CASH PROVIDED BY OPERATING ACTIVITIES Investing activities Sales of: Fixed maturity securities available for sale Equity securities available for sale Property and equipment and other Subsidiary, net of cash transferred (1) Maturities, prepayments, and scheduled redemption of: Fixed maturity securities available for sale Purchase of: Fixed maturity securities available for sale Equity securities available for sale Property and equipment and other Subsidiaries and warranty business, net of cash transferred (2) Change in commercial mortgage loans on real estate Change in short-term investments Change in other invested assets Change in policy loans Change in collateral held under securities lending NET CASH USED IN PROVIDED BY INVESTING ACTIVITIES Financing activities Repayment of mandatorily redeemable preferred stock Change in tax benefit from share-based payment arrangements Acquisition of common stock Dividends paid Change in obligation under securities lending Change in receivables under securities loan agreements Change in obligations to return borrowed securities NET CASH USED IN FINANCING ACTIVITIES Effect of exchange rate changes on cash and cash equivalents Change in cash and cash equivalents Cash and cash equivalents at beginning of period CASH AND CASH EQUIVALENTS AT END OF PERIOD Supplemental information: Income taxes paid, net of refunds Interest paid on mandatorily redeemable preferred stock and debt $ $ $ (1) This relates to the sale of United Family Life Insurance Company (“UFLIC”) to a third party on May 1, 2008. (2) 2010 includes three acquisitions that individually and in the aggregate are immaterial. 2009 includes the acquisition of Shenandoah Life Insurance Company (acquired through reinsurance agreement on Octob2011-04-06T17:01:18+02:00http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=77http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=772 Summary of Significant Accounting Policies Notes to Consolidated Financial Statements December 31, 2010, 2009 and 2008 (In thousands except number of shares and per share amounts) 1. Nature of Operations Through its operating subsidiaries, the Company provides debt protection administration, credit-related insurance, warranties and service contracts, pre-funded funeral insurance, lender-placed homeowners insurance, manufactured housing homeowners insurance, individual health and small employer group health insurance, group dental insurance, group disability insurance and group life insurance. Assurant, Inc. (“Assurant” or the “Company”) is a Delaware corporation, whose common stock trades on the New York Stock Exchange (“NYSE”) under the symbol AIZ. Assurant is a holding company whose subsidiaries provide specialized insurance products and related services in North America and select worldwide markets. 2. Summary of Significant Accounting Policies Earnings Per Share Basic earnings per share is computed by dividing net income by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflects the potential dilution that could occur if securities or other contracts that can be converted into common stock were exercised as of the end of the period. Restricted stock and restricted stock units which have non-forfeitable rights to dividends or dividend equivalents are included in calculating basic and diluted earnings per share under the two-class method. Basis of Presentation The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). Amounts are presented in United States of America (“U.S.”) dollars and all amounts are in thousands, except for number of shares, per share amounts and number of securities in an unrealized loss position. Principles of Consolidation The consolidated financial statements include the accounts of the Company and all of its wholly owned subsidiaries. All significant intercompany transactions and balances are eliminated in consolidation. Comprehensive Income (Loss) Comprehensive income (loss) is comprised of net income, net unrealized gains and losses on foreign currency translation, net unrealized gains and losses on securities classified as available for sale, net unrealized gains and losses on other-than-temporarily impaired securities and expenses for pension and post-retirement plans, less deferred income taxes. Use of Estimates The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities. The items on the Company’s balance sheets affected by the use of estimates include but are not limited to, investments, premiums and accounts receivable, reinsurance recoverables, deferred acquisition costs (“DAC”), deferred income taxes and associated valuation allowances, goodwill, valuation of business acquired (“VOBA”), future policy benefits and expenses, unearned premiums, claims and benefits payable, deferred gain on disposal of businesses, pension and post-retirement liabilities and commitments and contingencies. The estimates are sensitive to market conditions, investment yields, mortality, morbidity, commissions and other acquisition expenses, policyholder behavior and other factors. Actual results could differ from the estimates recorded. The Company believes the amounts reported are reasonable and adequate. Reclassifications Certain prior period amounts have been reclassified to conform to the 2010 presentation. Foreign Currency Translation For foreign affiliates where the local currency is the functional currency, unrealized foreign currency translation gains and losses net of deferred income taxes have been reflected in accumulated other comprehensive income (loss) (“AOCI”). Other than for one of our wholly owned Canadian subsidiaries, deferred taxes have not been2011-04-06T17:01:18+02:00http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=78http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=782 Summary of Significant Accounting Policies Fair Value The Company uses an exit price for its fair value measurements. An exit price is defined as the amount received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. In measuring fair value, the Company gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. See Note 6 for further information. The Company also engages in collateralized transactions in which bonds issued by the U.S. government, government agencies and authorities, are purchased under agreements to resell (“reverse repurchase agreements”). The Company enters into these reverse repurchase agreements in order to initiate short positions in its investment portfolio. Collateral pledged in these securities lending transactions is reported at the amount pledged plus accrued interest. The obligations to return the securities that we no longer hold are financial liabilities reported at fair value with the changes in value reported as realized gains or losses. Other investments consist primarily of investments in joint ventures, partnerships, invested assets associated with a modified coinsurance arrangement, invested assets associated with the Assurant Investment Plan (“AIP”), the American Security Insurance Company Investment Plan (“ASIC”) and the Assurant Deferred Compensation Plan (“ADC”). The joint ventures and partnerships are valued according to the equity method of accounting. The invested assets related to the modified coinsurance arrangement, the AIP, ASIC and ADC are classified as trading securities as defined in the investment guidance. The Company monitors its investment portfolio to identify investments that may be other-than-temporarily impaired. In addition, securities, aggregated by issuer, whose market price is equal to 80% or less of their original purchase price or which had a discrete credit event resulting in the debtor defaulting or seeking bankruptcy protection are added to a potential write-down list, which is discussed at quarterly meetings attended by members of the Company’s investment, accounting and finance departments. See Note 5 for further information. Realized gains and losses on sales of investments are recognized on the specific identification basis. Investment income is recorded as earned net of investment expenses. The Company uses the interest method to recognize interest income on its commercial mortgage loans. The Company anticipates prepayments of principal in the calculation of the effective yield for mortgage-backed securities and structured securities. The retrospective method is used to adjust the effective yield. Investments Fixed maturity and equity securities are classified as available-for-sale, as defined in the investments guidance, and reported at fair value. If the fair value is higher than the amortized cost for fixed maturity securities or the purchase cost for equity securities, the excess is an unrealized gain; and, if lower than cost, the difference is an unrealized loss. Net unrealized gains and losses, less deferred income taxes, are included in AOCI. Commercial mortgage loans on real estate are reported at unpaid balances, adjusted for amortization of premium or discount, less allowance for losses. The allowance is based on management’s analysis of factors including actual loan loss experience, specific events based on geographical, political or economic conditions, industry experience, loan groupings that have probable and estimable losses and individually impaired loan loss analysis. A loan is considered individually impaired when it becomes probable the Company will be unable to collect all amounts due, including principal and interest, according to the contractual terms of the loan agreement. Indicative factors of impairment include, but are not limited to, whether the loan is current, the value 2011-04-06T17:01:18+02:00http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=79http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=792 Summary of Significant Accounting Policies reinsurance is recognized 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 benefits reserves and are reported in the consolidated balance sheets. The cost of reinsurance related to long-duration contracts is recognized over the life of the underlying reinsured policies. The ceding of insurance does not discharge the Company’s primary liability to insureds, thus a credit exposure exists to the extent that any reinsurer is unable to meet the obligation assumed in the reinsurance agreements. To mitigate this exposure to reinsurance insolvencies, the Company evaluates the financial condition of its reinsurers and holds substantial collateral (in the form of funds withheld, trusts, and letters of credit) as security under the reinsurance agreements. An 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. Funds withheld under reinsurance represent amounts contractually held from assuming companies in accordance with reinsurance agreements. Reinsurance premiums assumed are calculated based upon payments received from ceding companies together with accrual estimates, which are based on both payments received and in force policy information received from ceding companies. Any subsequent differences arising on such estimates are recorded in the period in which they are determined. Long Duration Contracts Acquisition costs for pre-funded funeral (“preneed”) life insurance policies issued prior to 2009 and certain life insurance policies no longer offered are deferred and amortized in proportion to anticipated premiums over the premium-paying period. These acquisition costs consist primarily of first year commissions paid to agents and sales and policy issue costs. Acquisition costs relating to group worksite insurance products consist primarily of first year commissions to brokers and one time policy transfer fees and costs of issuing new certificates. These acquisition costs are front-end loaded, thus they are deferred and amortized over the estimated terms of the underlying contracts. For preneed investment-type annuities, preneed life insurance policies with discretionary death benefit growth issued after 2008, universal life insurance policies, and investment-type annuities (no longer offered), DAC is amortized in proportion to the present value of estimated gross profits from investment, mortality, expense margins and surrender charges over the estimated life of the policy or contract. The assumptions used for the estimates are consistent with those used in computing the policy or contract liabilities. Acquisition costs relating to the individual voluntary limited benefit health policies issued in 2007 and later are deferred and amortized over the estimated average terms of the underlying contracts. These acquisition costs relate to commission expenses which result from commission schedules that pay significantly higher rates in the first year. Income Taxes Current federal income taxes are recognized based upon amounts estimated to be payable or recoverable as a result of taxable operations for the current year. Deferred income taxes are recorded for temporary differences between the financial reporting basis and income tax basis of assets and liabilities, based on enacted tax laws and statutory tax rates applicable to the periods in which the Company expects the temporary differences to reverse. A valuation allowance is established for deferred tax assets when it is more likely than not that an amount will not be realized. The Company classifies net interest expense related to tax matters and any applicable penalties as a component of inc2011-04-06T17:01:18+02:00http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=80http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=802 Summary of Significant Accounting Policies Goodwill Goodwill represents the excess of acquisition costs over the net fair value of identifiable assets acquired and liabilities assumed in a business combination. Goodwill is deemed to have an indefinite 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: a sustained significant decline in our market capitalization or a significant decline in our expected future cash flows due to changes in company-specific factors or the broader business climate. The 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. For each reporting unit, we first compare estimated fair value with 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”). Specifically, 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 difference. In the fourth quarters of 2010 and 2009, we conducted our annual assessments of goodwill. Based on the results of the 2010 assessment, the Company concluded that the net book values of the Assurant Employee Benefits and Assurant Health reporting units exceeded their estimated fair values and therefore performed a Step 2 test. Based on the results of the Step 2 test, the Company recorded impairment charges of $102,078 and $204,303 related to the Assurant Employee Benefits and Assurant Health reporting units, respectively, in 2010. During 2009, the Company concluded that the net book value of the Assurant Employee Benefits reporting unit exceeded its estimated fair value and recorded an $83,000 impairment charge after performing a Step 2 test. For both 2010 and 2009, those reporting units where a Step 2 test was not performed, the estimated fair value of the reporting units exceeded their respective net book values and therefore goodwill was not impaired. VOBA is tested for recoverability annually. If it is determined that future policy premiums and investment income or gross profits are not adequate to cover related losses or loss expenses, then an expense is reported in current earnings. Based on 2010 and 2009 testing, future policy premiums and investment income or gross profits were deemed adequate to cover related losses or loss expenses. Other Assets Other assets primarily include prepaid items and other intangible assets. Other intangible assets that have finite 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 indefinite useful lives, primarily certain state licenses, are not amortized and are subject to at least annual impairment tests. Impairment exists if the carrying amount of the indefinite-lived other intangible asset exceeds its fair value. For other intangible assets with finite lives, impairment is recognized if the2011-04-06T17:01:18+02:00http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=81http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=812 Summary of Significant Accounting Policies Reserves do not represent an exact calculation of exposure, but instead represent our best estimates of what we expect the ultimate settlement and administration of a claim or group of claims will cost based on facts and circumstances known at the time of calculation. The adequacy of reserves will be impacted by future trends in claims severity, frequency, judicial theories of liability and other factors. These variables are affected by both external and internal events, including but not limited to: changes in the economic cycle, changes in the social perception of the value of work, emerging medical perceptions regarding physiological or psychological causes of disability, emerging health issues and new methods of treatment or accommodation, inflation, judicial trends, legislative changes and claims handling procedures. Many of these items are not directly quantifiable. Reserve estimates are refined as experience develops. Adjustments to reserves, both positive and negative, are reflected in the consolidated statement of operations in the period in which such estimates are updated. Because establishment of reserves is an inherently uncertain process involving estimates of future losses, there can be no certainty that ultimate losses will not exceed existing claims reserves. Future loss development could require reserves to be increased, which could have a material adverse effect on our earnings in the periods in which such increases are made. However, based on information currently available, we believe our reserve estimates are adequate. value of future net premiums. Reserve assumptions are selected using best estimates for expected investment yield, inflation, mortality and withdrawal rates. These assumptions reflect current trends, are based on Company experience and include provision for possible unfavorable deviation. An unearned revenue reserve is also recorded for these contracts which represents the balance of the excess of gross premiums over net premiums that is still to be recognized in future years’ income in a constant relationship to insurance in force. Reserves for worksite group disability policies, which typically have high front-end costs and are expected to remain in force for an extended period of time, include case reserves and incurred but not reported (“IBNR”) reserves which equal the net present value of the expected future claims payments. Worksite group long term disability reserves are discounted to the valuation date at the valuation interest rate. The valuation interest rate is reviewed quarterly by taking into consideration actual and expected earned rates on our asset portfolio. Changes in the estimated liabilities are reported as a charge or credit to policyholder benefits as the estimates are revised. Short Duration Contracts The Company’s short duration contracts include group term life contracts, group disability contracts, medical contracts, dental contracts, property and warranty contracts, credit life and disability contracts and extended service contracts. For short duration contracts, claims and benefits payable reserves are recorded when insured events occur. The liability is based on the expected ultimate cost of settling the claims. The claims and benefits payable reserves include (1) case reserves for known but unpaid claims as of the balance sheet date; (2) IBNR reserves for claims where the insured event has occurred but has not been reported to the Company as of the balance sheet date; and (3) loss adjustment expense reserves for the expected handling costs of settling the claims. For group disability, the case reserves and the IBNR reserves are recorded at an amount equal to the net present value of the expected future claims payments. Group long-term disability and group term life waiver of premiums reserves are discounted to the valuation date at the valuation interest rate. The valuation interest rate is reviewed quarterly by taking into cons2011-04-06T17:01:18+02:00http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=82http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=822 Summary of Significant Accounting Policies Deferred Gain on Disposal of Businesses The Company recorded a deferred gain on disposal of businesses utilizing reinsurance. On March 1, 2000, the Company sold its LTC business using a coinsurance contract. On April 2, 2001, the Company sold its FFG business using a modified coinsurance contract. Since the form of sale did not discharge the Company’s primary liability to the insureds, the gain on these disposals was deferred and reported as a liability. The liability is decreased and recognized as revenue over the estimated life of the contracts’ terms. The Company reviews and evaluates the estimates affecting the deferred gain on disposal of businesses annually or when significant information affecting the estimates becomes known to the Company, and adjusts the revenue recognized accordingly. In the fourth quarter of 2010, the Company re-established $8,158 of the FFG deferred gain based on its annual review. life, group disability, medical, dental, 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 and other considerations in the consolidated statement of operations. 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-thantemporary 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 otherthan-temporary. Debt The Company reports debt net of unamortized discount or premium. Interest expense related to debt is expensed as incurred. The Company reports mandatorily redeemable preferred stock equal to its redemption value. Premiums Long Duration Contracts Currently, the Company’s long duration contracts which are actively being sold are preneed life insurance and certain group worksite insurance policies. The preneed life insurance policies include provisions for death benefit growth that is either pegged to the changes in the Consumer Price Index or determined periodically at the discretion of management. For preneed life insurance policies issued prior to 2009, revenues are recognized when due from policyholders. For preneed life insurance policies with discretionary death benefit growth issued after 2008 and for preneed investment-type annuity contracts, revenues consist of charges assessed against policy balances. Revenues are recognized when earned on group worksite insurance products. For a majority of individual medical contracts issued prior to 2003, a limited number of individual medical contracts currently issued from 2003 through 2006 in certain jurisdictions, individual voluntary limited benefit health policies issued in 2007 and later and traditional life insurance contracts previously sold by the preneed business (no longer offered), revenue is recognized when due from policyholders. For universal life insurance and investment-type annuity contracts previously sold by the Assurant Solutions segment (no longer offered), revenues consist of charges assessed against policy balances. Premiums for LTC insurance and traditional life insurance contracts within FFG are recognized as revenue when du2011-04-06T17:01:18+02:00http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=83http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=832 Summary of Significant Accounting Policies Contingencies The Company follows the guidance on contingencies, which requires the Company to evaluate each contingent matter separately. A loss contingency is recorded if reasonably estimable and probable. The Company establishes reserves for these contingencies at the best estimate, or if no one estimated number within the range of possible losses is more probable than any other, the Company records an estimated reserve at the low end of the estimated range. Contingencies affecting the Company primarily relate to litigation matters which are inherently difficult to evaluate and are subject to significant changes. The Company believes the contingent amounts recorded are adequate and reasonable. when traded as an asset or another valuation technique that is consistent with the fair value measurements and disclosures guidance be used to fair value the liability. The adoption of this new guidance did not have an impact on the Company’s financial position or results of operations. On April 1, 2009, the Company adopted the new OTTI guidance. This new guidance amends the previous guidance for debt securities and modifies the presentation and disclosure requirements for debt and equity securities. In addition, it amends the requirement for an entity to positively assert the intent and ability to hold a debt security to recovery to determine whether an OTTI exists and replaces this provision with the assertion that an entity does not intend to sell or it is not more likely than not that the entity will be required to sell a security prior to recovery of its amortized cost basis. Additionally, this new guidance modifies the presentation of certain OTTI debt securities to only present the impairment loss within the results of operations that represents the credit loss associated with the OTTI with the remaining impairment loss being presented within other comprehensive income (loss) (“OCI”). At adoption, the Company recorded a cumulative effect adjustment to reclassify the non-credit component of previously recognized OTTI securities which resulted in an increase of $43,117 (after-tax) in retained earnings and a decrease of $43,117 (after-tax) in AOCI. See Note 5 for further information. On April 1, 2009, the Company adopted the new guidance on determining fair value in illiquid markets. This new guidance clarifies how to estimate fair value when the volume and level of activity for an asset or liability have significantly decreased. This new guidance also clarifies how to identify circumstances indicating that a transaction is not orderly. Under this new guidance, significant decreases in the volume and level of activity of an asset or liability, in relation to normal market activity, requires further evaluation of transactions or quoted prices and exercise of significant judgment in arriving at fair values. This new guidance also requires additional interim and annual disclosures. The adoption of this new guidance did not have an impact on the Company’s financial position or results of operations. On April 1, 2009, the Company adopted the new fair value of financial instruments guidance. This new guidance requires disclosures about the fair value of financial instruments already required in annual financial statements to be included within interim financial statements. This new guidance also requires disclosure of the methods and assumptions used to estimate fair value. The adoption of this new guidance did not have an impact on the Company’s financial position or results of operations. See Note 6 for further information. On January 1, 2009, the Company adopted the revised business combinations guidance. The revised guidance retains the fundamental requirements of the previous guidance in that the acquisition method of accounting be used for all business combinations, that an acquirer be identified for each business combination and for goodwill to be recognized and measured as a residual. The revised guidance2011-04-06T17:01:18+02:00http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=84http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=843 Business Combinations had it recorded the acquisition under the previous business combinations guidance. Earnings volatility could result, depending on the terms of the acquisition. On January 1, 2009, the Company adopted the new consolidations guidance. The new guidance requires that a noncontrolling interest in a subsidiary be separately reported within equity and the amount of consolidated net income attributable to the noncontrolling interest be presented in the statement of operations. The new guidance also calls for consistency in reporting changes in the parent’s ownership interest in a subsidiary and necessitates fair value measurement of any noncontrolling equity investment retained in a deconsolidation. The adoption of the new guidance did not have an impact on the Company’s financial position or results of operations. On January 1, 2009, the Company applied the fair value measurements and disclosures guidance for all non-financial assets and liabilities measured at fair value on a non-recurring basis. The application of this guidance for those assets and liabilities did not have an impact on the Company’s financial position or results of operations. The Company’s non-financial assets measured at fair value on a non-recurring basis include goodwill and intangible assets. In a business combination, the non-financial assets and liabilities of the acquired company would be measured at fair value in accordance with the fair value measurements and disclosures guidance. The requirements of this guidance include using an exit price based on an orderly transaction between market participants at the measurement date assuming the highest and best use of the asset by market participants. To perform a market valuation, the Company is required to use a market, income or cost approach valuation technique(s). The Company performs its annual impairment analyses of goodwill and indefinite-lived intangible assets in the fourth quarter, or when events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. If Step 1 of the impairment test indicates that the net book value of the reporting unit is greater than the estimated fair value, then Step 2 test is required. Step 2 requires that the Company measure the fair value of goodwill of the reporting unit. As mentioned above, the application of this guidance which was used to measure the fair value of goodwill in Step 2 of the goodwill impairment test did not have an impact on the Company’s financial position or results of operations. On January 1, 2009, the Company adopted the new earnings per share guidance on participating securities and the two class method. The new guidance requires unvested share-based payment awards that have non-forfeitable rights to dividend or dividend equivalents to be treated as participating securities. Therefore, the Company’s restricted stock and restricted stock units which have non-forfeitable rights to dividends are included in calculating basic and diluted earnings per share under the two-class method. All prior period earnings per share data presented have been adjusted retrospectively. The adoption of the new guidance did not have a material impact on the Company’s basic and diluted earnings per share calculations for the years ended December 31, 2009 and 2008. See Note 24 for further information. On January 1, 2008, the Company adopted the fair value measurements and disclosures guidance. This guidance defined fair value, addressed how companies should measure fair value when they are required to use a fair value measure for recognition or disclosure purposes under GAAP and expanded disclosures about fair value measurements. This guidance was applied prospectively for financial assets and liabilities measured on a recurring basis as of January 1, 2008 except for certain financial assets that were measured at fair value using a transaction price. For these financial instruments, which the Company has, this guidance r2011-04-06T17:01:18+02:00http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=85http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=855 Investments in-force with Shenandoah. There were no goodwill or intangible assets associated with this agreement. On October 1, 2008, the Company acquired 100% of the outstanding stock of Signal Holdings LLC (“Signal”), a leading provider of wireless handset protection programs and repair services. The Company paid $257,400 in cash for the acquisition, transfer and conveyance of certain assets and assumed certain liabilities. In connection with the acquisition, the Company recorded $59,400 of other intangible assets, all of which are amortizable, and $169,800 of goodwill. The factors that contributed to the recognition of goodwill include the future expected growth of Signal and the acquisition of key former Signal employees. On September 26, 2008, the Company acquired the Warranty Management Group business from GE Consumer & Industrial, a unit of General Electric Co. (“GE”). The Company paid GE $140,000 in cash for the sale, transfer and conveyance of certain assets and assumed certain liabilities. In connection with the acquisition of this business, the Company recorded $126,840 of amortizable intangible assets and $13,160 of goodwill. The factors that contributed to the recognition of goodwill include: marketing knowledge gained from the pre-existing relationship, acquisition of key former GE employees and increased sales opportunities not afforded the Company under the pre-existing relationship. As part of the acquisition, the Company entered into a new 10-year agreement to market extended warranties and service contracts on GE- branded major appliances in the U.S. In a separate transaction, GE paid the Company $115,000 in cash and the Company eliminated DAC by $106,000 and a receivable from GE of $9,000, in connection with the termination of the existing strategic alliance. Under the pre-existing relationship, the Company sold extended warranties directly to GE appliance purchasers and through leading retailers and paid commissions to GE. After the acquisition, the Company assumed full responsibility for operating the extended warranty business it previously co-managed and shared with GE. The results of operations of the Signal and GE Warranty Management Group did not have a material effect on the Company’s results, and accordingly, proforma information has not been disclosed. 4. Business Disposition On May 1, 2008, the Company sold a subsidiary, United Family Life Insurance Company (“UFLIC”), to a third party for proceeds of $32,715. The Company recognized a pre-tax gain of $3,175 and an associated net tax benefit of $84,864 from the sale. 5. Investments The following tables show the cost or amortized cost, gross unrealized gains and losses and fair value and OTTI of our fixed maturity and equity securities as of the dates indicated: December 31, 2010 Cost or Amortized Cost Fixed maturity securities: United States Government and government agencies and authorities States, municipalities and political subdivisions Foreign governments Asset-backed Commercial mortgage-backed Residential mortgage-backed Corporate TOTAL FIXED MATURITY SECURITIES Equity securities: Common stocks Non-redeemable preferred stocks TOTAL EQUITY SECURITIES Gross Unrealized Gains Gross Unrealized Losses Fair Value OTTI in AOCI $ $ $ $ 244,659 829,923 617,164 39,310 102,312 764,884 7,411,068 10,009,320 5,545 447,103 452,648 $ $ $ $ 6,050 39,568 32,789 2,524 4,670 36,842 541,720 664,163 1,029 32,238 33,267 $ $ $ $ (1,198) (4,657) (1,418) (84) (11) (4,998) (48,565) 60,931 (8) (18,953) 18,961 $ $ $ $ 249,511 864,834 648,535 41,750 106,971 796,728 7,904,223 10,612,552 6,566 460,388 466,954 $ $ $ $ — — — 1,016 — 4,741 13,576 19,333 — —  ASSURANT, INC.  2010 Form 10K F-152011-04-06T17:01:18+02:00http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=86http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=865 Investments December 31, 2009 Cost or Amortized Cost Fixed maturity securities: United States Government and government agencies and authorities States, municipalities and political subdivisions Foreign governments Asset-backed Commercial mortgage-backed Residential mortgage-backed Corporate TOTAL FIXED MATURITY SECURITIES Equity securities: Common stocks Non-redeemable preferred stocks TOTAL EQUITY SECURITIES Gross Unrealized Gains Gross Unrealized Losses Fair Value OTTI in AOCI (1) $ $ $ $ 115,268 873,548 545,166 51,834 159,780 685,373 7,253,114 9,684,083 5,493 508,856 514,349 $ $ $ $ 5,135 42,499 18,076 2,599 1,589 29,224 326,922 426,044 285 31,657 31,942 $ $ $ $ (73) (5,979) (4,779) (470) (1,462) (2,594) (127,998) 143,355 (1,249) (32,055) 33,304 $ $ $ $ 120,330 910,068 558,463 53,963 159,907 712,003 7,452,038 9,966,772 4,529 508,458 512,987 $ $ $ $ — — — 833 — 123 8,697 9,653 — —  (1) Represents the amount of other-than-temporary impairment gains in AOCI, which, from April 1, 2009, were not included in earnings under the new OTTI guidance for debt securities. The cost or amortized cost and fair value of fixed maturity securities at December 31, 2010 by contractual maturity are shown below. Expected maturities may differ from contractual maturities because issuers of the securities may have the right to call or prepay obligations with or without call or prepayment penalties. Cost or Amortized Cost $ 395,005 2,129,325 2,499,011 4,079,473 9,102,814 39,310 102,312 764,884 $ 10,009,320 Fair Value 401,114 2,244,198 2,643,058 4,378,733 9,667,103 41,750 106,971 796,728 10,612,552 Due in one year or less Due after one year through five years Due after five years through ten years Due after ten years Total Asset-backed Commercial mortgage-backed Residential mortgage-backed TOTAL $ $ Major categories of net investment income were as follows: 2010 572,909 33,864 88,894 3,248 5,259 19,019 5,577 728,770 (25,580) 703,190 Years Ended December 31, 2009 2008 558,639 $ 584,712 38,189 45,775 92,116 95,013 3,329 3,717 7,933 16,256 17,453 27,395 8,359 26,990 726,018 799,858 (27,180) (25,511) 698,838 $ 774,347 Fixed maturity securities Equity securities Commercial mortgage loans on real estate Policy loans Short-term investments Other investments Cash and cash equivalents Total investment income Investment expenses NET INVESTMENT INCOME $ $ $ $ No material investments of the Company were non-income producing for the years ended December 31, 2010, 2009 and 2008. The following table summarizes the proceeds from sales of available-for-sale securities and the gross realized gains and gross realized losses that have been included in earnings as a result of those sales. 2010 1,867,797 65,861 8,286 For the Years Ended December 31, 2009 2008 1,396,027 $ 2,317,080 50,186 58,855 55,982 136,908 Proceeds from sales Gross realized gains Gross realized losses $ $ For securities sold at a loss during 2010, the average period of time these securities were trading continuously at a price below book value was approximately 26 months. F-16 ASSURANT, INC.  2010 Form 10K2011-04-06T17:01:18+02:00http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=87http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=875 Investments The following table sets forth the net realized gains (losses), including other-than-temporary impairments, recognized in the statement of operations as follows: 2010 Net realized gains (losses) related to sales and other: Fixed maturity securities Equity securities Commercial mortgage loans on real estate Other investments Collateral held under securities lending TOTAL NET REALIZED GAINS LOSSES RELATED TO SALES Net realized losses related to other-than-temporary impairments: Fixed maturity securities Equity securities Other investments Total net realized losses related to other-than-temporary impairments TOTAL NET REALIZED GAINS LOSSES $ 53,880 5,207 (16,710) 17,193 — 59,570 (10,607) (560) — (11,167) 48,403 $ Years Ended December 31, 2009 2008 17,651 (20,931) (10,219) (1,438) — 14,937 (23,238) (14,555) (867) (38,660) 53,597 $ (23,775) (46,771) 326 (4,819) (13,487) 88,526 (191,873) (142,756) (5,524) (340,153) 428,679 $ $ $ Other-Than-Temporary Impairments Adoption of the OTTI Guidance On April 1, 2009, the Company adopted the OTTI guidance which requires entities to separate an OTTI of a debt security into two components when there are credit related losses associated with the impaired debt security for which the Company asserts that it does not have the intent to sell, and it is more likely than not that it will not be required to sell before recovery of its cost basis. Prior to April 1, 2009, the Company was required to determine whether it had the intent and ability to hold the investment for a sufficient period of time for the value to recover. When the analysis of the above factors resulted in the Company’s conclusion that declines in market values were other-than-temporary, the cost of the securities was written down to market value and the reduction in value was reflected as a realized loss in the statement of operations. Under the OTTI guidance, the amount of the OTTI related to a credit loss is recognized in earnings, and the amount of the OTTI related to other, non-credit, factors (e.g. , interest rates, market conditions, etc.) is recorded as a component of other comprehensive income. In instances where no credit loss exists but the Company intends to sell the security or it is more likely than not that the Company will have to sell the debt security prior to the anticipated recovery, the decline in market value below amortized cost is recognized as an OTTI in earnings. In periods after the recognition of an OTTI on debt securities, the Company accounts for such securities as if they had been purchased on the measurement date of the OTTI at an amortized cost basis equal to the previous amortized cost basis less the OTTI recognized in earnings. For debt securities for which OTTI was recognized in earnings, the difference between the new amortized cost basis and the cash flows expected to be collected will be accreted or amortized into net investment income. The OTTI guidance required that the Company record, as of April 1, 2009, the date of adoption, a cumulative effect adjustment to reclassify the noncredit component of a previously recognized OTTI from retained earnings to other comprehensive income. For purposes of calculating the cumulative effect adjustment, the Company reviewed OTTI it had recorded through realized losses on securities held at March 31, 2009, which were $188,614 and estimated the portion related to credit losses (i.e. , where the present value of cash flows expected to be collected are lower than the amortized cost basis of the security) and the portion related to all other factors. The Company determined that $119,022 of the OTTI previously recorded related to specific credit losses and $69,592 related to all other factors. Under the OTTI guidance, the Company increased the amortized cost basis of these debt securities by $66,241 and recorded a cumulative effect adjustment, net of tax, in its shareholders’ equity section. The cumulative effect adjustment had no effect on total sh2011-04-06T17:01:18+02:00http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=88http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=885 Investments Year ended December 31, 2009 $ — 119,022 1,464 6,900 (433) (18,900) 108,053 Balance, beginning of period Credit losses remaining in retained earnings related to the adoption of OTTI guidance effective April 1, 2009 Additions for credit loss impairments recognized in the current period on securities not previously impaired Additions for credit loss impairments recognized in the current period on securities previously impaired Reductions for increases in cash flows expected to be collected that are recognized over the remaining life of the security Reductions for credit loss impairments previously recognized on securities which matured, paid down, prepaid or were sold during the period BALANCE, END OF YEAR $ We regularly monitor our investment portfolio to ensure investments that may be other-than-temporarily impaired are identified in a timely fashion, properly valued, and charged against earnings in the proper period. The 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 financial 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 sufficient 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 fixed maturity securities. Inherently, there are risks and uncertainties involved in making these judgments. Changes in circumstances and critical assumptions such as a continued weak economy, a more pronounced economic downturn or unforeseen events which affect one or more companies, industry sectors, or countries could result in additional impairments in future periods for other-than-temporary declines in value. 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. The impairment of a fixed 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 fixed maturity securities that do not meet either of these two criteria, the Company is required to analyze its ability to recover the amortized cost of the security by calculating the net present value of projected future cash flows. For these other-than-temporarily impaired fixed maturity securities, the net amount recognized in earnings is equal to the difference between the amortized cost of the fixed maturity security and its net present value. The Company considers different factors to determine the amount of projected future cash flows and discounting methods for corporate debt and residential and commercial mortgage-backed or asset-backed securities. For corporate debt securities, the split between the credit and non-credit losses is driven principally by assumptions regarding the amount and timing of projected future cash flows. The net present value is calculated by discounting the Company’s best estimate of projected future cash flows at the effective interest rate implicit in the security at the date of acquisition. For residential and commercial mortgage-backed and asset-backed securities, cash flow estimates, including prepayment assumptions, are based on data from widely accepted third-party data sources or internal estimates. In addition to prepayment assumptions, cash flow estimates vary based on assumptions regarding the underlying collateral including default rates, recoveries and changes in value. The net present value is calculated by discounting t2011-04-06T17:01:18+02:00http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=89http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=895 Investments The investment category and duration of the Company’s gross unrealized losses on fixed maturity securities and equity securities at December 31, 2010 and 2009 were as follows: Less than 12 months Fair Value Unrealized Losses Fixed maturity securities: United States Government and government agencies and authorities States, municipalities and political subdivisions Foreign governments Asset-backed Commercial mortgage-backed Residential mortgage-backed Corporate TOTAL FIXED MATURITY SECURITIES Equity securities: Common stocks Non-redeemable preferred stocks TOTAL EQUITY SECURITIES 12 months or More Fair Value Unrealized Losses December 31, 2010 Total Fair Value Unrealized Losses $ 105,597 136,578 97,725 2,865 4,754 168,942 753,340 $ (1,198) (3,520) (538) (84) (11) (4,907) (21,674) $ — 10,743 9,902 — — 1,982 310,107 $ — (1,137) (880) — — (91) (26,891) $ 105,597 147,321 107,627 2,865 4,754 170,924 1,063,447 $ (1,198) (4,657) (1,418) (84) (11) (4,998) (48,565) $ $ $ 1,269,801 479 46,336 46,815 $ $ $ 31,932 (8) (2,791) 2,799 $ $ $ 332,734 — 146,361 146,361 $ $ $ 28,999 — (16,162) 16,162 $ $ $ 1,602,535 479 192,697 193,176 $ $ $ 60,931 (8) (18,953) 18,961 Less than 12 months Fair Value Unrealized Losses Fixed maturity securities: United States Government and government agencies and authorities States, municipalities and political subdivisions Foreign governments Asset-backed Commercial mortgage-backed Residential mortgage-backed Corporate TOTAL FIXED MATURITY SECURITIES Equity securities: Common stocks Non-redeemable preferred stocks TOTAL EQUITY SECURITIES 12 months or More Fair Value Unrealized Losses December 31, 2009 Total Fair Value Unrealized Losses $ 9,625 127,202 77,710 2,859 34,805 116,771 764,708 $ (50) $ (3,974) (2,172) (43) (313) (1,804) (28,025) 777 17,571 17,445 9,312 29,282 5,634 1,078,051 1,158,072 3,525 214,928 218,453 $ (23) (2,005) (2,607) (427) (1,149) (790) (99,973) $ 10,402 144,773 95,155 12,171 64,087 122,405 1,842,759 $ (73) (5,979) (4,779) (470) (1,462) (2,594) (127,998) $ $ $ 1,133,680 98 15,595 15,693 $ $ $ 36,381 $ (2) $ (248) 250 $ $ $ $ 106,974 (1,247) (31,807) 33,054 $ $ $ 2,291,752 3,623 230,523 234,146 $ $ $ 143,355 (1,249) (32,055) 33,304 Total gross unrealized losses represent less than 5% and 7% of the aggregate fair value of the related securities at December 31, 2010 and 2009, respectively. Approximately 43% and 21% of these gross unrealized losses have been in a continuous loss position for less than twelve months at December 31, 2010 and 2009, respectively. The total gross unrealized losses are comprised of 457 and 635 individual securities at December 31, 2010 and 2009, respectively. In accordance with its policy described above, the Company concluded that for these securities an adjustment to its results of operations for other-thantemporary impairments of the gross unrealized losses was not warranted at December 31, 2010 and 2009. These conclusions were based on a detailed analysis of the underlying credit and expected cash flows of each security. As of December 31, 2010, the gross unrealized losses that have been in a continuous loss position for twelve months or more were concentrated in non-redeemable preferred stocks and in the financial industry of the Company’s corporate fixed maturity securities. For these concentrations, gross unrealized losses of twelve months or more were $35,714, or 79%, of the total. The gross unrealized losses are primarily attributable to widening credit spreads. As of December 31, 2010, the Company did not intend to sell the securities and it was not more likely than not that the Company would be required to sell the securities before the anticipated recovery of their amortized cost basis. ASSURANT, INC.  2010 Form 10K F-192011-04-06T17:01:18+02:00http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=90http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=905 Investments The cost or amortized cost and fair value of available for sale fixed maturity securities in an unrealized loss position at December 31, 2010, by contractual maturity, is shown below: Cost or Amortized Cost $ 3,659 283,701 444,224 748,246 1,479,830 2,949 4,765 175,922 $ 1,663,466 Fair Value 3,653 279,802 427,721 712,816 1,423,992 2,865 4,754 170,924 1,602,535 Due in one year or less Due after one year through five years Due after five years through ten years Due after ten years Total Asset-backed Commercial mortgage-backed Residential mortgage-backed TOTAL $ $ The Company has exposure to sub-prime and related mortgages within our fixed maturity security portfolio. At December 31, 2010, approximately 2.3% of the residential mortgage-backed holdings had exposure to sub-prime mortgage collateral. This represented approximately 0.2% of the total fixed income portfolio and 0.7% of the total unrealized gain position. Of the securities with sub-prime exposure, approximately 26% are rated as investment grade. All residential mortgage-backed securities, including those with sub-prime exposure, are reviewed as part of the ongoing other-than-temporary impairment monitoring process. The Company has made commercial mortgage loans, collateralized by the underlying real estate, on properties located throughout the U.S. and Canada. At December 31, 2010, approximately 40% of the outstanding principal balance of commercial mortgage loans was concentrated in the states of California, New York, and Washington. Although the Company has a diversified loan portfolio, an economic Loan-to-Value 70% and less 71—80% 81—95% Greater than 95% Gross commercial mortgage loans Less valuation allowance Net commercial mortgage loans downturn could have an adverse impact on the ability of its debtors to repay their loans. The outstanding balance of commercial mortgage loans range in size from $5 to $16,614 at December 31, 2010 and from $9 to $22,092 at December 31, 2009. Credit quality indicators for commercial mortgage loans are loan-tovalue and debt-service coverage ratios. Loan-to-value and debt-service coverage ratios are measures commonly used to assess the credit quality of commercial mortgage loans. The loan-to-value ratio compares the principal amount of the loan to the fair value of the underlying property collateralizing the loan, and is commonly expressed as a percentage. The debt-service coverage ratio compares a property’s net operating income to its debt-service payments and is commonly expressed as a ratio of one. The loan-to-value and debt-service coverage ratios are generally updated annually in the third quarter. The following summarizes our loan-to-value and average debt-service coverage ratios: % of Gross Mortgage Loans 66.6 16.1 10.9 6.4 100.0 Debt-Service Coverage ratio 2.03 1.41 1.25 0.94 1.78 Carrying Value $ 902,271 217,282 147,493 86,756 1,353,802 (32,838) $ 1,320,964 % % % % % All commercial mortgage loans that are individually impaired have an established mortgage loan valuation allowance for losses. Changing economic conditions affect our valuation of commercial mortgage loans. Changing vacancies and rents are incorporated into the discounted cash flow analysis that we perform for monitored loans and may contribute to the establishment of (or an increase or decrease in) a commercial mortgage loan valuation allowance for losses. In addition, we continue to monitor the entire commercial mortgage loan portfolio to identify risk. Areas of emphasis are properties that have exposure to earthquakes, have deteriorating credits or have experienced a reduction in debt-service coverage ratio. Where warranted, we have established or increased a valuation allowance based upon this analysis. The commercial mortgage loan valuation allowance for losses was $32,838 and $16,129 at December 31, 2010 and 2009, respectively. The provision expense during 2010 and 2009 was $16,709 and $10,221 respectively. The provision expense for both periods was m2011-04-06T17:01:18+02:00http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=91http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=916 Fair Value Disclosures or loss is recognized in the statement of operations in fees and other income. As of December 31, 2010 and 2009, the CPI CAPs included in other assets amounted to $9,825 and $12,955, respectively. In 2008, upon adoption of the fair value measurements and disclosure guidance, the Company used an exit price to value the CPI CAPs. Beginning in the first quarter of 2008, the value of the CPI CAPs was derived using cash flow model based prices in accordance with the fair value measurements and disclosures guidance, since the market for CPI CAPs was not active. The (loss) gain recorded in the results of operations totaled $(3,130), $6,174, and $4,183 for the years ended December 31, 2010, 2009 and 2008, respectively. Cash proceeds that the Company receives as collateral for the securities it lends and subsequent repayment of the cash are regarded by the Company as cash flows from financing activities, since the cash received is considered a borrowing. Since the Company reinvests the cash collateral generally in investments that are designated as available-for-sale, the reinvestment is presented as cash flows from investing activities. The Company began engaging in transactions during 2010 in which securities issued by the U.S. government and government agencies and authorities, are purchased under agreements to resell (“reverse repurchase agreements”). The Company may take possession of the securities purchased under reverse repurchase agreements. Collateral, greater than or equal to 100% of the fair value of the securities purchased, plus accrued interest, is pledged in the form of cash and cash equivalents or other securities, as provided for in the underlying agreement to selected broker/dealers. The use of the cash collateral pledged is unrestricted. Interest earned on the collateral pledged is recorded as investment income. As of December 31, 2010, the Company had $14,370 of receivables under securities loan agreements which is included in other assets on the consolidated balance sheets. The Company enters into these reverse repurchase agreements in order to initiate short positions in its investment portfolio. The borrowed securities are sold to a third party in the marketplace. The Company records obligations to return the securities that we no longer hold. The financial liabilities resulting from these borrowings are carried at fair value with the changes in value reported as realized gains or losses. As of December 31, 2010, the Company had $14,281 of obligations to return borrowed securities which is included in accounts payable and other liabilities on the consolidated balance sheets. Cash payments for the collateral pledged, subsequent cash adjustments to receivables under securities loan agreements and obligations to return borrowed securities, and the return of the cash collateral from the secured parties is regarded by the Company as cash flows from financing activities, since the cash payments and receipts relate to borrowing of securities under financing arrangements. Collateralized Transactions The Company engages in transactions in which fixed maturity securities, especially bonds issued by the U.S. government and government agencies and authorities, and U.S. corporations, are loaned to selected broker/dealers. Collateral, greater than or equal to 102% of the fair value of the securities lent, plus accrued interest, is received in the form of cash and cash equivalents held by a custodian bank for the benefit of the Company. The use of cash collateral received is unrestricted. The Company reinvests the cash collateral received, generally in investments of high credit quality that are designated as available-forsale. The Company monitors the fair value of securities loaned and the collateral received, with additional collateral obtained, as necessary. The Company is subject to the risk of loss to the extent there is a loss on the re-investment of cash collateral. As of December 31, 2010 and 2009, our c2011-04-06T17:01:18+02:00http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=92http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=926 Fair Value Disclosures • Level 3 inputs are unobservable but are significant to the fair value measurement for the asset, and include situations where there is little, if any, market activity for the asset. These inputs reflect management’s own assumptions about the assumptions a market participant would use in pricing the asset. A review of fair value hierarchy classifications is conducted on a quarterly basis. Changes in the observability of valuation inputs may result in a reclassification of levels for certain securities within the fair value hierarchy. The following tables present the Company’s fair value hierarchy for assets and liabilities measured at fair value on a recurring basis as of December 31, 2010 and December 31, 2009. The amounts presented below for Collateral held under securities lending, Other investments, Cash equivalents, Other assets, Assets held in separate accounts and Other liabilities differ from the amounts presented in the consolidated balance sheets because only certain investments or certain assets and liabilities within these line items are measured at estimated fair value. Other investments and Other liabilities are comprised of investments in the Assurant Investment Plan, American Security Insurance Company Investment Plan, Assurant Deferred Compensation Plan and the related deferred compensation liability, respectively. The obligation to return borrowed securities is also included in Other Liabilities. Other investments also consist of investments associated with a modified coinsurance arrangement and other derivatives. The fair value amount and the majority of the associated levels presented for Other investments and Assets held in separate accounts are received directly from third parties. The following tables present the Company’s fair value hierarchy for those recurring basis assets and liabilities as of December 31, 2010 and 2009. FINANCIAL ASSETS Fixed maturity securities: United States Government and government agencies and authorities State, municipalities and political subdivisions Foreign governments Asset-backed Commercial mortgage-backed Residential mortgage-backed Corporate Equity securities: Common stocks Non-redeemable preferred stocks Short-term investments Collateral held under securities lending Other investments Cash equivalents Other assets Assets held in separate accounts TOTAL FINANCIAL ASSETS Total Level 1 Level 2 December 31, 2010 Level 3 $ 249,511 864,834 648,535 41,750 106,971 796,728 7,904,223 6,566 460,388 358,702 72,219 261,428 864,649 11,280 1,934,658 14,582,442 65,604 1,934,658 2,000,262 $ — — 2,999 — — — — 5,543 — 248,859 54,134 56,507 840,210 — 1,707,170 2,915,422 51,323 1,707,170 1,758,493 $ 235,005 864,834 619,915 41,750 102,429 796,728 7,778,538 1,023 459,830 109,843 18,085 196,612 24,439 1,455 227,488 11,477,974 14,281 227,488 241,769 $ 14,506 — 25,621 — 4,542 — 125,685 — 558 — — 8,309 — 9,825 — 189,046 — —  b b a b c c c c d e a c $ $ $ $ $ $ $ $ a $ $ c FINANCIAL LIABILITIES Other liabilities Liabilities related to separate accounts TOTAL FINANCIAL LIABILITIES $ $ F-22 ASSURANT, INC.  2010 Form 10K2011-04-06T17:01:18+02:00http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=93http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=936 Fair Value Disclosures December 31, 2009 Level 3 FINANCIAL ASSETS Fixed maturity securities: United States Government and government agencies and authorities State, municipalities and political subdivisions Foreign governments Asset-backed Commercial mortgage-backed Residential mortgage-backed Corporate Equity securities: Common stocks Non-redeemable preferred stocks Short-term investments Collateral held under securities lending Other investments Cash equivalents Other assets Assets held in separate accounts TOTAL FINANCIAL ASSETS Total Level 1 Level 2 $ 120,330 910,068 558,463 53,963 159,907 712,003 7,452,038 4,529 508,458 453,469 143,129 242,193 1,108,459 14,344 1,899,915 14,341,268 51,410 1,899,915 1,951,325 $ — — 3,337 — — — — 3,525 — 372,861 78,025 53,803 1,082,546 — 1,685,117 3,279,214 51,410 1,685,117 1,736,527 a $ 120,330 910,068 552,038 53,954 127,619 712,003 7,315,312 1,004 502,723 80,608 65,104 184,115 25,913 334 214,798 10,865,923 — 214,798 214,798 $ — — 3,088 9 32,288 — 136,726 — 5,735 — — 4,275 — 14,010 — 196,131 — —  b b a b c c c c c e a c $ $ $ $ $ $ $ $ $ $ $ $ FINANCIAL LIABILITIES Other liabilities Liabilities related to separate accounts TOTAL FINANCIAL LIABILITIES a. b. c. d. e. Mainly includes mutual funds. Mainly includes money market funds. Mainly includes fixed maturity securities. Mainly includes fixed maturity securities and other derivatives. Mainly includes the Consumer Price Index Cap Derivatives (“CPI Caps”). There were no significant transfers between Level 1 and Level 2 financial assets during the period. However, there were transfers between Level 2 and Level 3 financial assets during the period, which are reflected in the “Net transfers” line below. Transfers between Level 2 and Level 3 most commonly occur when market observable inputs that were previously available become unavailable in the current period. The remaining unpriced securities are submitted to independent brokers who provide non-binding broker quotes or are priced by other qualified sources. The following tables summarize the change in balance sheet carrying value associated with Level 3 financial assets carried at fair value during the years ended December 31, 2010 and 2009: Year Ended December 31, 2010 Equity Securities Balance, beginning of period Total (losses) gains (realized/ unrealized) included in earnings (2,512) Net unrealized gains (losses) included in stockholders’ equity 8,979 Purchases 52,904 Sales (70,721) 4,265 Net transfers (1) BALANCE, END OF PERIOD $ 189,046 $ Total level 3 assets $ 196,131 Fixed Maturity Securities United States Government Nonand government Commercial redeemable agencies Foreign Assetmortgagepreferred Other Other and authorities governments backed backed Corporate stocks Investments Assets $ — $ 3,088 $ 9 $ 32,288 $ 136,726 $ 5,735 $ 4,275 $ 14,010 (605) 57 32,333 (5,208) (12,071) 14,506 $ 2 642 — — 21,889 25,621 $ (8) 5 588 — (594)  $ 56 476 — (22,367) (5,911) (1,206) 11,253 6,239 (34,981) 7,654 2,639 (3,349) 8,116 (5,722) (6,861) 558 $ (358) (105) 5,628 (1,290) 159 (3,032) — — (1,153) — 4,542 $ 125,685 $ 8,309 $ 9,825 ASSURANT, INC.  2010 Form 10K F-232011-04-06T17:01:18+02:00http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=94http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=946 Fair Value Disclosures Year Ended December 31, 2009 Equity Securities Nonredeemable preferred Other Other Corporate stocks investments assets 106,682 $ 12,581 $ 7,024 $ 7,080 (5,920) 20,860 41,451 (6,671) (19,676) 136,726 $ — 654 — — (7,500) 5,735 $ 6 742 294 (2,743) (1,048) 7,112 — 625 (650) (157) Fixed Maturity Securities Total level 3 Foreign assets governments $ 191,685 $ 19,398 1,845 (1,934) — (14,817) (1,404) 3,088 $ Commercial mortgagebacked 38,909 $ 97 7,285 — (10,922) (3,081) 32,288 $ Balance, beginning of period Total gains (losses)(realized/ unrealized) included in earnings 3,139 Net unrealized gains (losses) included in stockholders’ equity 27,608 Purchases 42,370 Sales (35,805) (32,866) Net transfers (1) BALANCE, END OF PERIOD $ 196,131 $ $ Assetbacked 11 $ (1) 1 — (2) — 9 $ 4,275 $ 14,010 (1) Net transfers are primarily attributable to changes in the availability of observable market information and re-evaluation of the observability of pricing inputs. Three different valuation techniques can be used in determining fair value for financial assets and liabilities: the market, income or cost approaches. The three valuation techniques described in the fair value measurements and disclosures guidance are consistent with generally accepted valuation methodologies. The market approach valuation techniques use prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities. When possible, quoted prices (unadjusted) in active markets are used as of the period-end date (such as for mutual funds and money market funds). Otherwise, valuation techniques consistent with the market approach including matrix pricing and comparables are used. Matrix pricing is a mathematical technique employed principally to value debt securities without relying exclusively on quoted prices for those securities but rather by relying on the securities’ relationship to other benchmark quoted securities. Market approach valuation techniques often use market multiples derived from a set of comparables. Multiples might lie in ranges with a different multiple for each comparable. The selection of where within the range the appropriate multiple falls requires judgment, considering both qualitative and quantitative factors specific to the measurement. Income approach valuation techniques convert future amounts, such as cash flows or earnings, to a single present amount, or a discounted amount. These techniques rely on current market expectations of future amounts as of the period-end date. Examples of income approach valuation techniques include present value techniques, option-pricing models, binomial or lattice models that incorporate present value techniques and the multi-period excess earnings method. Cost approach valuation techniques are based upon the amount that would be required to replace the service capacity of an asset at the periodend date, or the current replacement cost. That is, from the perspective of a market participant (seller), the price that would be received for the asset is determined based on the cost to a market participant (buyer) to acquire or construct a substitute asset of comparable utility, adjusted for obsolescence. While not all three approaches are applicable to all financial assets or liabilities, where appropriate, one or more valuation techniques may be used. For all the classes of financial assets and liabilities included in the above hierarchy, excluding the CPI Caps and certain privately placed corporate bonds, the market valuation technique is generally used. For certain privately placed corporate bonds and the CPI Caps, the income valuation technique is generally used. For the years ended December 31, 2010 and 2009, the application of the valuation technique applied to the Company’s classes of financial assets and liabilities has been consistent. Level 2 securities are valued using various observable market inputs obtained from a pricing service. The pric2011-04-06T17:01:18+02:00http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=95http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=956 Fair Value Disclosures A non-pricing service source prices certain privately placed corporate bonds using a model with observable inputs including, but not limited to, the credit rating, credit spreads, sector add-ons, and issuer specific add-ons. A non-pricing service source prices our CPI Caps using a model with inputs including, but not limited to, the time to expiration, the notional amount, the strike price, the forward rate, implied volatility and the discount rate. Management evaluates the following factors in order to determine whether the market for a financial asset is inactive. The factors include, but are not limited to: • There are few recent transactions, • Little information is released publicly, • The available prices vary significantly over time or among market participants, • The prices are stale (i.e., not current), and • The magnitude of the bid-ask spread. Illiquidity did not have a material impact in the fair value determination of the Company’s financial assets. The Company generally obtains one price for each financial asset. The Company performs a monthly analysis to assess if the evaluated prices represent a reasonable estimate of their fair value. This process involves quantitative and qualitative analysis and is overseen by investment and accounting professionals. Examples of procedures performed include, but are not limited to, initial and on-going review of pricing service methodologies, review of the prices received from the pricing service, review of pricing statistics and trends, and comparison of prices for certain securities with two different appropriate price sources for reasonableness. Following this analysis, the Company generally uses the best estimate of fair value based upon all available inputs. On infrequent occasions, a non-pricing service source may be more familiar with the market activity for a particular security than the pricing service. In these cases the price used is taken from the non-pricing service source. The pricing service provides information to indicate which securities were priced using market observable inputs so that the Company can properly categorize our financial assets in the fair value hierarchy. to be zero at December 31, 2010. The fair value measurement was classified as Level 3 (unobservable) inputs in the fair value hierarchy. In accordance with the goodwill guidance, since the carrying amount of the Assurant Employee Benefits and Assurant Health reporting units was greater than their estimated fair values as determined in Step 1 of the impairment test, the Company was required to measure the fair value of goodwill of the Assurant Employee Benefits and Assurant Health reporting units in Step 2 of the impairment test. Goodwill of the Assurant Employee Benefits and Assurant Health reporting units with carrying amount of $102,078 and $204,303, respectively were written down to their implied fair values of $0, resulting in impairment charges of $102,078 and $204,303, respectively, which was included in earnings for the period. See Note 11 for further information. To estimate the fair value of the Assurant Employee Benefits and Assurant Health reporting units, the Company utilized both the income and market valuation approaches. 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 flows 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 u2011-04-06T17:01:18+02:00http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=96http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=966 Fair Value Disclosures The following table presents the Company’s fair value hierarchy for goodwill measured at fair value on a non-recurring basis on which an impairment charge was recorded as of December 31, 2009. Level 1 — $ Assets at Fair Value Non-Recurring Basis Level 2 Level 3 Total — $ 102,078 $ 102,078 Goodwill at December 31, 2009 $ The following table presents the goodwill and other intangible assets impairment charges as of December 31, 2010 and 2009: Impairment Charges Twelve Months Ended December 31, 2010 2009 306,381 $ 83,000 47,612 $ — Goodwill Other intangible assets $ $ Fair Value of Financial Instruments Disclosures The financial instruments guidance requires disclosure of fair value information about financial instruments, as defined therein, for which it is practicable to estimate such fair value. Therefore, it requires fair value disclosure for financial instruments that are not recognized or are not carried at fair value in the consolidated balance sheets. However, this guidance excludes certain financial 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 financial instruments included within the following financial assets and financial 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 financial instruments included within the following financial assets and financial liabilities and the methods and assumptions used to estimate fair value: • Cash and cash equivalents • Fixed maturity securities • Equity securities • Short-term investments • Other investments • Other assets • Assets held in separate accounts • Collateral held under securities lending • Other liabilities • Liabilities related to separate accounts In estimating the fair value of the financial 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 and policy loans The fair values of mortgage loans are estimated using discounted cash flow analyses, based on interest rates currently being offered for similar loans to borrowers with similar credit ratings. Mortgage loans with similar characteristics are aggregated for purposes of the calculations. The carrying value of policy loans reported in the balance sheets approximates fair value. Policy reserves under investment products The fair values for the Company’s policy reserves under the investment products are determined using discounted cash flow analysis. Funds withheld under reinsurance The carrying value reported approximates fair value due to the short maturity of the instruments. Debt The fair value of debt is based upon matrix pricing performed by the pricing service. Mandatorily redeemable preferred stock The fair value of mandatorily redeemable preferred stock equals the carrying value for all series of mandatorily redeemable preferred stock. Obligations under securities lending The obligations under securities lending are reported at the amount received from the selected broker/dealers. F-26 ASSURANT, INC.  2010 Form 10K2011-04-06T17:01:18+02:00http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=97http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=978 Income Taxes The following table discloses the carrying value and fair value of the financial instruments that are not recognized or are not carried at fair value in the consolidated balance sheets as of December 31, 2010 and 2009. Carrying Value Financial assets Commercial mortgage loans on real estate Policy loans Financial liabilities Policy reserves under investment products (Individual and group annuities, subject to discretionary withdrawal) Funds withheld under reinsurance Debt Mandatorily redeemable preferred stocks Obligations under securities lending $ December 31, 2010 Fair Value 1,400,553 $ 56,142 Carrying Value December 31, 2009 Fair Value 1,442,889 56,407 1,320,964 $ 56,142 1,428,027 $ 56,407 $ 851,258 $ 65,894 972,164 5,000 122,931 803,376 $ 65,894 992,340 5,000 122,931 820,044 $ 67,700 972,058 8,160 220,279 747,978 67,700 942,938 8,160 220,279 The fair value of the Company’s liabilities for insurance contracts, other than investment-type contracts, are not required to be disclosed. However, the fair values of liabilities under all insurance contracts are taken into consideration in the Company’s overall management of interest rate risk, such that the Company’s exposure to changing interest rates is minimized through the matching of investment maturities with amounts due under insurance contracts. 7. Premiums and Accounts Receivable As of December 31, 2009 $ 416,139 117,073 (25,279) $ 507,933 Receivables are reported net of an allowance for uncollectible amounts. A summary of such receivables is as follows: 2010 468,334 107,721 (33,128) 542,927 Insurance premiums receivable Other receivables Allowance for uncollectible amounts TOTAL $ $ 8. Income Taxes The Company and the majority of its subsidiaries are subject to U.S. tax and file a U.S. consolidated federal income tax return. Information about current and deferred tax expense (benefit) follows: 2010 Current expense: Federal & state Foreign Total current expense Deferred benefit: Federal & state Foreign Total deferred benefit TOTAL INCOME TAX EXPENSE $ 331,400 $ 31,683 363,083 (19,962) (15,854) (35,816) 327,267 $ Year Ended December 31, 2009 2008 295,779 57,645 353,424 $ 320,931 26,878 347,809 (213,038) (19,289) (232,327) 115,482 $ (28,143) (46,249) (74,392) 279,032 $ The provision for foreign taxes includes amounts attributable to income from U.S. possessions that are considered foreign under U.S. tax laws. International operations of the Company are subject to income taxes imposed by the jurisdiction in which they operate. ASSURANT, INC.  2010 Form 10K F-272011-04-06T17:01:18+02:00http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=98http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=988 Income Taxes A reconciliation of the federal income tax rate to the Company’s effective income tax rate follows: 2010 35.0 % (1.3) (0.8) 3.5 (2.2) 1.1 — 17.7 1.0 54.0 % 2009 35.0 % (1.3) (0.6) 3.1 (1.8) 0.2 — 4.1 0.6 39.3 % December 31, 2008 35.0 % (1.5) (1.2) 2.6 (2.5) 16.7 (30.8) — 2.2 20.5 % Federal income tax rate: Reconciling items: Tax exempt interest Dividends received deduction Foreign earnings Foreign tax credit Change in valuation allowance Loss on sale of subsidiary Goodwill Other EFFECTIVE INCOME TAX RATE: During 2008, the Company recorded a tax benefit of $174,864 from the loss on the sale of a non-operating subsidiary, UFLIC. The gross deferred tax asset for cumulative realized and unrealized capital losses as of December 31, 2010 and 2009 was $246,300 and $306,300, respectively, including the carryover from the loss on the sale of UFLIC. The decrease in losses is primarily related to utilization of capital loss carryforwards during 2010 due to more realized gains in the portfolio. The gross deferred tax asset related to capital losses of $246,300 has been reduced by a valuation allowance of $80,000 as of December 31, 2010. The amount of the valuation allowance is based on an assessment of the Company’s ability to generate taxable income in the future. A reconciliation of the beginning and ending amount of unrecognized tax benefits for the years ended December 31, 2010 and 2009 is as follows: 2010 (23,142) $ (1,209) 19,266 (14,277) 3,903 1,120 495 13,844 $ Year Ended December 31, 2009 2008 (15,780) $ (24,955) (8,513) (4,007) 8,738 4,157 (10,144) (1,235) 1,293 1,802 472 73 792 8,385 23,142 $ 15,780 Balance at beginning of year Additions based on tax positions related to the current year Reductions based on tax positions related to the current year Additions for tax positions of prior years Reductions for tax positions of prior years Lapses Settlements BALANCE AT END OF YEAR $ $ The total unrecognized tax benefit, $22,249, $22,321, and $19,604 for 2010, 2009, and 2008, respectively, which includes interest, would impact the Company’s consolidated effective tax rate if recognized. The liability for unrecognized tax benefits is included in tax payable on the consolidated balance sheets. The Company’s continuing practice is to recognize interest expense related to income tax matters in income tax expense. During the years ended December 31, 2010, 2009 and 2008, the Company recognized approximately $1,000, $1,500 and $2,500, respectively, of interest expense related to income tax matters. The Company had $5,700 and $4,700 of interest accrued as of December 31, 2010 and 2009, respectively. No penalties have been accrued. The Company, and its subsidiaries, file income tax returns in the U.S. and various state and foreign jurisdictions. The Company has substantially concluded all U.S. federal income tax matters for years through 2004. Substantially all state, local and non-U.S. income tax matters have been concluded for the years through 2002. F-28 ASSURANT, INC.  2010 Form 10K2011-04-06T17:01:18+02:00http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=99http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=998 Income Taxes The tax effects of temporary differences that result in significant deferred tax assets and deferred tax liabilities are as follows: 2010 Deferred Tax Assets Policyholder and separate account reserves Accrued liabilities Investments, net Net operating loss carryforwards Capital loss carryforwards Deferred gain on disposal of businesses Compensation related Employee and post-retirement benefits Other Total deferred tax asset Less valuation allowance Deferred tax assets, net of valuation allowance Deferred Tax Liabilities Deferred acquisition costs Net unrealized appreciation on securities Total deferred tax liability NET DEFERRED INCOME TAX ASSET $ 512,504 $ 10,286 76,703 52,897 147,887 54,185 61,846 115,497 48,268 1,080,073 (90,738) 989,335 (705,807) (207,098) (912,905) 76,430 $ December 31, 2009 526,076 12,435 76,562 47,015 170,768 57,715 61,313 95,233 10,992 1,058,109 (81,688) 976,421 (714,829) (94,352) (809,181) 167,240 $ The Company’s total valuation allowance against deferred tax assets increased by $9,050 to $90,738 at December 31, 2010 from $81,688 at December 31, 2009. A cumulative valuation allowance of $90,738 has been recorded because it is management’s assessment that it is more likely than not that only $989,335 of deferred tax assets will be realized. Of the total $90,738 valuation allowance $80,000 relates to the deferred tax asset on capital losses. The Company’s ability to realize deferred tax assets depends on its ability to generate sufficient taxable income of the same character within the carryback or carryforward periods. In assessing future GAAP taxable income, the Company considered all sources of taxable income available to realize its deferred tax asset, including the future reversal of existing temporary differences, future taxable income exclusive of reversing temporary differences and carryforwards, taxable income in carryback years and tax-planning strategies. If changes occur in the assumptions underlying the Company’s tax planning strategies or in the scheduling of the reversal of the Company’s deferred tax liabilities, the valuation allowance may need to be adjusted in the future. Other than for certain wholly owned Canadian subsidiaries, deferred taxes have not been provided on the undistributed earnings of wholly owned foreign subsidiaries since the Company intends to indefinitely reinvest the earnings in these other jurisdictions. The cumulative amount of undistributed earnings for which the Company has not provided deferred income taxes is $128,842. Upon distribution of such earnings in a taxable event, the Company would incur additional U.S. income taxes of $31,421 net of anticipated foreign tax credits. At December 31, 2010, the Company and its subsidiaries had net operating loss carryforwards for U.S. federal and foreign income tax purposes. Net operating loss carryforwards total $174,881 and will expire if unused as follows: Expiration Year 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 unlimited $ Amount 183 1,604 7,859 9,978 510 5,783 2,658 2,767 1,827 67 1,476 2,144 2,203 2,637 133,185 174,881 $ At December 31, 2010, the Company and its subsidiaries have $422,533 of capital loss carryovers, all of which were generated during 2008 and 2009 for U.S. federal and state income tax purposes. The 2008 capital loss carryovers of $388,608 will expire if not utilized within three years while the 2009 capital loss carryovers of $33,925 will expire if not utilized within four years. ASSURANT, INC.  2010 Form 10K F-292011-04-06T17:01:18+02:00http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=100http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=1009 Deferred Acquisition Costs 9. Deferred Acquisition Costs December 31, 2008 2,895,345 1,410,311 (1,654,984) 2,650,672 Information about deferred acquisition costs is as follows: 2010 2,504,654 $ 1,497,480 (1,508,712) 2,493,422 $ 2009 2,650,672 $ 1,441,972 (1,587,990) 2,504,654 $ Beginning balance Costs deferred and other (1) Amortization ENDING BALANCE (1) Includes foreign currency translation. $ $ 10. Property and Equipment Property and equipment consists of the following: As of December 31, 2010 2009 14,449 $ 14,449 215,362 206,458 474,881 455,149 704,692 676,056 (437,523) (400,636) 267,169 $ 275,420 Land Buildings and improvements Furniture, fixtures and equipment Total Less accumulated depreciation TOTAL $ $ Depreciation expense for 2010, 2009 and 2008 amounted to $59,017, $61,772 and $59,696, respectively. Depreciation expense is included in underwriting, general and administrative expenses in the consolidated statements of operations. 11. Goodwill Information about goodwill is as follows: 2010 Balance as of January 1: Goodwill Accumulated impairment loss Additions Foreign currency translation and other Impairments Goodwill Accumulated impairment losses BALANCE AS OF DECEMBER 31: $ 2,270,337 $ (1,343,939) 926,398 199 (437) (306,381) (3) 2,270,099 (1,650,320) 619,779 $ 2009 2,262,838 $ (1,260,939) 1,001,899 3,520 3,979 (83,000) (2) 2,270,337 (1,343,939) 926,398 $ 2008 2,093,595 (1,260,939) 832,656 181,956(1) (12,713) — 2,262,838 (1,260,939) 1,001,899 $ (1) Amounts primarily attributable to the acquisitions of the GE Warranty Management Group on September 26, 2008 and The Signal on October 1, 2008. See Note 3—Business Combinations for further information. (2) Represents impairment of Assurant Employee Benefits reporting unit. See Notes 2 and 6 for further information. (3) Represents impairment of Assurant Employee Benefits and Assurant Health reporting units. See Notes 2 and 6 for further information. The Company has assigned goodwill to its reportable operating segments for impairment testing purposes. The Corporate and other segment is not assigned goodwill. Below is a roll forward of goodwill by reportable segment. F-30 ASSURANT, INC.  2010 Form 10K2011-04-06T17:01:18+02:00http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=101http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=10111 Goodwill Solutions Balance at December 31, 2008 Goodwill Accumulated impairment losses (1) Acquisitions Foreign currency translation and other Impairment Balance at December 31, 2009 Goodwill Accumulated impairment losses Acquisitions Foreign currency translation and other Impairment Balance at December 31, 2010 Goodwill Accumulated impairment losses $ $ 1,633,731 $ (1,260,939) 372,792 3,520 3,979 — 1,641,230 (1,260,939) 380,291 81 (437) — 1,640,874 (1,260,939) 379,935 $ Specialty Property 239,726 $ — 239,726 — — — 239,726 — 239,726 118 — — 239,844 — 239,844 $ Health 204,303 — 204,303 — — — 204,303 — 204,303 — — (204,303) 204,303 (204,303)  $ $ Employee Benefits 185,078 — 185,078 — — (83,000) 185,078 (83,000) 102,078 — — (102,078) 185,078 (185,078)  $ Consolidated 2,262,838 (1,260,939) 1,001,899 3,520 3,979 (83,000) 2,270,337 (1,343,939) 926,398 199 (437) (306,381) 2,270,099 (1,650,320) 619,779 (1) The accumulated impairment loss relates to an acquisition made in 1999. The entity acquired had businesses that currently are primarily represented by the Assurant Solutions and Assurant Specialty Property segments. Prior to 2006, the Assurant Solutions and Assurant Specialty Property segments were combined and together called Assurant Solutions. Thus, the entire goodwill impairment recognized in 2002 due to the adoption of FAS 142 is included in the tables under the Assurant Solutions segment. In accordance with the goodwill guidance, goodwill is deemed to have an indefinite life and should not be amortized, but rather must be tested, at least annually, for impairment. In addition, goodwill should be tested for impairment between annual tests if an event occurs or circumstances change that would “more likely than not” reduce the estimated fair value of the reporting unit below its carrying value. The goodwill impairment test has two steps. Step 1 of the test identifies potential impairments at the reporting unit level, which for the Company is the same as our operating segments, by comparing the estimated fair value of each reporting unit to its net book value. If the estimated fair value of a reporting unit exceeds its net book value, there is no impairment of goodwill and Step 2 is unnecessary. However, if the net book value exceeds the estimated fair value, then Step 1 is failed, and Step 2 is performed to determine the amount of the potential impairment. Step 2 utilizes acquisition accounting guidance and requires the fair value calculation of all individual assets and liabilities of the reporting unit (excluding goodwill, but including any unrecognized intangible assets). The net fair value of assets less liabilities is then compared to the reporting unit’s total estimated fair value as calculated in Step 1. The excess of fair value over the net asset value equals the implied fair value of goodwill. The implied fair value of goodwill is then compared to the carrying value of goodwill to determine the reporting unit’s goodwill impairment. In the fourth quarters of 2010 and 2009, we conducted our annual assessments of goodwill. Based on the results of the 2010 assessment, the Company concluded that the net book values of the Assurant Employee Benefits and Assurant Health reporting units exceeded their estimated fair values and therefore performed a Step 2 test. Based on the results of the Step 2 test, the Company recorded impairment charges of $102,078 and $204,303 related to the Assurant Employee Benefits and Assurant Health reporting units, respectively, representing their entire goodwill asset balances. During 2009, the Company concluded that the net book value of the Assurant Employee Benefits reporting unit exceeded its estimated fair value and recorded an $83,000 impairment charge after performing a Step 2 test. For both 2010 and 2009, those reporting units where a Step 2 test was not performed, the estimated fair value of the reporting units exceeded their respective net book values and therefore goodwill was not impaired.2011-04-06T17:01:18+02:00http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=102http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=10212 VOBA and Other Intangible Assets 12. VOBA and Other Intangible Assets Information about VOBA is as follows: 2010 94,632 $ — (12,526) 102 82,208 $ For the Years Ended December 31, 2009 2008 108,204 $ 125,612 — (199) (13,890) (16,696) 318 (513) 94,632 $ 108,204 Beginning balance Deletions Amortization, net of interest accrued Foreign currency translation and other ENDING BALANCE $ $ As of December 31, 2010, the entire outstanding balance of VOBA is from the Assurant Solutions segment with the majority related to the preneed business. VOBA in the preneed business assumes an interest rate ranging from 5.4% to 7.5%. At December 31, 2010 the estimated amortization of VOBA for the next five years and thereafter is as follows: Year 2011 2012 2013 2014 2015 Thereafter TOTAL $ Amount 11,147 8,962 8,445 7,996 7,600 38,058 82,208 $ Information about other intangible assets is as follows: As of December 31, 2010 2009 Accumulated Net Other Accumulated Net Other Carrying Value Amortization Intangible Assets Carrying Value Amortization Intangible Assets $ 66,047 $ (31,874) $ 34,173 $ 66,047 $ (26,866) $ 39,181 445,357 (188,090) 257,267 398,094 (147,121) 250,973 37,716 (17,647) 20,069 34,542 (9,893) 24,649 $ 549,120 $ 237,611 $ 311,509 $ 498,683 $ 183,880 $ 314,803 Contract based intangibles Customer related intangibles (1) Marketing related intangibles TOTAL (1) Excluded from the 2010 customer related carrying value and accumulated amortization amounts is an impairment charge of $47,612. This impairment charge relates to the Assurant Solutions segment and is related to a fourth quarter 2010 client notification of non-renewal of a block of domestic service contract business effective June 1, 2011. Other intangible assets that have finite lives, including customer relationships, customer contracts and other intangible assets, are amortized over their useful lives. The estimated amortization of other intangible assets and the amount of indefinite lived intangible assets, which mainly include state licenses, are as follows: Year 2011 2012 2013 2014 2015 Thereafter Total other intangible assets with finite lives Total other intangible assets with indefinite lives TOTAL OTHER INTANGIBLE ASSETS $ Amount 56,723 48,228 40,747 35,406 30,036 97,644 308,784 2,725 311,509 $ F-32 ASSURANT, INC.  2010 Form 10K2011-04-06T17:01:18+02:00http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=103http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=10313 Reserves 13. Reserves The following table provides reserve information of the Company’s major product lines at the dates shown: December 31, 2010 Claims and Benefits Payable Future Policy Benefits and Expenses Long Duration Contracts: Preneed funeral life insurance policies and investment-type annuity contracts Life insurance no longer offered Universal life and other products no longer offered FFG, LTC and other disposed businesses Medical All other Short Duration Contracts: Group term life Group disability Medical Dental Property and Warranty Credit Life and Disability Extended Service Contracts All other TOTAL Unearned Premiums Incurred But Case Not Reported Reserves Reserves Future Policy Benefits and Expenses December 31, 2009 Claims and Benefits Payable Unearned Premiums Incurred But Case Not Reported Reserves Reserve $ 3,862,431 $ 467,574 246,177 3,435,762 87,588 5,621 78,986 $ 649 197 39,119 9,340 324 12,009 $ 1,577 272 33,535 7,515 18,465 4,085 $ 3,629,601 $ 265 478,839 8,727 567,557 11,044 5,115 263,360 2,879,224 93,447 5,162 37,672 $ 681 168 41,531 11,665 335 10,431 $ 1,639 233 25,542 18,137 18,197 4,018 339 8,744 421,605 13,737 6,225 — 4,550 209,514 36,486 — 3,710 218,191 37,419 — 2,567 1,251,999 152,275 — 7,705 1,274,378 143,052 — 104,169 104,288 186,102 — 112,603 169,260 190,366 — 4,400 3,079 18,063 — 4,334 5,709 19,464 — 1,887,759 168,952 349,479 — 1,896,897 173,009 368,242 — 307,430 61,808 69,644 — 366,313 81,726 77,581 — 2,363,836 2,855 40,373 — 2,482,683 2,350 50,207 — 260,673 8,211 17,875 — 187,267 10,013 16,513 $ 8,105,153 $ 5,063,999 $ 1,884,079 $ 1,467,090 $ 7,349,633 $ 5,153,564 $ 2,008,815 $ 1,357,512 The following table provides a roll forward of the Company’s product lines with the most significant claims and benefits payable balances: group term life, group disability, medical and property and warranty lines of business. Claims and benefits payable is comprised of case and IBNR reserves. ASSURANT, INC.  2010 Form 10K F-332011-04-06T17:01:18+02:00http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=104http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=10413 Reserves Group Group Short Duration Long Duration Property Term Life Disability Medical (2) Medical (2) and Warranty $ 281,043 $ 1,524,831 $ 316,799 $ 45,710 $ 504,398 (1,350) (36,399) (41,411) (4,046) (119,094) 279,693 1,488,432 275,388 41,664 385,304 169,301 8,884 (58,480) 119,705 109,558 35,039 144,597 254,801 1,461 256,262 (1,461) 254,801 146,638 8,815 (24,801) 130,652 88,063 43,381 131,444 254,009 1,600 255,609 (1,600) 254,009 137,345 8,471 (26,994) 118,822 342,447 65,751 (94,113) 314,085 83,863 280,767 364,630 1,437,887 35,115 1,473,002 (35,115) 1,437,887 310,228 63,877 (79,899) 294,206 71,930 279,861 351,791 1,380,302 37,128 1,417,430 (37,128) 1,380,302 352,118 60,738 (85,753) 327,103 1,194,853 — (51,093) 1,143,760 971,781 206,772 1,178,553 240,595 37,265 277,860 (37,265) 240,595 1,273,782 — 30,006 1,303,788 1,003,547 211,638 1,215,185 329,198 30,428 359,626 (30,428) 329,198 1,292,045 — (66,451) 1,225,594 1,028,147 251,817 1,279,964 274,828 15,562 290,390 $ 146,873 — (6,737) 140,136 121,707 30,408 152,115 29,685 2,768 32,453 (2,768) 29,685 118,565 — 7,221 125,786 97,780 27,776 125,556 29,915 1,959 31,874 (1,959) 29,915 98,546 — (3,051) 95,495 81,392 26,162 107,554 17,856 703 18,559 $ 1,081,244 — (55,499) 1,025,745 807,087 209,506 1,016,593 394,456 167,394 561,850 (167,394) 394,456 943,054 — (35,840) 907,214 681,019 226,725 907,744 393,926 147,325 541,251 (147,325) 393,926 880,347 — (46,269) 834,078 608,085 250,520 858,605 369,399 149,032 518,431 Balance as of December 31, 2007, gross of reinsurance (3) Less: Reinsurance ceded and other (1) Balance as of January 1, 2008, net of reinsurance Incurred losses related to: Current year Prior year’s interest Prior year (s) Total incurred losses Paid losses related to: Current year Prior year (s) Total paid losses Balance as of December 31, 2008, net of reinsurance (3) Plus: Reinsurance ceded and other (1) Balance as of December 31, 2008, gross of reinsurance (3) Less: Reinsurance ceded and other (1) Balance as of January 1, 2009, net of reinsurance Incurred losses related to: Current year Prior year’s interest Prior year (s) Total incurred losses Paid losses related to: Current year Prior year (s) Total paid losses Balance as of December 31, 2009, net of reinsurance (3) Plus: Reinsurance ceded and other (1) Balance as of December 31, 2009 gross of reinsurance (3) Less: Reinsurance ceded and other (1) Balance as of January 1, 2010, net of reinsurance Incurred losses related to: Current year Prior year’s interest Prior year (s) Total incurred losses Paid losses related to: Current year Prior year (s) Total paid losses Balance as of December 31, 2010, net of reinsurance (3) Plus: Reinsurance ceded and other (1) Balance as of December 31, 2010 gross of reinsurance (3) 83,482 66,570 46,370 273,743 129,852 340,313 242,979 1,367,092 3,021 37,182 $ 246,000 $ 1,404,274 $ (1) Reinsurance ceded and other includes claims and benefits payable balances that have either been (a) reinsured to third parties, (b) established for claims related expenses whose subsequent payment is not recorded as a paid claim, or (c) reserves established for obligations that would persist even if contracts were cancelled (such as extension of benefits), which cannot be analyzed appropriately under a roll-forward approach. (2) Short duration and long duration medical methodologies used for settling claims and benefits payable are similar. (3) The majority of the Company’s credit life and disability claims and benefits payable are ceded to reinsurers. The Company’s net retained credit life and disability claims and benefits payable were $69,127, $87,852 and $77,299 at December 31, 2010, and 2009 and 2008, respectively. Short Duration Contracts The Company’s short duration contracts are comprised of group term life, group disability, medical, dental, property and warranty, credit life and disability, extended service contracts and all other. The principal products and services included in these categories are des2011-04-06T17:01:18+02:00http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=105http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=10513 Reserves to year, while also giving due consideration to the potential variability of these factors. Since case and IBNR reserves include estimates developed from various actuarial methods, the Company’s actual losses incurred may be more or less than the Company’s previously developed estimates. As shown in the table above, if the amounts listed on the line labeled “Incurred losses related to: Prior years” are negative (redundant) this means that the Company’s actual losses incurred related to prior years for these lines were less than the estimates previously made by the Company. If the line labeled “Incurred losses related to: Prior years” are positive (deficient) this means that the Company’s actual losses incurred related to prior years for these lines were greater than the estimates previously made by the Company. Medical reserves established for obligations that would persist even if contracts were cancelled (such as extension of benefits) have been excluded from the incurred loss roll-forwards because they cannot be analyzed appropriately under a roll-forward approach. The Group Term Life case and IBNR reserves redundancies in all years are due to actual mortality rates running below those assumed in prior year reserves, and actual recovery rates running higher than those assumed in prior year reserves. Group Disability case and IBNR reserves show redundancies in all years due to actual claim recovery rates exceeding those assumed in prior year reserves. The redundancies in our Medical lines case and IBNR reserves were caused by the Company’s claims and other case reserves developing more favorably than expected. The Company’s actual claims experience reflected lower medical provider utilization and lower medical inflation than assumed in the Company’s prior-year pricing and reserving processes as well as favorable litigation settlements. The Company’s group disability products are short duration contracts that include short and long term disability coverage. Case reserves and IBNR for long-term disability have been discounted at 5.25% in 2010. The December 31, 2010 and 2009 liabilities net of reinsurance include $1,337,576 and $1,353,597 respectively, of such reserves. The amount of discounts deducted from outstanding reserves as of December 31, 2010 and 2009 are $469,442 and $473,509, respectively. In 2010, 2009, and 2008 the Company’s Property and Warranty case and IBNR reserves reflected redundancies from the Company’s lenderplaced homeowners business due to lower than anticipated loss ratios. The current year redundancy increased due to favorable development on a long tail product and a Credit product as well as various other short tail product lines. A subrogation recovery, net of reinsurance, of $9,000 associated with the 2007 California wildfires contributed to the redundancy in 2009. For the longer-tail Property and Warranty coverages (e.g. asbestos, environmental, and other general liability), for all other years presented, there were no material changes in estimated amounts for incurred claims in prior years. Property and Warranty case and IBNR reserves were at their highest level at December 31, 2008 due to outstanding 2008 hurricane claims, most of which were paid in 2009. and services included in these categories are described in the summary of significant accounting policies. See Note 2 for further information. The Company’s Solutions segment manages preneed insurance products through two separate divisions: the independent division and the American Memorial Life Insurance Company (“AMLIC”) division. The Company signed an agreement with Forethought Life Insurance Company on November 9, 2005 whereby the Company discontinued writing new preneed insurance policies in the U.S. via independent funeral homes. The reserve assumptions for future policy benefits and expenses for pre-funded funeral life and annuity contracts and traditional life insurance (no longer offered) by the preneed business differ by division and2011-04-06T17:01:18+02:00http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=106http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=10614 Reinsurance issues ranged from 4.0% to 5.8%. Preneed insurance issued prior to October 2000 and all traditional life insurance issued by the AMLIC division use discount rates, which vary by issue year and product, ranging from 2.5% to 7.5% in 2010 and 2009. Mortality assumptions for preneed life insurance issued or acquired after September 2000 and prior to 2009 are based upon pricing assumptions, which approximate actual experience, and modified to allow for provisions for adverse deviation. For preneed life insurance with discretionary death benefit growth issued after 2008, mortality assumptions are based upon pricing assumptions, which approximate actual experience, without provisions for adverse deviation. Surrender rates for preneed life insurance issued or acquired in October 2000 and beyond vary by product and are based upon pricing assumptions. Mortality assumptions for all preneed life insurance and traditional life insurance acquired by the AMLIC division prior to October 2000 are based on statutory valuation requirements, which approximate GAAP, with no explicit provision for lapses. Future policy benefit increases for preneed life insurance products are based upon pricing assumptions. First-year guaranteed benefit increases were 0.0% in 2010 and 2009. Renewal guaranteed benefit increases ranged from 0.0% to 3.0% in 2010 and 2009. For contracts with minimum benefit increases associated with an inflation index, assumed benefit increases equaled the discount rate less 3.0% in 2010 and 2009. The reserves for annuities issued by the AMLIC division are based on assumed interest rates credited on deferred annuities and ranged from 1.0% to 6.5% in 2010 and 2009. Withdrawal charges ranged from 0.0% to 8.0% grading to zero over eight years for business issued in the United States. Canadian annuity products have a flat 35% surrender charge. Nearly all the deferred annuities contracts have a 3.0% guaranteed interest rate. Universal Life and Annuities—No Longer Offered The reserves for universal life and annuity products (no longer offered) in the Assurant Solutions segment have been established based on the following assumptions: Interest rates credited on annuities, which vary by product and time when funds were received, ranged from 3.5% to 4.0% with guaranteed credited rates that ranged from 3.5% to 4.0% in 2010 and 2009, except for a limited number of policies with credited rates of 4.5% with guaranteed credited rate of 4.5%. Annuities are also subject to surrender charges, which vary by contract year and grade to zero over a period no longer than seven years. Surrender values on annuities will never be less than the amount of paid-in premiums (net of prior withdrawals) regardless of the surrender charge. Credited interest rates on universal life funds vary by product and time when funds were received and ranged from 4.0% to 4.1% in 2010 and 2009. Guaranteed crediting rates where present were 4.0%. Additionally, universal life funds are subject to surrender charges that vary by product, age, sex, year of issue, risk class, face amount and grade to zero over a period not longer than 20 years. FFG and LTC Reserves for businesses previously disposed of by FFG and LTC are included in the Company’s reserves in accordance with the insurance guidance. The Company maintains an offsetting reinsurance recoverable related to these reserves. See Note 14 for further information. 14. Reinsurance In the ordinary course of business, the Company is involved in both the assumption and cession of reinsurance with non-affiliated companies. The following table provides details of the reinsurance recoverables balance for the years ended December 31: Ceded future policyholder benefits and expense Ceded unearned premium Ceded claims and benefits payable Ceded paid losses TOTAL $ 2010 3,344,066 $ 796,944 823,731 32,575 4,997,316 $ 2009 2,786,916 698,985 680,836 64,997 4,231,734 $ A key credit quality indicator for reinsurance is the A.M. Best financial strengt2011-04-06T17:01:18+02:00http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=107http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=10714 Reinsurance Best Ratings of Reinsurer A++ or A+ A or AB++ or B+ B or BC and Below Not Rated Total Less: Allowance NET REINSURANCE RECOVERABLE Ceded future policyholder Ceded unearned Ceded claims and Ceded paid benefits and expense premiums benefits payable losses $ 1,759,490 $ 38,242 $ 558,360 $ 4,054 1,540,653 69,631 120,411 4,563 39,896 1,432 1,242 170 — 19,626 3,937 — 42 — — 88 3,985 668,013 139,781 39,335 3,344,066 796,944 823,731 48,210 $ — 3,344,066 $ — 796,944 $ — 823,731 $ $ Total 2,360,146 1,735,258 42,740 23,563 130 851,114 5,012,951 (15,635) 4,997,316 (15,635) 32,575 $ A.M. Best ratings for The Hartford and John Hancock, the reinsurers with the largest reinsurance recoverable balances, are A and A+, respectively. A.M. Best recently placed a negative outlook on the financial strength ratings of John Hancock and a stable outlook on the financial strength ratings of The Hartford. The total amount of recoverable for these two reinsurers is $3,488,908 as of December 31, 2010. Most of the assets backing reserves relating to reinsurance recoverables from these two counterparties are held in trust. A substantial portion of the Not Rated category is related to Assurant Solutions’ and Assurant Specialty Property’s agreements to reinsure premiums and risks related to business generated by certain clients to the clients’ own captive insurance companies or to reinsurance subsidiaries in which the clients have an ownership interest. To mitigate exposure to credit risk for these reinsurers, the Company evaluates the financial condition of the reinsurer and holds substantial collateral (in the form of funds withheld, trusts, and letters of credit) as security. The Not Rated category also includes recoverables from the National Flood Insurance Program and the Florida Hurricane Catastrophe Fund. An allowance for doubtful accounts related to reinsurance recoverables 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. The allowance for doubtful accounts was $15,635 and $6,254 at December 31, 2010 and 2009, respectively. Information about the valuation allowance for reinsurance recoverable is as follows: Years Ended December 31, 2010 2009 6,253 $ 9,680 9,266 (853) 116 257 — (2,831) 15,635 $ 6,253 Balance as of beginning-of-year Provision Other additions Direct write-downs charged against the allowance BALANCE AS OF THE ENDOFYEAR $ $ The effect of reinsurance on premiums earned and benefits incurred was as follows: 2010 Long Duration Direct earned premiums and other considerations Premiums assumed Premiums ceded NET EARNED PREMIUMS AND OTHER CONSIDERATIONS Direct policyholder benefits Policyholder benefits assumed Policyholder benefits ceded NET POLICYHOLDER BENEFITS $ Short Duration Total Long Duration Short Duration 2009 Total Long Duration Years Ended December 31, 2008 Short Duration Total 641,284 $ 8,664,723 $ 9,306,007 $ 745,625 $ 8,632,312 $ 9,377,937 $ 997,538 $ 8,625,122 $ 9,622,660 7,467 317,635 325,102 8,852 222,250 231,102 7,176 343,032 350,208 (345,837) (1,882,233) (2,228,070) (360,221) (1,698,483) (2,058,704) (379,624) (1,667,896) (2,047,520 ) $ 302,914 $ 7,100,125 $ 7,403,039 $ 394,256 $ 7,156,079 $ 7,550,335 $ 625,090 $ 7,300,258 $ 7,925,348 $ 1,634,348 $ 3,465,590 $ 5,099,938 $ 1,166,137 $ 3,690,611 $ 4,856,748 $1,372,998 $ 3,746,597 $ 5,119,595 25,875 (1,284,157) 209,975 235,850 (410,653) (1,694,810) 31,647 (764,441) 153,792 185,439 (409,764) (1,174,205) 27,692 (807,896) 220,553 248,245 (540,797) (1,348,693 ) $ 376,066 $ 3,264,912 $ 3,640,978 $ 433,343 $ 3,434,639 $ 3,867,982 $ 592,794 $ 3,426,353 $ 4,019,147 The Company had $1,190,763 and $1,052,007, respectively, of invested assets held in trusts or by custodians as of December 31, 2010 and 2009, respectively, for the benefit of others related to certain reinsurance arrangements. The Company utilizes ceded reinsurance for loss protection and capital2011-04-06T17:01:18+02:00http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=108http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=10814 Reinsurance Loss Protection and Capital Management As part of the Company’s overall risk and capacity management strategy, the Company purchases reinsurance for certain risks underwritten by the Company’s various segments, including significant individual or catastrophic claims. For those product lines where there is exposure to losses from catastrophe events, the Company closely monitors and manages its aggregate risk exposure by geographic area. The Company has entered into reinsurance treaties to manage exposure to these types of events. On May 5, 2009, the Company announced the establishment of a multi-year catastrophe bond program to provide reinsurance protection for losses resulting from hurricanes. As part of the program, certain of the Company’s subsidiaries (the “Subsidiaries”) entered into two reinsurance agreements with Ibis Re Ltd., an independent special purpose reinsurance company domiciled in the Cayman Islands (“Ibis Re”). The Ibis Re agreements provide up to $150,000 of reinsurance coverage for protection against losses over a three-year period from individual hurricane events in Hawaii and along the Gulf and Eastern Coasts of the United States. The agreements expire in May 2012. Ibis Re financed the property catastrophe reinsurance coverage by issuing catastrophe bonds in an aggregate amount of $150,000 to unrelated investors (the “Series 2009-1 Notes”). On April 27, 2010, the Subsidiaries entered into two additional reinsurance agreements with Ibis Re providing up to $150,000 of reinsurance coverage for protection against losses over a three-year period from individual hurricane events in Hawaii and along the Gulf and Eastern Coasts of the United States. The agreements expire in May 2013. Ibis Re financed the property catastrophe reinsurance coverage by issuing catastrophe bonds in an aggregate amount of $150,000 to unrelated investors (the “Series 2010-1 Notes”). The $300,000 of fully collateralized hurricane coverage, purchased from Ibis Re provides per occurrence first event coverage as part of the Company’s catastrophe program. This $300,000 of coverage represents approximately 26.5% of the $1,130,000 of first event coverage (net of reimbursements of the Florida Hurricane Catastrophe Fund) purchased by the Company in excess of the Company’s $155,000 retention. The coverage is expected to provide protection for a storm that generates in excess of approximately $450,000 of losses net of any reimbursements from the Florida Hurricane Catastrophe Fund. Under the terms of these reinsurance agreements, the Subsidiaries are obligated to pay annual reinsurance premiums to Ibis Re for the reinsurance coverage. The reinsurance agreements with Ibis Re utilize a dual trigger that is based upon an index that is created by applying predetermined percentages to insured industry losses in each state in the covered area as reported by an independent party and the Subsidiaries’ covered losses incurred. Reinsurance contracts that have a separate, pre-identified variable (e.g., a loss-based index) are accounted for as reinsurance if certain conditions are met. In the case of the reinsurance agreements with Ibis Re, these conditions were met, thus the Company accounted for them as reinsurance in accordance with the guidance for reinsurance contracts. Amounts payable to the Subsidiaries under the reinsurance agreements will be determined by the index-based losses, which are designed to approximate the Subsidiaries’ actual losses from any covered event. The amount of actual losses and index losses from any covered event may differ. For each covered event, Ibis Re pays the Subsidiaries the lesser of the covered index-based losses or the Subsidiaries’ actual losses. F-38 ASSURANT, INC.  2010 Form 10K The principal amount of the catastrophe bonds will be reduced by any amounts paid to the Subsidiaries under the reinsurance agreements. The Subsidiaries have not incurred any losses subject to the reinsurance agreements since their in2011-04-06T17:01:18+02:00http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=109http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=10915 Debt Accordingly, the Company is not the primary beneficiary of Ibis Re and does not consolidate the entity in the Company’s financial statements. Under indemnity reinsurance transactions in which the Company is the ceding insurer, the Company remains liable for policy claims if the assuming company fails to meet its obligations. To mitigate this risk, the Company has control procedures to evaluate the financial condition of reinsurers and to monitor the concentration of credit risk. The selection of reinsurance companies is based on criteria related to solvency and reliability and, to a lesser degree, diversification. with a resulting material adverse effect on our results of operations and financial condition. As of December 31, 2010, we were not aware of any regulatory actions taken with respect to the solvency of the insurance subsidiaries of The Hartford or John Hancock that reinsure the FFG and LTC businesses, and the Company has not been obligated to fulfill any of such reinsurers’ obligations. Segment Client Risk and Profit Sharing The Assurant Solutions and Assurant Specialty Property segments write business produced by their clients, such as mortgage lenders and servicers, financial institutions and reinsures all or a portion of such business to insurance subsidiaries of some clients. Such arrangements allow significant flexibility in structuring the sharing of risks and profits on the underlying business. A substantial portion of Assurant Solutions and Assurant Specialty Property’s reinsurance activities are related to agreements to reinsure premiums and risks related to business generated by certain clients to the clients’ own captive insurance companies or to reinsurance subsidiaries in which the clients have an ownership interest. Through these arrangements, our insurance subsidiaries share some of the premiums and risk related to client-generated business with these clients. When the reinsurance companies are not authorized to do business in our insurance subsidiary’s domiciliary state, the Company’s insurance subsidiary generally obtains collateral, such as a trust or a letter of credit, from the reinsurance company or its affiliate in an amount equal to the outstanding reserves to obtain full statutory financial credit in the domiciliary state for the reinsurance. The Company’s reinsurance agreements do not relieve the Company from its direct obligation to its insureds. Thus, a credit exposure exists to the extent that any reinsurer is unable to meet the obligations assumed in the reinsurance agreements. To mitigate its exposure to reinsurance insolvencies, the Company evaluates the financial condition of its reinsurers and holds substantial collateral (in the form of funds, trusts, and letters of credit) as security under the reinsurance agreements. Business Divestitures The Company has used reinsurance to exit certain businesses, such as the disposals of FFG and LTC. Reinsurance was used in these cases to facilitate the transactions because the businesses shared legal entities with operating segments that the Company retained. Assets supporting liabilities ceded relating to these businesses are mainly held in trusts and the separate accounts relating to FFG are still reflected in the Company’s balance sheet. If the reinsurers became insolvent, we would be exposed to the risk that the assets in the trusts and/or the separate accounts would be insufficient to support the liabilities that would revert back to us. The reinsurance recoverable from The Hartford was $1,185,687 and $1,221,513 as of December 31, 2010 and 2009, respectively. The reinsurance recoverable from John Hancock was $2,303,221 and $1,569,252 as of December 31, 2010 and 2009, respectively. The reinsurance agreement associated with the FFG sale also stipulates that The Hartford contribute funds to increase the value of the separate account assets relating to Modified Guaranteed Annuity business sold if such value declines below the value of the associated liabil2011-04-06T17:01:18+02:00http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=110http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=11016 Mandatorily Redeemable Preferred Stock On December 18, 2009, the Company entered into a three-year unsecured revolving credit agreement (“2009 Credit Facility”) with a syndicate of banks arranged by JP Morgan Chase Bank, Inc. and Bank of America, Inc. The 2009 Credit Facility provides for revolving loans and the issuance of multi-bank, syndicated letters of credit and/or letters of credit from a sole issuing bank in an aggregate amount of $350,000 and is available until December 2012, provided the Company is in compliance with all covenants. The agreement has a sublimit for letters of credit issued under the agreement of $50,000. The proceeds of these loans may be used for the Company’s commercial paper program or for general corporate purposes. The Company did not use the commercial paper program during the twelve months ended December 31, 2010 and 2009 and there were no amounts relating to the commercial paper program outstanding at December 31, 2010 and December 31, 2009. The Company made no borrowings using the 2009 Credit Facility and no loans are outstanding at December 31, 2010. The Company does have $24,396 of letters of credit outstanding under the 2009 Credit Facility as of December 31, 2010. The 2009 Credit Facility contains restrictive covenants and requires that the Company maintain certain specified minimum ratios and thresholds. Among others, these covenants include maintaining a maximum debt to capitalization ratio and a minimum consolidated adjusted net worth. At December 31, 2010 the Company was in compliance with all covenants, minimum ratios and thresholds. 16. Mandatorily Redeemable Preferred Stock The Company’s Board of Directors has the authority to issue up to 200,000,000 shares of preferred stock, par value $1.00 per share, in one or more series and to fix the powers, preferences, rights and qualifications, limitations or restrictions thereof, which may include Information about the preferred stock is as follows: For the years ended December 31, 2010 2009 Preferred stock, par value $1.00 per share: Series B: 19,160 shares designated, 0 and 3,160 shares issued and outstanding in 2010 and 2009, respectively Series C: 5,000 shares designated, issued and outstanding TOTAL $ $ — $ 5,000 5,000 $ 3,160 5,000 8,160 dividend rights, conversion rights, voting rights, terms of redemption, liquidation preferences and the number of shares constituting any series or the designations of the series. The carrying value equals the redemption value for all classes of preferred stock. There was no change in the outstanding shares of Series C for the years ended December 31, 2010, 2009 and 2008. Changes in the number of Series B shares outstanding are as follows: 2010 3,160 (3,160)  For the Years Ended December 31, 2009 2008 6,160 16,160 (3,000) (10,000) 3,160 6,160 Shares outstanding, beginning Shares redeemed SHARES OUTSTANDING, ENDING All shares have a liquidation price of $1,000 per share and rank senior to common stock with respect to rights to receive dividends and to receive distributions upon the liquidation, dissolution or winding up of the Company. During 2010, the holders of the Series B Preferred Stock redeemed all of their shares and there was no Series B Preferred Stock outstanding as of December 31, 2010. Prior to the redemption, holders of the Series B Preferred Stock were entitled to receive cumulative dividends at the rate of 4.0% per share per annum, multiplied by the $1,000 per share liquidation price. In February 2011, the holders of the Series C Preferred Stock redeemed all of their shares and there are no more shares of Series C Preferred Stock outstanding. Prior to the redemption, holders of the Series C Preferred Stock were entitled to receive dividends at the rate of 4.5% per share per annum multiplied by the $1,000 per share liquidation price. Dividends on both Series B and Series C Preferred Stock were payable in arrears on a quarterly basis. Any dividend that was not paid on a specified dividen2011-04-06T17:01:18+02:00http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=111http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=11118 Stock Based Compensation 17. Common Stock Changes in the number of common stock shares outstanding are as follows: 2010 116,648,714 227,094 — 324,162 25,046 (15,224,645) 102,000,371 2009 117,368,534 78,826 — 321,038 2,366 (1,122,050) 116,648,714 December 31, 2008 117,808,007 58,447 8,466 136,487 357,127 (1,000,000) 117,368,534 Shares outstanding, beginning Vested restricted stock and restricted stock units, net (a) Issuance to Board of Directors Issuance related to ESPP Issuance related to SARS exercise Shares repurchased SHARES OUTSTANDING, ENDING (a) Vested restricted stock and restricted stock units shown net of shares retired to cover participant tax liability. The Company is authorized to issue 800,000,000 shares of common stock. In addition, 150,001 shares of Class B and 400,001 shares of Class C common stock, per the Restated Certificate of Incorporation of Assurant, Inc., are still authorized but have not been retired. 18. Stock Based Compensation In accordance with the guidance on share based compensation, the Company recognized stock-based compensation costs based on the grant date fair value. The Company also applied the “long form” method to calculate its beginning pool of windfall tax benefits related to employee stock-based compensation awards as of the adoption date of the guidance. For the years ended December 31, 2010, 2009 and 2008, the Company recognized compensation costs net of a 5% per year forfeiture rate on a pro-rated basis over the remaining vesting period. certain pre-established performance goals, identified below, at the end of a three-year performance period. Performance for all three metrics will be measured against a selected peer group of companies to determine the number of shares a participant will receive. The payout levels can vary between 0% and 150% (maximum) of the target (100%) ALTEIP award amount based on the Company’s level of performance against the performance of the selected peer group of companies. PSU Performance Goals. For 2009, the Compensation Committee established earnings per share (“EPS”) growth, revenue growth and total stockholder return as the three performance measures for PSU awards. EPS growth is defined as the year-over-year change in GAAP net income divided by average diluted shares outstanding. Revenue growth is defined as the year-over-year change in GAAP total revenues as disclosed in the Company’s annual statement of operations. Total stockholder’s return is defined as appreciation in Company stock plus dividend yield to stockholders. For 2010, in light of the significant volatility in EPS across the financial services sector, and in response to comments from our investors, the Committee decided to replace growth in EPS with growth in book value per diluted share (“BVPS”) excluding AOCI as a performance metric. BVPS growth is defined as year-over-year growth of the Company’s stockholders’ equity excluding AOCI divided by the number of fully diluted total shares outstanding at the end of the period. The Company believes this change will provide a more consistent basis for comparing the Company’s long-term financial performance to that of our competitors. The other metrics (revenue growth and total stockholder return) remain the same for PSUs awarded in 2010. For the 2009-2011 performance cycle, the actual payout level is determined by ranking the average of the Company’s performance with respect to all three measures against the performance of all companies included in the A.M. Best Insurance Index. For the 2010-2012 performance cycle, the actual payout level is determined by ranking the average of the Company’s three year performance with respect to all three measures against the performance of companies included in the A.M. Best Insurance Index, excluding those with revenues of less than $1,000,000 or that are not in the health or insurance Global Industry Classification Standard codes. The Company believes that this change will enable it to more accurately benchmark i2011-04-06T17:01:18+02:00http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=112http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=11218 Stock Based Compensation Under the ALTEIP, the Company’s Chief Executive Officer (“CEO”) is authorized by the Board of Directors to grant common stock, restricted stock and RSUs to employees other than the executive officers of the Company (as defined in Section 16 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)). The Board of Directors reviews and ratifies these grants quarterly. Restricted stock and RSUs granted under this program may have different vesting periods. Restricted Stock Units A summary of the Company’s outstanding restricted stock units is presented below: Weighted-Average Shares Grant-Date Fair Value 793,363 $ 21.05 687,102 34.46 (263,587) 21.00 (48,675) 26.53 1,168,203 $ 28.72 Shares outstanding at December 31, 2009 Grants Vests Forfeitures SHARES OUTSTANDING AT DECEMBER 31, 2010 The compensation expense recorded related to RSUs was $13,928 and $7,200 for the years ended December 31, 2010 and 2009, respectively. The related total income tax benefit recognized was $4,875 and $2,520 for the years ended December 31, 2010 and 2009, respectively. The weighted average grant date fair value for RSU granted in 2009 was $21.04. As of December 31, 2010, there was $16,523 of unrecognized compensation cost related to outstanding RSUs. That cost is expected to be recognized over a weighted-average period of 1.30 years. The total fair value of shares vested during the years ended December 31, 2010 and 2009 was $8,844 and $43, respectively. Performance Share Units A summary of the Company’s outstanding performance share units is presented below: WeightedAverage GrantPerformance Date Fair Value Share Units 620,898 $ 20.39 439,934 33.12 — — (45,601) 28.06 1,015,231 $ 25.65 Weighted Average Remaining Contractual Term Aggregate (Years) Intrinsic Value 2.20 $ 18,347 — — — — — — 1.61 $ 39,107 Performance share units outstanding, December 31, 2009 Grants Exercises Forfeitures and adjustments PERFORMANCE SHARE UNITS OUTSTANDING, DECEMBER 31, 2010 PSUs above represent initial target awards and do not reflect potential increases or decreases resulting from the financial performance objectives to be determined at the end of the prospective performance period. The actual number of shares to be issued at the end of each performance period will range from 0% to 150% of the initial target awards. The compensation expense recorded related to PSUs was $10,772 and $5,980 for the years ended December 31, 2010 and 2009, respectively. The related total income tax benefit recognized was $3,770 and $2,093 for the years ended December 31, 2010 and 2009, respectively. The weighted average grant date fair value for PSUs granted in 2009 was $20.39. As of December 31, 2010, there was $10,068 of unrecognized compensation cost related to outstanding PSUs. That cost is expected to be recognized over a weighted-average period of 1.06 years. The fair value of PSUs with market conditions was estimated on the date of grant using a Monte Carlo simulation model, which utilizes multiple variables that determine the probability of satisfying the market condition stipulated in the award. Expected volatilities for awards issued during the year ended December 31, 2010 and 2009 were based on the historical stock prices of the Company’s stock and peer insurance group. The expected term for grants issued during the year ended December 31, 2010 and 2009 was assumed to equal the average of the vesting period of the PSUs. The risk-free rate was based on the U.S. Treasury yield curve in effect at the time of grant. For awards granted during the year ended December 31, 2010 2009 60.16 % 54.22 % 2.8 2.8 1.30 % 1.29 % Expected volatility Expected term (years) Risk free interest rate F-42 ASSURANT, INC.  2010 Form 10K2011-04-06T17:01:18+02:00http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=113http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=11318 Stock Based Compensation Long-Term Incentive Plan Prior to the approval of the ALTEIP, share based awards were granted under the 2004 Assurant Long-Term Incentive Plan (“ALTIP”), which authorized the granting of up to 10,000,000 new shares of the Company’s common stock to employees and officers under the ALTIP, Business Value Rights Program (“BVR”) and CEO Equity Grants Program. Under the ALTIP, the Company was authorized to grant restricted stock and SARs. Since May 2008, no new grants have been made under this plan. Restricted stock granted under the ALTIP vests on a prorated basis over a three year period. SARs granted prior to 2007 under the ALTIP cliff vest as of December 31 of the second calendar year following the calendar year in which the right was granted, and have a five year contractual life. SARs granted in 2007 and through May 2008 cliff vest on the third anniversary from the date the award was granted, and have a five year contractual life. SARs granted under the BVR Program have a three year cliff vesting period. Restricted stock granted under the CEO Equity Grants Program have variable vesting schedules. Restricted Stock A summary of the Company’s outstanding restricted stock is presented below: Shares Shares outstanding at December 31, 2009 Vests Forfeitures SHARES OUTSTANDING AT DECEMBER 31, 2010 149,170 $ (87,400) (3,109) 58,661 $ Weighted-Average Grant Date Fair Value 52.66 52.74 48.64 52.77 The compensation expense recorded related to restricted stock was $1,647, $4,409 and $7,417 for the years ended December 31, 2010, 2009 and 2008, respectively. The related total income tax benefit recognized was $577, $1,543 and $2,398 for the years ended December 31, 2010, 2009 and 2008 respectively. Total compensation expense for 2008 includes $566 for restricted stock granted to the Board of Directors, which vested immediately. The weighted average grant date fair value for restricted stock granted in 2009 and 2008 was $29.77 and $55.89, respectively. As of December 31, 2010, there was $407 of unrecognized compensation cost related to outstanding restricted stock. That cost is expected to be recognized over a weighted-average period of 0.5 years. The total fair value of shares vested during the years ended December 31, 2010, 2009 and 2008 was $2,962, $2,880 and $6,264 respectively. Stock Appreciation Rights A summary of the Company’s SARs is presented below: Weighted Average Remaining Contractual Term Aggregate (Years) Intrinsic Value 2.07 $ 5,297 — — — — — — 1.42 $ 12,301 1.21 $ 12,301 SARs outstanding, December 31, 2009 Grants Exercises Forfeitures and adjustments SARS OUTSTANDING, DECEMBER 31, 2010 SARS EXERCISABLE AT DECEMBER 31, 2010 Rights 4,872,458 $ — (254,130) (826,479) 3,791,849 $ 2,602,299 $ Weighted Average Exercise Price 46.82 — 28.91 45.99 48.20 42.52 There were no SARs granted during the years ended December 31, 2010 and 2009. Currently there are no plans to award SARs in the future. There were 1,497,891 SARs granted during the year ended December 31, 2008. The compensation expense recorded related to SARs was $6,553, $10,046 and $14,179 for the years ended December 31, 2010, 2009 and 2008, respectively. The related income tax benefit recognized was $2,294, $3,516 and $4,922 for the years ended December 31, 2010, 2009 and 2008. Total compensation expense for 2008 includes $116 for SARs granted to the Board of Directors, which vested immediately. The weighted average grant date fair value for SARs granted in 2008 was $13.77. The total intrinsic value of SARs exercised during the years ended December 31, 2010, 2009 and 2008 was $1,316, $433 and $38,527, respectively. As of December 31, 2010, there was approximately $1,079 of unrecognized compensation cost related to outstanding SARs. That cost is expected to be recognized over a weighted-average period of 0.20 years. The fair value of each SAR granted to employees and officers was estimated on the date of grant using the Black-Scholes option-pricing model. Expe2011-04-06T17:01:18+02:00http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=114http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=11418 Stock Based Compensation For awards granted during the year ended December 31, 2008 27.69-28.15% 3.0-4.0 1.84-2.19% 0.79% Expected volatility Expected term (years) Risk free interest rates Dividend yield Directors Compensation Plan The Company’s Amended and Restated Directors Compensation Plan, as amended, permitted the issuance of up to 500,000 shares of the Company’s common stock to non-employee directors. Since May 2008, all grants issued to directors have been issued from the ALTEIP, discussed above. There was no expense recorded for the years ended December 31, 2010, 2009 and 2008, respectively. In July 2010, the Company issued 142,444 shares to employees at a discounted price of $27.14 for the offering period of January 1, 2010 through June 30, 2010. In July 2009, the Company issued 186,940 shares to employees at a discounted price of $21.68 for the offering period of January 1, 2009 through June 30, 2009. In January 2011, the Company issued 111,414 shares at a discounted price of $31.06 for the offering period of July 1, 2010 through December 31, 2010. In January 2010, the Company issued 181,718 shares to employees at a discounted price of $21.65 for the offering period of July 1, 2009 through December 31, 2009. In January 2009, the Company issued 133,994 shares to employees at a discounted price of $27.00 for the offering period of July 1, 2008 through December 31, 2008. The compensation expense recorded related to the ESPP was $1,707, $2,653 and $2,533 for the years ended December 31, 2010, 2009 and 2008, respectively. The related income tax benefit for disqualified disposition was $290, $250 and $110 for the years ended December 31, 2010, 2009 and 2008, respectively. The fair value of each award under the ESPP was estimated at the beginning of each offering period using the Black-Scholes optionpricing model and the assumptions in the following table. Expected volatilities are based on implied volatilities from traded options on the Company’s stock and the historical volatility of the Company’s stock. The risk-free rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of grant. The dividend yield is based on the current annualized dividend and share price as of the grant date. For awards issued during the years ended December 31, 2010 2009 2008 30.84-55.94 % 29.46-96.42 % 19.81-32.87 % 0.18-0.33 % 0.28-2.12 % 3.29-4.96 % 1.97-2.46 % 0.84-1.83 % 0.73-0.80 % 0.5 0.5 0.5 Employee Stock Purchase Plan Under the Employee Stock Purchase Plan (“ESPP”), the Company is authorized to issue up to 5,000,000 shares to employees who are participants in the ESPP. The ESPP allows eligible employees to contribute, through payroll deductions, up to 15% of their after-tax compensation in each offering period toward the purchase of shares of the Company’s common stock. There are two offering periods during the year (January 1 through June 30 and July 1 through December 31) and shares are purchased at the end of each offering period at 90% of the lower of the closing price of the common stock on the first or last day of the offering period. Participants’ contributions are limited to a maximum contribution of $7.5 per offering period, or $15 per year. The ESPP is offered to individuals who are scheduled to work at least 20 hours per week and at least five months per year, have been continuously employed for at least six months by the start of the offering period, are not temporary employees (employed less than 12 months), and have not been on a leave of absence for more than 90 days immediately preceding the offering period. Participants must be employed on the last trading day of the offering period in order to purchase Company shares under the ESPP. The maximum number of shares that can be purchased each offering period is 5,000 shares per employee. Expected volatility Risk free interest rates Dividend yield Expected term (years) Non-Stock Based Incentive Plans Deferred Compensation The d2011-04-06T17:01:18+02:00http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=115http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=11521 Statutory Information 19. Stock Repurchase The following table shows the shares repurchased during the periods indicated: Total Number of Shares Number of Average Price Purchased as Part of Publicly Announced Programs Shares Purchased Paid Per Share — $ — — 1,304,915 30.46 1,304,915 2,121,554 32.73 2,121,554 1,783,816 35.07 1,783,816 1,982,400 35.44 1,982,400 2,300,000 35.78 2,300,000 1,185,000 36.19 1,185,000 52,000 38.11 52,000 — — — — — — 2,305,960 35.25 2,305,960 2,189,000 37.69 2,189,000 15,224,645 $ 35.01 15,224,645 Period in 2010 January February March April May June July August September October November December TOTAL On November 10, 2006, the Company’s Board of Directors authorized the Company to repurchase up to $600,000 of its outstanding common stock. This authorization was increased by an additional $600,000 on January 22, 2010. During the year ended December 31, 2010, the Company repurchased 15,224,645 shares of the Company’s outstanding common stock at a cost of $532,950. On January 18, 2011, the Company’s Board of Directors authorized the Company to repurchase up to an additional $600,000 of its outstanding common stock, making its total authorization $805,587 at that date. 20. Accumulated Other Comprehensive (Loss) Income The components of accumulated other comprehensive (loss) income, net of tax, at December 31, are as follows: Unrealized Foreign currency (losses) gains translation on securities adjustment $ (45,944) $ (478,400) $ — (35,359) 69,856 23,912 8,186 32,098 708,309 194,550 218,705 413,255 $ Accumulated other comprehensive Pension (loss) income OTTI under- funding — $ (146,602) $ (670,946) (7,758) — (43,117) 14,033 6,275 6,292 12,567 (12,210) (158,812) (13,584) 172,396 $ 779,988 65,925 219,599 285,524 Balance at December 31, 2008 Cumulative effect of change in accounting principle (aftertax) (1) Activity in 2009 Balance at December 31, 2009 Activity in 2010 BALANCE AT DECEMBER 31, 2010 $ $ $ (1) Relates to the adoption of the OTTI guidance for debt securities. See Notes 5 and 6 for further information. The amounts in the unrealized (losses) gains on securities column are net of reclassification adjustments of $26,544, $(26,209) and $(225,333), net of tax, in 2010, 2009 and 2008, respectively, for net realized gains (losses) on sales of securities included in net income. The amounts in the OTTI column are net of reclassification adjustments of $(1,034) and $(4,992) net of tax, in 2010 and 2009 respectively, for net realized losses on sales of securities included in net income. 21. Statutory Information The Company’s insurance subsidiaries prepare financial statements on the basis of statutory accounting practices (“SAP”) prescribed or permitted by the insurance departments of their states of domicile. Prescribed SAP includes the Accounting Practices and Procedures Manual of the National Association of Insurance Commissioners (“NAIC”) as well as state laws, regulations and administrative rules. The principal differences between SAP and GAAP are: 1) policy acquisition costs are expensed as incurred under SAP, but are deferred and amortized under GAAP; 2) the value of business acquired is not capitalized under SAP but is under GAAP; 3) amounts collected from holders of universal life-type and annuity products are recognized as premiums when collected under SAP, but are initially recorded as ASSURANT, INC.  2010 Form 10K F-452011-04-06T17:01:18+02:00http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=116http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=11622 Retirement and Other Employee Benefits contract deposits under GAAP, with cost of insurance recognized as revenue when assessed and other contract charges recognized over the periods for which services are provided; 4) the classification and carrying amounts of investments in certain securities are different under SAP than under GAAP; 5) the criteria for providing asset valuation allowances, and the methodologies used to determine the amounts thereof, are different under SAP than under GAAP; 6) the timing of establishing certain reserves, and the methodologies used to determine the amounts thereof, are different under SAP than under GAAP; 7) certain assets are not admitted for purposes of determining surplus under SAP; 8) methodologies used to determine the amounts of deferred taxes, intangible assets and goodwill are different under SAP than under GAAP; and 9) the criteria for obtaining reinsurance accounting treatment is different under SAP than under GAAP. The combined statutory net income, excluding intercompany dividends and surplus note interest, and capital and surplus of the Company’s U.S. domiciled statutory insurance subsidiaries follow: 2010 Statutory net income P&C companies Life companies TOTAL STATUTORY NET INCOME $ $ 473,191 $ 206,817 680,008 $ 2009 Years Ended December 31, 2008 356,128 64,214 420,342 1 488,545 (2) $ 78,880 567,425 $ (1) The $420,342 total statutory net income includes $224,290 (after-tax) of net realized losses on investments, including $177,890 (after-tax) of realized losses due to other-thantemporary impairments, and $86,200 (after-tax) of incurred insurance losses due to Hurricanes Gustav and Ike. (2) The $488,545 total statutory P&C companies net income includes a favorable legal settlement of $90,350 (after-tax) with Willis Limited, as subsidiary of Willis Group Holdings Limited. See note 26 for further information. 2010 Statutory capital and surplus P&C companies Life companies TOTAL STATUTORY CAPITAL AND SURPLUS $ $ 1,227,780 $ 1,100,498 2,328,278 $ December 31, 2009 1,291,637 1,052,929 2,344,566 The Company also has non-insurance subsidiaries and foreign insurance subsidiaries that are not subject to SAP. The statutory net income and statutory capital and surplus presented above do not include foreign insurance subsidiaries in accordance with SAP. Insurance enterprises are required by state insurance departments to adhere to minimum risk-based capital (“RBC”) requirements developed by the NAIC. All of the Company’s insurance subsidiaries exceed minimum RBC requirements. The payment of dividends to the Company by any of the Company’s regulated U.S domiciled insurance subsidiaries in excess of a certain amount (i.e., extraordinary dividends) must be approved by the subsidiary’s domiciliary state department of insurance. Ordinary dividends, for which no regulatory approval is generally required, are limited to amounts determined by a formula, which varies by state. The formula for the majority of the states in which the Company’s subsidiaries are domiciled is based on the prior year’s statutory net income or 10% of the statutory surplus as of the end of the prior year. Some states limit ordinary dividends to the greater of these two amounts, others limit them to the lesser of these two amounts and some states exclude prior year realized capital gains from prior year net income in determining ordinary dividend capacity. Some states have an additional stipulation that dividends may only be paid out of earned surplus. If insurance regulators determine that payment of an ordinary dividend or any other payments by the Company’s insurance subsidiaries to the Company (such as payments under a tax sharing agreement or payments for employee or other services) would be adverse to policyholders or creditors, the regulators may block such payments that would otherwise be permitted without prior approval. Based on the dividend restrictions under applicable laws and regulations, the maximum amount of divi2011-04-06T17:01:18+02:00http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=117http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=11722 Retirement and Other Employee Benefits The Company also has various non-contributory, non-qualified supplemental plans covering certain employees. Since these plans are “non-qualified” they are not subject to the laws and regulations of IRC 401(a) and ERISA. As such, the Company is not required, and does not, fund these plans. The qualified and nonqualified plans are referred to as “Pension Benefits” unless otherwise noted. The Company has the right to modify or terminate these benefits; however, the Company will not be relieved of its obligation to plan participants for their vested benefits. In addition, the Company provides certain life and health care benefits (“Retirement Health Benefits”) for retired employees and their dependents. Substantially all employees of the Company may become eligible for these benefits depending on age and years of service. The Company has the right to modify or terminate these benefits. Plan assets and benefit obligations are measured as of December 31, 2010. Summarized information on the Company’s Pension Benefits and Retirement Health Benefits plans (together the “Plans”) for the years ended December 31 is as follows: 2010 Change in projected benefit obligation Projected benefit obligation at beginning of year Service cost Interest cost Amendments Actuarial loss Benefits paid Projected benefit obligation at end of year Change in plan assets Fair value of plan assets at beginning of year Actual return on plan assets Employer contributions Benefits paid (including administrative expenses) Fair value of plan assets at end of year Funded status at end of year $ (658,164) $ (30,945) (38,772) — (56,952) 35,549 (749,284) $ 460,961 $ 63,877 45,493 (36,464) 533,867 $ (215,417) $ 2009 Pension Benefits 2008 (519,622) $ (22,904) (33,440) (4,412) (29,981) 28,927 (581,432) $ 452,723 $ (71,459) 29,695 (30,382) 380,577 $ (200,855) $ 2010 (83,553) $ (4,556) (5,005) — (6,050) 1,728 (97,436) $ 36,546 $ 4,845 — (1,728) 39,663 $ (57,773) $ Retirement Health Benefits 2009 2008 (67,166) $ (3,571) (4,263) (1,926) (8,456) 1,829 (83,553) $ 23,687 $ 4,117 10,571 (1,829) 36,546 $ (47,007) $ (59,068) (2,801) (3,816) — (3,054) 1,573 (67,166) 21,851 (4,278) 7,687 (1,573) 23,687 (43,479) $ $ (581,432) $ (26,153) (36,127) (374) (45,515) 31,437 (658,164) $ 380,577 $ 59,956 53,063 (32,635) 460,961 $ (197,203) $ $ $ In accordance with the guidance on retirement benefits, the Company aggregates the results of the qualified and non-qualified plans as “Pension Benefits” and is required to disclose the aggregate projected benefit obligation, accumulated benefit obligation and fair value of plan assets, if the obligations within those plans exceed plan assets. For the years ended December 31, 2010, 2009 and 2008, the projected benefit obligations and the accumulated benefit obligations of Pension Benefits exceeded plan assets as follows: Qualified Pension Benefits Non-Qualified Pension Benefits Total Pension Benefits 2010 2009 2008 2010 2009 2008 2010 2009 2008 $ 533,867 $ 460,961 $ 380,577 $ — $ — $ — $ 533,867 $ 460,961 $ 380,577 (630,145) (548,938) (478,136) (119,139) (109,226) (103,296) (749,284) (658,164) (581,432) $ (96,278) $ (87,977) $ (97,559) $(119,139) $(109,226) $(103,296) $(215,417) $(197,203) $(200,855) $ 512,072 $ 466,491 $ 415,831 $ 102,518 $ 93,697 $ 90,532 $ 614,590 $ 560,188 $ 506,363 Fair value of plan assets Projected benefit obligation Funded status at end of year Accumulated benefit obligation The Pension Protection Act of 2006 (“PPA”) requires certain qualified plans, like the Assurant Pension Plan, to meet specified funding thresholds. If these funding thresholds are not met, there are negative consequences to the Plan and participants. If the funded percentage falls below 80%, full payment of lump sum benefits as well as implementation of amendments improving benefits are restricted. As of January 1, 2010, the Plan’s funded percentage was 113% on a PPA calculated basis. Therefore, benefit and payment restrictions did not occur during 2010. The 22011-04-06T17:01:18+02:00http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=118http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=11822 Retirement and Other Employee Benefits Amounts recognized in accumulated other comprehensive income (loss) consist of: 2010 (242,902) $ (5,578) 248,480 $ Pension Benefits 2009 2008 (223,497) $ (207,391) $ (6,548) (10,705) 230,045  $ 218,096 $ 2010 (10,763) $ (5,848) 16,611 $ Retirement Health Benefits 2009 2008 (6,872) $ (488) (7,332) (6,889) 14,204 $ 7,377 Net loss Prior service cost $ $ Components of net periodic benefit cost and other amounts recognized in accumulated other comprehensive income (loss) for the years ended December 31 were as follows: 2010 Net periodic benefit cost Service cost Interest cost Expected return on plan assets Amortization of prior service cost Amortization of net loss (gain) Curtailment (gain)/settlement loss Net periodic benefit cost Other changes in plan assets and benefit obligations recognized in accumulated other comprehensive income (loss) Net loss Amortization of prior service cost Amortization of net (loss) gain Prior service credit Total recognized in accumulated other comprehensive income (loss) TOTAL RECOGNIZED IN NET PERIODIC BENEFIT COST AND ACCUMULATED OTHER COMPREHENSIVE INCOME LOSS $ 30,945 $ 38,772 (38,069) 970 12,654 — 45,272 $ 2009 Pension Benefits 2008 22,904 $ 33,440 (36,630) 3,633 4,196 1,746 29,289 $ 2010 Retirement Health Benefits 2009 2008 3,571 $ 4,263 (2,044) 1,483 — — 7,273 $ 2,801 3,816 (2,033) 1,342 (236) — 5,690 $ 26,153 $ 36,127 (35,207) 1,506 9,494 (610) 37,463 $ 4,556 $ 5,005 (2,685) 1,483 — — 8,359 $ $ 32,059 $ (970) (12,654) — 18,435 $ 23,048 $ (2,256) (9,218) 374 11,948 $ 137,779 $ (3,633) (4,196) 4,412 134,362 $ 3,890 $ (1,483) — — 2,407 $ 6,383 $ (1,483) — 1,926 6,826 $ 9,365 (1,342) 236 — 8,259 $ $ 63,707 $ 49,411 $ 163,651 $ 10,766 $ 14,099 $ 13,949 In 2008, the deterioration of the global economy, together with the credit crisis, caused significant volatility in interest rates and equity prices, which caused actual asset returns of the Plans’ investment portfolios to be much less than expected. In 2010 and 2009, the improvement in the global economy caused actual asset returns of the Plans’ investment portfolios to be much greater than expected. The Company uses a five-year averaging method to determine the market-related value of plan assets, which is used to calculate the expected return of plan assets component of the Plans’ expense. Under this methodology, asset gains/ losses that result from actual returns which differ from the Company’s expected long-term rate of return on assets assumption are recognized in the market-related value of assets on a level basis over a five year period. The difference between actual as compared to expected asset returns for the Plans will be fully reflected in the market-related value of plan assets over the next five years using the methodology described above. The estimated net loss and prior service cost of Pension Benefits that will be amortized from accumulated other comprehensive income into net periodic benefit cost over the next fiscal year are $15,663 and $694, respectively. The estimated net loss and prior service cost of Retirement Health Benefits that will be amortized from accumulated other comprehensive income into net periodic cost over the next fiscal year is $66 and $1,483, respectively. Determination of the projected benefit obligation was based on the following weighted-average assumptions for the year ended December 31: Qualified Pension Benefits 2010 2009 2008 5.44 % 5.94 % 6.25 % Nonqualified Pension Benefits 2010 2009 2008 5.11 % 5.73 % 6.29 % Retirement Health Benefits 2010 2009 2008 5.55 % 6.06 % 6.22 % Discount rate Determination of the net periodic benefit cost was based on the following weighted-average assumptions for the year ended December 31: Qualified Pension Benefits 2010 2009 2008 5.94 % 6.25 % 6.49 % 7.50 % 7.50 % 8.25 % Nonqualified Pension Benefits 2010 2009 2008 5.73 % 6.29 % 6.28 % — — — Retirement Health Benefits 2010 2009 2008 6.06 % 6.22 % 6.55 % 7.50 % 7.50 % 8.25 % Discount rate Expected lo2011-04-06T17:01:18+02:00http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=119http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=11922 Retirement and Other Employee Benefits The selection of our discount rate assumption reflects the rate at which the Plans’ obligations could be effectively settled at December 31, 2010, 2009 and 2008. The methodology for selecting the discount rate was to match each Plan’s cash flows to that of a yield curve that provides the equivalent yields on zero-coupon corporate bonds for each maturity. The yield curve utilized in the cash flow analysis was comprised of 246 bonds rated AA by Moody’s with maturities between zero and thirty years. The discount rate for each Plan, is the single rate that produces the same present value of cash flows. To develop the expected long-term rate of return on assets assumption, the Company considered the current level of expected returns on risk free investments (primarily, government bonds), the historical level of the risk premium associated with the other asset classes in which the portfolio is invested and the expectations for future returns of each asset class. The expected long-term rate of return on plan assets reflects the average rate of earnings expected on the funds invested or to be invested. The expected return for each asset class was then weighted based on the targeted asset allocation to develop the expected long-term rate of return on asset assumptions for the portfolio. This resulted in the selection of 7.50% for the fiscal years 2010 and 2009 and 8.25% for the fiscal year 2008. The Company believes the current assumption reflects the projected return on the invested assets, given the current market conditions and the modified portfolio structure. Actual return on plan assets was 13.8% and 15.8% for the years ended December 31, 2010 and 2009. The assumed health care cost trend rates used in measuring the accumulated benefit obligation and net periodic benefit cost were as follows: Retirement Health Benefits 2010 Health care cost trend rate assumed for next year: Pre-65 Non-reimbursement Plan Post-65 Non-reimbursement Plan Pre-65 Reimbursement Plan Post-65 Reimbursement Plan Rate to which the cost trend rate is assumed to decline (the ultimate trend rate) Year that the rate reaches the ultimate trend rate Pre-65 Non-reimbursement Plan Post-65 Non-reimbursement Plan Pre-65 Reimbursement Plan Post-65 Reimbursement Plan 9.1 % 9.1 % 9.1 % 9.1 % 4.5 % 2028 2028 2028 2028 2009 9.5 % 9.5 % 9.5 % 9.5 % 4.5 % 2028 2028 2028 2028 2008 8.0 % 10.0 % 8.0 % 10.0 % 5.0 % 2012 2014 2012 2014 Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plans. A one-percentage point change in assumed health care cost trend rates would have the following effects: 2010 One percentage point increase in health care cost trend rate Effect on total of service and interest cost components Effect on postretirement benefit obligation One percentage point decrease in health care cost trend rate Effect on total of service and interest cost components Effect on postretirement benefit obligation $ 52 695 (67) (838) $ Retirement Health Benefits 2009 2008 43 596 (55) (719) $ 20 345 (20) (350) $ $ $ The assets of the Plans are managed to maximize their long-term pre-tax investment return, subject to the following dual constraints: minimization of required contributions and maintenance of solvency requirements. It is anticipated that periodic contributions to the Plans will, for the foreseeable future, be sufficient to meet benefit payments thus allowing the balance to be managed according to a long-term approach. The Investment Committee for the Plans meets on a quarterly basis and reviews the re-balancing of existing fund assets and the asset allocation of new fund contributions. The goal of our asset strategy is to ensure that the growth in the value of the fund over the long-term, both in real and nominal terms, manages (controls) risk exposure. Risk is managed by investing in a broad range of asset classes, and within those asset classes, a broad range of individual securities. Diversificat2011-04-06T17:01:18+02:00http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=120http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=12022 Retirement and Other Employee Benefits The Investment Committee that oversees the investment of the plan assets conducts an annual review of the investment strategies and policies of the Plans. This includes a review of the strategic asset allocation, Financial Assets Equity securities (1): Common stock- U.S. listed small cap Mutual fund- U.S. listed large cap Common/collective trust- foreign listed Fixed maturity securities: U.S. & foreign government and government agencies and authorities Corporate- U.S & foreign investment grade Corporate- U.S & foreign high yield Investment fund: Multi-strategy hedge fund including the relationship of the Plans’ liabilities and portfolio structure. As a result of this review, the Investment Committee has adopted the current target asset allocation. The allocation is consistent with 2009. Low 5.0 % 22.0 % 5.0 % 8.0 % 29.5 % 5.0 % 5.5 % The Plans’ Asset Allocation Percentages Target (2) High 7.5 % 27.0 % 7.5 % 10.5 % 32.0 % 7.5 % 8.0 % 10.0 % 32.0 % 10.0 % 13.0 % 34.5 % 10.0 % 10.5 % (1) The Plans’ long-term asset allocation targets are 30% equity, 50% fixed income and 20% investment funds. Current target asset allocations for equity securities include allocations for investment funds. The Company invests certain plan assets in investment funds, examples of which include real estate investment funds and private equity funds, during 2010. Amounts allocated for these investments are included in the equity securities caption of the fair value hierarchy at December 31, 2010, provided in the section above. (2) It is understood that these guidelines are targets and that deviations may occur periodically as a result of cash flows, market impact or short-term decisions implemented by either the Investment Committee or their investment managers. The assets of the Plans are primarily invested in fixed maturity and equity securities. While equity risk is fully retained, interest rate risk is hedged by aligning the duration of the fixed maturity securities with the duration of the liabilities. Specifically, interest rate swaps are used to synthetically extend the duration of fixed maturity securities to match the duration of the liabilities, as measured on a projected benefit obligation basis. In addition, the Plans’ fixed income securities have exposure to credit risk. In order to adequately diversify and limit exposure to credit risk, the Investment Committee established parameters which include a limit on the asset types that managers are permitted to purchase, maximum exposure limits by sector and by individual issuer (based on asset quality) and minimum required ratings on individual securities. As of December 31, 2010, 46.5% of plan assets were invested in fixed maturity securities and 16.6%, 12.9% and 7.6% of those securities were concentrated in the financial, communications and energy industries, with no exposure to any single creditor in excess of 8.9%, 11.6% and 9.7% of those industries, respectively. As of December 31, 2010, 43.5% of plan assets were invested in equity securities and 60.1% of the Plans’ equity securities were invested in a mutual fund that attempts to replicate the return of the Standard & Poor’s 500 index (“S&P 500”) by investing its assets in large capitalization stocks that are included in the S&P 500 using a weighting similar to the S&P 500. The fair value hierarchy for the Company’s qualified pension plan and other post retirement benefit plan assets at December 31, 2010 by asset category, is as follows: Qualified Pension Benefits Financial Assets Cash and cash equivalents: Short-term investment funds Equity securities: Common stock- U.S. listed small cap Mutual funds- U.S. listed large cap Common/collective trust- foreign listed Fixed maturity securities: U.S. & foreign government and government agencies and authorities Corporate- U.S & foreign investment grade Corporate- U.S & foreign high yield Investment fund: Multi-strategy hedge fund Derivatives: Interest rate swap TOTAL FI2011-04-06T17:01:18+02:00http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=121http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=12122 Retirement and Other Employee Benefits December 31, 2010 Level 2 Level 3 674 — — 3,724 4,932 11,316 2,206 — 113 22,965 $ — — — — — — — 2,878 — 2,878 Retirement Health Benefits Financial Assets Cash and cash equivalents: Short-term investment funds Equity securities: Common stock- U.S. listed small cap Mutual funds- U.S. listed large cap Common/collective trust- foreign listed Fixed maturity securities: U.S. & foreign government and government agencies and authorities Corporate- U.S & foreign investment grade Corporate- U.S & foreign high yield Investment fund: Multi-strategy hedge fund Derivatives: Interest rate swap TOTAL FINANCIAL ASSETS Total $ 674 3,166 10,381 3,724 4,932 11,316 2,206 2,878 113 39,390 1 $ $ Level 1 — $ 3,166 10,381 — — — — — — 13,547 $ $ (1) The difference between the fair value of plan assets above and the amount used in determining the funded status is due to interest receivable which is not required to be included in the fair value hierarchy. The fair value hierarchy for the Company’s qualified pension plan and other post retirement benefit plan assets at December 31, 2009 by asset category, is as follows: Qualified Pension Benefits Financial Assets Cash and cash equivalents: Short-term investment funds Equity securities: Common stock- U.S. listed small cap Mutual funds- U.S. listed large cap Common/collective trust- foreign listed Fixed maturity securities: U.S. & foreign government and government agencies and authorities Corporate- U.S & foreign investment grade Corporate- U.S & foreign high yield Investment fund: Multi-strategy hedge fund Derivatives: Interest rate swap TOTAL FINANCIAL ASSETS Total $ 9,999 33,908 126,629 44,568 35,835 136,656 25,078 36,631 8,666 457,970 1 $ $ Level 1 — $ 33,908 126,629 — — — — — — 160,537 $ December 31, 2009 Level 2 Level 3 9,999 $ — — 44,568 35,835 136,656 25,078 — 8,666 260,802 $ — — — — — — — 36,631 — 36,631 $ (1) The difference between the fair value of plan assets above and the amount used in determining the funded status is due to interest receivable which is not required to be included in the fair value hierarchy. ASSURANT, INC.  2010 Form 10K F-512011-04-06T17:01:18+02:00http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=122http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=12222 Retirement and Other Employee Benefits December 31, 2009 Level 3 $ — — — — — — — 2,904 — 2,904 Retirement Health Benefits Financial Assets Cash and cash equivalents: Short-term investment funds Equity securities: Common stock- U.S. listed small cap Mutual funds- U.S. listed large cap Common/collective trust- foreign listed Fixed maturity securities: U.S. & foreign government and government agencies and authorities Corporate- U.S & foreign investment grade Corporate- U.S & foreign high yield Investment fund: Multi-strategy hedge fund Derivatives: Interest rate swap TOTAL FINANCIAL ASSETS Total $ 793 2,688 10,039 3,533 2,841 10,835 1,988 2,904 687 36,308 1 $ $ Level 1 — 2,688 10,039 — — — — — — 12,727 $ Level 2 793 — — 3,533 2,841 10,835 1,988 — 687 20,677 $ $ $ (1) The difference between the fair value of plan assets above and the amount used in determining the funded status is due to interest receivable which is not required to be included in the fair value hierarchy. The following table for the Company’s qualified pension plan and retirement health benefit plan summarizes the change in fair value associated with the MIMSF, the only Level 3 financial asset. Retirement Pension Benefit Health Benefit $ 36,631 $ 2,904 2,107 (26) $ 38,738 $ 2,878 Beginning balance at December 31, 2009 Actual return on plan assets and plan expenses ENDING BALANCE AT DECEMBER 31, 2010 For all the financial assets included in the above hierarchy, the market valuation technique is used. For the year ended December 31, 2010, the application of the valuation technique applied to similar assets has been consistent. Level 1 and Level 2 securities are valued using various observable market inputs obtained from a pricing service. The pricing service prepares estimates of fair value measurements for our Level 2 securities using proprietary valuation models based on techniques such as matrix pricing which include observable market inputs. Observable market inputs for Level 1 and 2 securities are consistent with the observable market inputs described in Note 6, Fair Value Disclosures. The MIFSF utilizes all three levels of inputs to price its holdings. Since unobservable inputs may have been significant to the fair value measurement, it was classified as Level 3. The Company obtains one price for each investment. A quarterly analysis is performed to assess if the evaluated prices represent a reasonable estimate of their fair value. This process involves quantitative and qualitative analysis and is overseen by benefits, investment and accounting professionals. Examples of procedures performed include, but are not limited to, initial and on-going review of pricing service methodologies, review of pricing statistics and trends, and comparison of prices for certain securities with two different appropriate price sources for reasonableness. Following this analysis, the Company uses the best estimate of fair value based upon all available inputs. The pricing service provides information regarding their pricing procedures so that the Company can properly categorize the Plans’ financial assets in the fair value hierarchy. The Company expects to contribute at least $40,000 to its qualified pension plan in 2011. No contributions are expected to be made to the retirement health benefit plan in 2011. The following pension benefits, which reflect expected future service, as appropriate, are expected to be paid: Retirement Pension Benefits Health Benefits $ 37,755 $ 2,052 35,905 2,378 39,154 2,785 42,441 3,225 61,540 3,739 291,716 28,360 $ 508,511 $ 42,539 2011 2012 2013 2014 2015 Years 2016-2019 TOTAL F-52 ASSURANT, INC.  2010 Form 10K2011-04-06T17:01:18+02:00http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=123http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=12323 Segment Information Defined Contribution Plan The Company and its subsidiaries participate in a defined contribution plan covering substantially all employees. The defined contribution plan provides benefits payable to participants on retirement or disability and to beneficiaries of participants in the event of the participant’s death. The amounts expensed by the Company related to this plan were $33,043, $32,962 and $30,064 in 2010, 2009, and 2008, respectively. 23. Segment Information The Company has five reportable segments, which are defined based on the nature of the products and services offered: Assurant Solutions, Assurant Specialty Property, Assurant Health, Assurant Employee Benefits, and Corporate & Other. Assurant Solutions provides debt protection administration, credit-related insurance, warranties and service contracts, and pre-funded funeral insurance. Assurant Specialty Property provides lender-placed homeowners insurance and manufactured housing homeowners insurance. Assurant Health provides individual health and small employer group health insurance. Assurant Employee Benefits primarily provides group dental insurance, group disability insurance, and group life insurance. Corporate & Other includes activities of the holding company, financing and interest expenses, net realized gains (losses) on investments, interest income earned from short-term investments held and additional costs associated with excess of loss reinsurance programs reinsured and ceded to certain subsidiaries in the London market between 1995 and 1997. Corporate & Other also includes the amortization of deferred gains associated with the sales of Fortis Financial Group and Long-Term Care through reinsurance agreements. The Company evaluates performance of the operating segments based on segment income (loss) after-tax excluding realized gains (losses) on investments. The Company determines reportable segments in a manner consistent with the way the Company organizes for purposes of making operating decisions and assessing performance. The accounting policies of the reportable segments are the same as those described in the summary of significant accounting policies. See Note 2 for further information. The following tables summarize selected financial information by segment for the years ended December 31, 2010, 2009 and 2008: Year Ended December 31, 2010 Solutions Revenues Net earned premiums and other considerations $ Net investment income Net realized gains on investments Amortization of deferred gain on disposal of businesses Fees and other income Total revenues Benefits, losses and expenses Policyholder benefits Amortization of deferred acquisition costs and value of business acquired Underwriting, general and administrative expenses Interest expense Total benefits, losses and expenses Segment income (loss) before provision (benefit) for income tax and goodwill impairment Provision (benefit) for income taxes Segment income (loss) before goodwill impairment Goodwill impairment Net income $ Segment Assets: Segment assets, excluding goodwill $ Goodwill Total assets Specialty Property Health Employee Benefits Corporate & Other Consolidated 2,484,299 $ 397,297 — — 228,052 3,109,648 889,387 1,104,925 947,703 — 2,942,015 1,953,223 $ 107,092 — — 69,147 2,129,462 684,652 374,029 423,967 — 1,482,648 1,864,122 $ 48,540 — — 40,133 1,952,795 1,302,928 6,877 558,183 — 1,867,988 1,101,395 $ 132,388 — — 25,152 1,258,935 766,049 35,407 360,352 — 1,161,808 — $ 17,873 48,403 10,406 200 76,882 (2,038) — 101,830 60,646 160,438 7,403,039 703,190 48,403 10,406 362,684 8,527,722 3,640,978 1,521,238 2,392,035 60,646 7,614,897 167,633 64,427 103,206 — 103,206 $ 10,916,959 $ 646,814 222,527 424,287 — 424,287 $ 3,164,604 $ 84,807 30,778 54,029 — 54,029 $ 1,046,662 $ 97,127 33,589 63,538 — 63,538 $ 2,487,966 $ (83,556) (24,054) (59,502) 306,381 (365,883) $ 8,161,048 $ $ 912,825 327,267 585,558 306,381 279,177 25,777,239 619,779 26,397,018 ASSURANT, INC.  2010 Form 10K F-532011-04-06T17:01:18+02:00http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=124http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=12423 Segment Information Year Ended December 31, 2009 Solutions Revenues Net earned premiums and other considerations $ Net investment income Net realized losses on investments Amortization of deferred gain on disposal of businesses Fees and other income Total revenues Benefits, losses and expenses Policyholder benefits Amortization of deferred acquisition costs and value of business acquired Underwriting, general and administrative expenses Interest expense Total benefits, losses and expenses Segment income (loss) before provision (benefit) for income tax and goodwill impairment Provision (benefit) for income taxes Segment income (loss) before goodwill impairment Goodwill impairment Net income $ Segment Assets: Segment assets, excluding goodwill $ Goodwill Total assets Specialty Property Health Employee Benefits Corporate & Other Consolidated 2,671,041 $ 391,229 — — 216,550 3,278,820 1,029,151 1,187,106 868,242 — 3,084,499 1,947,529 $ 110,337 — — 56,890 2,114,756 664,182 367,663 464,865 — 1,496,710 1,879,628 47,658 — — 39,879 1,967,165 1,410,171 8,526 596,172 — 2,014,869 $ 1,052,137 $ 133,365 — — 28,343 1,213,845 757,070 38,585 354,316 — 1,149,971 — $ 16,249 (53,597) 22,461 140,802 125,915 7,408 — 93,769 60,669 161,846 7,550,335 698,838 (53,597 22,461 482,464 8,700,501 3,867,982 1,601,880 2,377,364 60,669 7,907,895 194,321 74,269 120,052 — 120,052 $ 11,106,794 $ 618,046 212,049 405,997 — 405,997 $ 3,190,617 $ (47,704) (17,484) (30,220) — (30,220) $ 1,078,567 $ 63,874 21,718 42,156 — 42,156 $ 2,521,667 $ (35,931) (11,520) (24,411) 83,000 (107,411) $ 7,036,624 $ $ 792,606 279,032 513,574 83,000 430,574 24,934,269 926,398 25,860,667 Solutions Revenues Net earned premiums and other considerations $ Net investment income Net realized losses on investments Amortization of deferred gain on disposal of businesses Fees and other income Total revenues Benefits, losses and expenses Policyholder benefits Amortization of deferred acquisition costs and value of business acquired Underwriting, general and administrative expenses Interest expense Total benefits, losses and expenses Segment income (loss) before provision (benefit) for income tax Provision (benefit) for income taxes Segment income (loss) after income tax $ Net income 2,813,407 $ 420,615 — — 182,508 3,416,530 1,198,758 1,281,118 760,774 — 3,240,650 175,880 63,697 112,183 $ Specialty Property 2,048,238 $ 123,043 — — 50,000 2,221,281 785,403 335,290 482,558 — 1,603,251 618,030 212,827 405,203 $ Health 1,951,955 $ 57,464 — — 38,917 2,048,336 1,258,188 18,253 586,352 — 1,862,793 185,543 65,289 120,254 $ Employee Benefits 1,111,748 $ 147,027 — — 26,139 1,284,914 775,684 37,019 363,797 — 1,176,500 108,414 37,857 70,557 $ Year Ended December 31, 2008 Corporate & Other Consolidated — $ 26,198 (428,679) 29,412 3,236 (369,833) 1,114 — 92,689 60,953 154,756 (524,589) (264,188) (260,401) $ 7,925,348 774,347 (428,679) 29,412 300,800 8,601,228 4,019,147 1,671,680 2,286,170 60,953 8,037,950 563,278 115,482 447,796 The Company operates primarily in the United States and Canada, but also in select international markets. F-54 ASSURANT, INC.  2010 Form 10K2011-04-06T17:01:18+02:00http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=125http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=12523 Segment Information The following table summarizes selected financial information by geographic location for the years ended or as of December 31: Location 2010 United States Foreign countries TOTAL 2009 United States Foreign countries TOTAL 2008 United States Foreign countries TOTAL Revenues $ $ $ $ $ $ 7,537,077 $ 990,645 8,527,722 $ 7,837,792 $ 862,709 8,700,501 $ 7,765,060 $ 836,168 8,601,228 $ Long- lived assets 258,777 8,392 267,169 266,141 9,279 275,420 269,907 8,714 278,621 Revenue is based in the country where the product was sold and long-lived assets, which are primarily property and equipment, are based on the physical location of those assets. The Company has no reportable major customers. The Companies net earned premiums by segment and product are as follows: 2010 Solutions: Credit Service contracts Preneed Other TOTAL Specialty Property: Homeowners (lender placed and voluntary) Manufactured housing (lender placed and voluntary) Other TOTAL Health: Individual medical Short-term medical Small employer group TOTAL Employee Benefits: Group dental Group disability single premiums for closed blocks All other group disability Group life TOTAL $ 535,832 $ 1,750,891 130,558 67,018 2,484,299 $ 1,342,791 $ 220,309 390,123 1,953,223 $ 1,289,181 $ 85,824 489,117 1,864,122 $ 420,690 $ — 488,813 191,892 1,101,395 $ 2009 561,755 $ 1,827,647 180,969 100,670 2,671,041 $ 1,369,031 $ 219,960 358,538 1,947,529 $ 1,270,198 $ 104,238 505,192 1,879,628 $ 425,288 $ — 434,381 192,468 1,052,137 $ 2008 647,939 1,720,134 365,000 80,334 2,813,407 1,471,012 225,209 352,017 2,048,238 1,276,743 101,435 573,777 1,951,955 435,115 11,447 459,208 205,978 1,111,748 $ $ $ $ $ $ $ ASSURANT, INC.  2010 Form 10K F-552011-04-06T17:01:18+02:00http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=126http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=12624 Earnings per common share 24. Earnings per common share The following table presents net income, the weighted average common shares used in calculating basic earnings per common share and those used in calculating diluted earnings per common share for each period presented below. 2010 Numerator Net income Deduct dividends paid Undistributed earnings Denominator Weighted average shares outstanding used in basic earnings per share calculations Incremental common shares from: PSUs SARs ESPP Weighted average shares used in diluted earnings per share calculations Earnings per common share—Basic Distributed earnings Undistributed earnings Net income Earnings per common share—Diluted Distributed earnings Undistributed earnings Net income $ $ 279,177 $ (69,618) 209,559 $ 2009 430,574 $ (69,596) 360,978 $ Years Ended December 31, 2008 447,796 (63,672) 384,124 110,632,551 496,856 219,323 124,484 111,473,214 $ $ $ $ 0.63 1.89 2.52 0.62 1.88 2.50 $ $ $ $ 118,036,632 171,371 100,400 187,237 118,495,640 0.59 3.06 3.65 0.59 3.04 3.63 $ $ $ $ 118,005,967 — 831,700 137,012 118,974,679 0.54 3.25 3.79 0.53 3.23 3.76 Average SARs totaling 3,053,101, 4,287,465, and 2,500,386 for the years ended December 31, 2010, 2009 and 2008, respectively, were also outstanding but were anti-dilutive and thus not included in the computation of diluted EPS under the treasury stock method. 25. Quarterly Results of Operations (Unaudited) The Company’s quarterly results of operations for the years ended December 31, 2010 and 2009 are summarized in the tables below: March 31 2010 Total revenues Income (loss) before provision for income taxes Net income (loss) Basic per share data: Income (loss) before provision for income taxes Net income (loss) Diluted per share data: Income (loss) before provision for income taxes Net income (loss) 2009 Total revenues Income before provision for income taxes Net income Basic per share data: Income before provision for income taxes Net income Diluted per share data: Income before provision for income taxes Net income $ 2,167,856 248,366 157,223 2.13 1.35 2.12 1.34 $ June 30 2,140,294 253,456 164,675 2.27 1.47 2.25 1.46 $ Three Month Periods Ended September 30 December 31 2,113,971 226,732 141,670 2.10 1.31 2.09 1.30 $ 2,105,601 (122,110) (184,391) (1.15) (1.74) (1.15) (1.74) December 31 2,182,142 61,155 11,941 0.52 0.10 0.52 0.10 $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ March 31 2,087,877 $ 157,867 80,581 1.34 0.68 1.34 0.68 $ $ $ $ June 30 2,273,609 $ 281,518 193,322 2.38 1.63 2.37 1.63 $ $ $ $ September 30 2,156,873 $ 209,066 144,730 1.77 1.22 1.77 1.22 $ $ $ $ $ $ $ $ F-56 ASSURANT, INC.  2010 Form 10K2011-04-06T17:01:18+02:00http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=127http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=12726 Commitments and Contingencies During the fourth quarter of 2010, following the completion of our annual goodwill impairment analysis, the Company recorded an impairment charge of $306,381 related to the Assurant Employee Benefits and Assurant Health reporting units. The impairment charge resulted in a decrease to net income and had no related tax benefit. See Notes 2, 6 and 11 for further information. During the fourth quarter of 2009, following the completion of our annual goodwill impairment analysis, the Company recorded an impairment charge of $83,000 related to the Assurant Employee Benefits reporting unit. The impairment charge resulted in a decrease to net income and had no related tax benefit. See Notes 2, 6 and 11 for further information. 26. Commitments and Contingencies The Company and its subsidiaries lease office space and equipment under operating lease arrangements. Certain facility leases contain escalation clauses based on increases in the lessors’ operating expenses. At December 31, 2010, the aggregate future minimum lease payments under these operating lease agreements that have initial or non-cancelable terms in excess of one year are: 2011 2012 2013 2014 2015 Thereafter Total minimum future lease payments $ 30,224 24,639 18,372 15,252 14,097 30,988 133,572 $ Rent expense was $39,700, $41,639 and $37,360 for 2010, 2009 and 2008, respectively. In the normal course of business, letters of credit are issued primarily to support reinsurance arrangements in which the Company is the reinsurer. These letters of credit are supported by commitments under which the Company is required to indemnify the financial institution issuing the letter of credit if the letter of credit is drawn. The Company had $ 24,946 and $28,566 of letters of credit outstanding as of December 31, 2010 and 2009, respectively. The Company is involved in litigation in the ordinary course of business, both as a defendant and as a plaintiff. The Company may from time to time be subject to a variety of legal and regulatory actions relating to the Company’s current and past business operations. While the Company cannot predict the outcome of any pending or future litigation, examination or investigation, the Company does not believe that any pending matter will have a material adverse effect individually or in the aggregate, on the Company’s financial condition, results of operations, or cash flows. As of December 31, 2009, the Company held litigation reserves of $51,952 related to previously disclosed unfavorable outcomes from ordinary course claim-related litigation in its Assurant Health segment. During 2010, the Company paid a total of $25,350 to resolve this litigation, and released the remaining reserves. One of the Company’s subsidiaries, American Reliable Insurance Company (“ARIC”), participated in certain excess of loss reinsurance programs in the London market and, as a result, reinsured certain personal accident, ransom and kidnap insurance risks from 1995 to 1997. ARIC and a foreign affiliate ceded a portion of these risks to retrocessionaires. ARIC ceased reinsuring such business in 1997. However, certain disputes arose regarding these programs. The disputes generally involved multiple layers of reinsurance, and allegations that the reinsurance programs involved interrelated claims “spirals” devised to disproportionately pass claims losses to higher-level reinsurance layers. The companies involved in these programs, including ARIC, have resolved many of these disputes. The disputes involving ARIC and an affiliate, Assurant General Insurance Limited (formerly Bankers Insurance Company Limited) (“AGIL”), for the 1995 and 1996 program years, were the subject of working group settlements negotiated with other market participants. For the 1995 program year, the participants have negotiated a final commutation agreement that extinguishes any future liability between the participants. For the 1996 program year, four of the five participants (representing a2011-04-06T17:01:18+02:00http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=128http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=128Schedule I—Summary of Investments Other –Than– Investments in Related Parties ASSURANT, INC. AT DECEMBER 31, 2010 Cost or Amortized Cost $ 244,659 $ 829,923 617,164 39,310 102,312 764,884 7,411,068 10,009,320 5,545 447,103 452,648 1,320,964 56,142 358,702 122,931 567,945 12,888,652 $ Amount at which shown in balance sheet 249,511 864,834 648,535 41,750 106,971 796,728 7,904,223 10,612,552 6,566 460,388 466,954 1,320,964 56,142 358,702 122,219 567,945 13,505,478 (in thousands) Fair Value 249,511 $ 864,834 648,535 41,750 106,971 796,728 7,904,223 10,612,552 6,566 460,388 466,954 1,400,553 56,142 358,702 122,219 567,945 13,585,067 $ Fixed maturity securities: United States Government and government agencies and authorities States, municipalities and political subdivisions Foreign governments Asset-backed Commercial mortgage-backed Residential mortgage-backed Corporate TOTAL FIXED MATURITY SECURITIES Equity securities: Common stocks Non-redeemable preferred stocks TOTAL EQUITY SECURITIES Commercial mortgage loans on real estate, at amortized cost Policy loans Short-term investments Collateral held under securities lending Other investments TOTAL INVESTMENTS $ F-58 ASSURANT, INC.  2010 Form 10K2011-04-06T17:01:18+02:00http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=129http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=129Schedule II—Condensed Balance Sheet (Parent Only) ASSURANT, INC. (in thousands except number of shares) 2010 December 31, 2009 ASSETS Investments: Equity investment in subsidiaries Fixed maturity securities available for sale, at fair value (amortized cost—$318,190 in 2010 and $106,037 in 2009) Equity securities available for sale, at fair value (amortized cost—$4,638 in 2010) Short-term investments Other investments Total investments Cash and cash equivalents Receivable from subsidiaries, net Income tax receivable Accrued investment income Property and equipment, at cost less accumulated depreciation Deferred income taxes, net Goodwill Other assets TOTAL ASSETS $ 4,708,700 316,832 5,195 8,156 79,936 5,118,819 656,382 30,550 7,635 551 137,381 200,541 — 45,895 6,197,754 440,053 972,164 5,000 1,417,217 $ 4,886,775 105,409 — 3,252 73,057 5,068,493 727,186 30,574 5,259 235 144,980 201,569 37,000 33,145 6,248,441 414,974 972,058 8,160 1,395,192 $ $ $ $ LIABILITIES Accounts payable and other liabilities Debt Mandatorily redeemable preferred stock TOTAL LIABILITIES Commitments and Contingencies STOCKHOLDERS’ EQUITY Common stock, par value $0.01 per share, 800,000,000 shares authorized,102,000,371 and 116,648,714 shares outstanding at December 31, 2010 and 2009, respectively Additional paid-in capital Retained earnings Accumulated other comprehensive income Treasury stock, at cost; 43,344,638 and 28,119,993 shares at December 31, 2010 and 2009, respectively Total stockholders’ equity TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY 1,453 2,993,957 3,264,025 285,524 (1,764,422) 4,780,537 6,197,754 $ 1,447 2,962,883 3,054,466 65,925 (1,231,472) 4,853,249 6,248,441 $ ASSURANT, INC.  2010 Form 10K F-592011-04-06T17:01:18+02:00http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=130http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=130Schedule II—Condensed Income Statement (Parent Only) ASSURANT, INC. (in thousands) 2010 $ 3,633 $ 1,468 94,214 419,076 518,391 182,066 60,646 37,000 279,712 238,679 40,498 279,177 $ Years Ended December 31, 2009 2008 1,104 $ (1,223) 92,936 534,781 627,598 174,889 60,669 6,832 242,390 385,208 45,366 430,574 $ 9,358 (208) 77,567 435,808 522,525 151,529 60,953 — 212,482 310,043 137,753 447,796 Revenues Net investment income Net realized gains (losses) on investments Fees and other income Equity in undistributed and distributed net income of subsidiaries TOTAL REVENUES Expenses General and administrative expenses Interest expense Goodwill impairment TOTAL EXPENSES Income before benefit for income taxes Benefit for income taxes NET INCOME $ F-60 ASSURANT, INC.  2010 Form 10K2011-04-06T17:01:18+02:00http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=131http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=131Schedule II—Condensed Cash Flows (Parent Only) ASSURANT, INC. (in thousands) 2010 $ 279,177 (419,077) 557,000 (292) (818) 6,890 (2,237) 39,489 (1,468) 6,712 34,591 37,000 6,597 543,564 $ Years Ended December 31, 2009 2008 430,574 (534,781) 665,780 (24,705) 56,435 (24,668) 2,631 37,243 1,223 1,790 30,288 6,832 9,722 658,364 $ 447,796 (432,102) 353,303 5,453 (50,437) (56,421) 46,507 35,689 208 (5,682) 24,129 — (6,764) 361,679 Operating Activities Net income Adjustments to reconcile net income to net cash provided by operating activities: Equity in undistributed and distributed net income of subsidiaries Dividends received from subsidiaries Change in receivables Change in income taxes Change in accounts payable and other liabilities Change in trading portfolio Depreciation and amortization Net realized (gains) losses on investments Change in tax benefit from share-based payment arrangements Stock based compensation expense Goodwill impairment Other NET CASH PROVIDED BY OPERATING ACTIVITIES Investing Activities Sales of: Fixed maturity securities available for sale Property and equipment and other Subsidiary, net of cash transferred (1) Maturities, prepayments, and scheduled redemption of: Fixed maturity securities available for sale Purchase of: Fixed maturity securities available for sale Equity securities available for sale Property and equipment and other Capital contributed to subsidiaries Return of capital contributions from subsidiaries Change in short-term investments Change in other invested assets NET CASH USED IN INVESTING ACTIVITIES Financing Activities Repayment of mandatorily redeemable preferred stock Change in tax benefit from share-based payment arrangements Acquisition of common stock Dividends paid Change in receivables under securities loan agreements Change in obligations to return borrowed securities NET CASH USED IN FINANCING ACTIVITIES Effect of exchange rate changes on cash and cash equivalents Change in cash and cash equivalents Cash and cash equivalents at beginning of period CASH AND CASH EQUIVALENTS AT END OF PERIOD (1) This relates to the sale of UFLIC to a third party on May 1, 2008. — 214 — 93,298 (335,945) (4,638) (29,152) (50,000) 323,200 (4,904) (4,642) 12,569 (3,160) (6,712) (522,546) (69,618) (14,370) 14,281 602,125 326 (70,804) 727,186 656,382 $ — 1,104 — 15,856 (73,223) — (33,817) (64,000) 26,319 525 74 127,162 (3,000) (1,790) (31,949) (69,596) — — 106,335 — 424,867 302,319 727,186 $ 3,862 5 28,031 82,770 — — (37,892) (386,500) 100,000 (611) 7 210,328 (10,000) 5,682 (59,000) (63,672) — — 126,990 — 24,361 277,958 302,319 $ ASSURANT, INC.  2010 Form 10K F-612011-04-06T17:01:18+02:00http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=132http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=132Schedule III—Supplementary Insurance Information ASSURANT, INC. FOR THE YEARS ENDED DECEMBER 31, 2010, 2009 & 2008 Future policy Deferred Acquisition benefits and expenses Cost Benefits Amortization claims, of deferred policy losses and settlement acquisition costs expenses Property and Casualty Premiums Written Segment (in thousands) Claims and benefits Unearned payable premiums Net Premium investment income revenue Other* operating expenses 2010 Solutions Specialty Property Employee Benefits Health Corporate and Other TOTAL SEGMENTS 2009 Solutions Specialty Property Employee Benefits Health Corporate and Other TOTAL SEGMENTS 2008 Solutions Specialty Property Employee Benefits Health Corporate and Other TOTAL SEGMENTS * $ 2,262,013 $ 4,577,647 $ 3,533,667 $ 336,092 $ 207,741 3,390 1,365,986 368,670 22,163 767 11,570 1,690,639 1,505 89,455 113,694 313,846 — 3,433,894 39,082 641,922 2,484,299 $ 397,297 $ 889,387 $ 1,092,399 $ 1,953,223 107,092 684,652 374,029 1,101,395 132,388 766,049 35,407 1,864,122 48,540 1,302,928 6,877 — 17,873 (2,038) — 960,229 $ 622,068 423,967 1,879,622 360,352 — 558,184 — 408,210 — $ 2,493,422 $ 8,105,153 $ 5,063,999 $ 3,351,169 $ 7,403,039 $ 703,190 $ 3,640,978 $ 1,508,712 $ 2,710,942 $ 2,501,690 $ 2,257,568 $ 4,372,710 $ 3,655,942 $ 399,804 $ 214,300 3,556 1,315,881 341,553 24,448 696 15,721 1,717,927 8,338 95,353 124,515 396,546 — 2,877,318 41,505 510,497 2,671,041 $ 391,229 $ 1,029,151 $ 1,173,216 $ 1,947,529 110,337 664,182 367,663 1,052,137 133,365 757,070 38,585 1,879,628 47,658 1,410,171 8,526 — 16,249 7,408 — 882,132 $ 639,628 464,865 1,980,985 354,316 — 596,172 — 176,769 — $ 2,504,654 $ 7,349,633 $ 5,153,564 $ 3,366,327 $ 7,550,335 $ 698,838 $ 3,867,982 $ 1,587,990 $ 2,474,254 $ 2,620,613 $ 2,407,675 $ 4,221,357 $ 3,985,167 $ 367,582 $ 201,817 3,473 1,243,043 411,359 24,557 705 13,168 1,775,285 16,623 107,394 124,759 315,706 — 2,762,716 41,722 432,799 2,813,407 $ 420,615 $ 1,198,758 $ 1,265,196 $ 2,048,238 123,043 785,403 334,516 1,111,748 147,027 775,684 37,019 1,951,955 57,464 1,258,188 18,253 — 26,198 1,114 — 776,696 $ 654,003 483,332 2,207,540 363,796 — 586,352 — 92,690 — $ 2,650,672 $ 7,095,645 $ 5,407,859 $ 3,302,731 $ 7,925,348 $ 774,347 $ 4,019,147 $ 1,654,984 $ 2,302,866 $ 2,861,543 Includes amortization of value of business acquired, underwriting, general and administration expenses and goodwill impairment. F-62 ASSURANT, INC.  2010 Form 10K2011-04-06T17:01:18+02:00http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=133http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=133Schedule IV—Reinsurance ASSURANT, INC. FOR THE YEAR ENDED DECEMBER 31, 2010 Percentage of amount assumed to net 8.3% 4.2% 7.9% 1.8% 4.4% 8.9% 9.8% 0.5% 6.5% Life Insurance in Force Premiums: Life insurance Accident and health insurance Property and liability insurance TOTAL EARNED PREMIUMS Benefits: Life insurance Accident and health insurance Property and liability insurance TOTAL POLICYHOLDER BENEFITS Direct amount $ 105,271,898 $ $ 858,850 $ 3,495,567 4,951,590 9,306,007 $ 788,951 $ 2,799,682 1,511,305 5,099,938 $ Ceded to other Assumed from Companies other Companies 31,248,115 $ 6,669,191 $ 420,856 $ 761,822 1,045,392 2,228,070 $ 416,349 $ 1,010,074 268,387 1,694,810 $ 19,027 $ 234,818 71,257 325,102 $ 36,508 $ 193,506 5,836 235,850 $ Net amount 80,692,974 457,021 2,968,563 3,977,455 7,403,039 409,110 1,983,114 1,248,754 3,640,978 $ $ $ ASSURANT, INC. FOR THE YEAR ENDED DECEMBER 31, 2009 Percentage of amount assumed to net 11.0% 3.1% 5.1% 1.6% 3.1% 7.6% 5.4% 2.8% 4.8% Life Insurance in Force Premiums: Life insurance Accident and health insurance Property and liability insurance TOTAL EARNED PREMIUMS Benefits: Life insurance Accident and health insurance Property and liability insurance TOTAL POLICYHOLDER BENEFITS Direct amount $ 111,493,158 $ $ 914,988 $ 3,551,406 4,911,543 9,377,937 $ 860,253 $ 2,496,901 1,499,594 4,856,748 $ Ceded to other Assumed from Companies other Companies 35,142,086 $ 8,763,631 $ 418,839 $ 755,348 884,517 2,058,704 $ 436,326 $ 517,158 220,721 1,174,205 $ 15,847 $ 151,471 63,784 231,102 $ 34,842 $ 113,993 36,604 185,439 $ Net amount 85,114,703 511,996 2,947,529 4,090,810 7,550,335 458,769 2,093,736 1,315,477 3,867,982 $ $ $ ASSURANT, INC. FOR THE YEAR ENDED DECEMBER 31, 2008 Percentage of amount assumed to net 2.2% 1.3% 4.7% 4.8% 4.4% 4.7% 6.8% 5.9% 6.2% Life Insurance in Force Premiums: Life insurance Accident and health insurance Property and liability insurance TOTAL EARNED PREMIUMS Benefits: Life insurance Accident and health insurance Property and liability insurance TOTAL POLICYHOLDER BENEFITS Direct amount $ 121,510,500 $ $ 1,136,777 $ 3,686,230 4,799,653 9,622,660 $ 1,152,179 $ 2,155,549 1,811,867 5,119,595 $ Ceded to other Assumed from Companies other Companies 38,369,258 $ 1,872,195 $ 422,862 $ 726,497 898,161 2,047,520 $ 591,238 $ 340,794 416,661 1,348,693 $ 9,448 $ 145,199 195,561 350,208 $ 27,922 $ 132,506 87,817 248,245 $ Net amount 85,013,437 723,363 3,104,932 4,097,053 7,925,348 588,863 1,947,261 1,483,023 4,019,147 $ $ $ ASSURANT, INC.  2010 Form 10K F-632011-04-06T17:01:18+02:00http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=134http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=134Schedule V—Valuation and Qualifying Accounts ASSURANT, INC. AS OF DECEMBER 31, 2010, 2009 AND 2008 Additions Charged to Costs and Charged to Other Expenses Accounts Balance at Beginning of Year 2010: Valuation allowance for foreign NOL deferred tax carryforward Valuation allowance for deferred tax assets Valuation allowance for mortgage loans on real estate Valuation allowance for uncollectible agents balances Valuation allowance for uncollectible accounts Valuation allowance for Reinsurance Recoverables TOTAL 2009: Valuation allowance for foreign NOL deferred tax carryforward Valuation allowance for deferred tax assets Valuation allowance for mortgage loans on real estate Valuation allowance for uncollectible agents balances Valuation allowance for uncollectible accounts Valuation allowance for Reinsurance Recoverables TOTAL 2008: Valuation allowance for foreign NOL deferred tax carryforward Valuation allowance for deferred tax assets Valuation allowance for mortgage loans on real estate Valuation allowance for uncollectible agents balances Valuation allowance for uncollectible accounts Valuation allowance for Reinsurance Recoverables TOTAL Deductions Balance at End of Year $ $ 6,834 $ 74,854 16,129 11,636 13,644 6,253 129,350 $ 3,135 5,915 16,709 3,194 7,788 9,266 46,007 $ $ — — — 54 97 116 267 $ $ — $ — — 1,713 1,572 — 3,285 $ 9,969 80,769 32,838 13,171 19,957 15,635 172,339 $ $ 7,465 $ 91,328 5,908 11,941 14,424 9,680 140,746 $ (631) $ (474) 10,214 1,856 10,608 (853) 20,720 $ — $ (16,000) 7 872 125 257 14,739 $ — $ — — 3,033 11,513 2,831 17,377 $ 6,834 74,854 16,129 11,636 13,644 6,253 129,350 $ $ 3,235 $ 1,023 5,290 12,052 4,768 7,811 34,179 $ 4,230 90,305 628 1,620 12,622 1,809 111,214 $ $ — $ — (10) (9) (130) 60 89 $ — $ — — 1,722 2,836 — 4,558 $ 7,465 91,328 5,908 11,941 14,424 9,680 140,746 F-64 ASSURANT, INC.  2010 Form 10K2011-04-06T17:01:18+02:00http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=135http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=135Non-GAAP Financial Measures (1) Assurant uses operating return on equity (“ROE”) as an important measure of the Company’s operating performance. Operating ROE equals full-year net operating income for the periods presented divided by average stockholders’ equity for the year, excluding accumulated other comprehensive income (loss) (“AOCI”). The Company believes Operating ROE provides investors a valuable measure of the performance of the Company’s ongoing business, because it excludes the effect of net realized gains (losses) on investments that tend to be highly variable and those events that are unusual and/or unlikely to recur. The comparable GAAP measure would be GAAP ROE, defined as full-year net income divided by average stockholders’ equity for the year. GAAP ROE for the year ended Dec. 31, 2010 was 5.8 percent, as shown in the following reconciliation table. 2010 Operating return on average equity (excluding AOCI) Net realized gains on investments Change in tax valuation allowance Goodwill impairment Change due to effect of including AOCI GAAP return on average equity 12.1% 0.7% -0.1% -6.6% -0.3% 5.8% (2) Assurant uses net operating income as an important measure of the Company’s operating performance. As shown in the following table, net operating income equals net income excluding net realized gains (losses) on investments and other unusual and/or infrequent items. The Company believes net operating income provides investors a valuable measure of the performance of the Company’s ongoing business, because it excludes the effect of net realized gains (losses) on investments that tend to be highly variable and those events that are unusual and/or unlikely to recur. 2010 (dollars in millions, net of tax) Assurant Solutions Assurant Specialty Property Assurant Health Assurant Employee Benefits Corporate and other Amortization of deferred gain on disposal of businesses Interest expense Net operating income Adjustments: Net realized gains (losses) on investments Tax benefit realized from the sale of an inactive subsidiary Change in tax valuation allowance Legal settlement and related expenses Goodwill impairments Net income $103.2 424.3 54.0 63.5 (52.3) 6.8 (39.4) 560.1 31.5 (6.0) (306.4) $279.2 2009 $120.1 406.0 (30.2) 42.2 (48.3) 14.6 (39.5) 464.9 (34.8) 83.5 (83.0) $430.6 2008 $112.2 405.2 120.3 70.6 (50.4) 19.1 (39.6) 637.4 (278.6) 89.0 $447.8 2007 $143.9 379.2 151.7 87.0 (49.4) 21.5 (39.7) 694.2 (40.5) $653.7 (3) Assurant uses book value per diluted share, excluding AOCI, as an important measure of the Company’s stockholder value. Book value per diluted share excluding AOCI equals total stockholders’ equity excluding AOCI divided by diluted shares outstanding. The Company believes book value per diluted share excluding AOCI provides investors a valuable measure of stockholder value because it excludes the effect of unrealized gains (losses) on investments, which tend to be highly variable and other accumulated comprehensive income items. The comparable GAAP measure would be book value per diluted share, defined as total stockholders’ equity divided by diluted shares outstanding. Book value per diluted share was $45.81 and $41.03 as of Dec. 31, 2010 and 2009, respectively, as shown in the reconciliation table. 2010 Book value per diluted share (excluding AOCI) Changes due to effect of including AOCI Book value per diluted share $43.08 $2.73 $45.81 2009 $40.47 $0.56 $41.03 4 ASSURANT - 2010 Annual Report2011-04-06T17:01:18+02:00http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=136http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=136Other Information CORPORATE HEADQUARTERS Assurant, Inc. One Chase Manhattan Plaza 41st Floor New York, NY 10005 Telephone: 212.859.7000 www.assurant.com INVESTOR INFORMATION Melissa Kivett Senior Vice President, Investor Relations Assurant, Inc. One Chase Manhattan Plaza, 41st Floor New York, NY 10005 212.859.7029 melissa.kivett@assurant.com You also may visit the Investor Relations section of the Assurant website: http://ir.assurant.com INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM PricewaterhouseCoopers LLP 300 Madison Avenue New York, NY 10017 Telephone: 646.471.3000 Fax: 813.286.6000 www.pwc.com FORM 10-K AND OTHER REPORTS Copies of the 2010 Annual Report on Form 10-K and other reports filed with the U.S. Securities and Exchange Commission (SEC) also are available, without charge, from the Investor Relations section of the Assurant website at http://ir.assurant.com or by dialing 866.888.4219. STOCK LISTING Assurant is traded on the New York Stock Exchange under the symbol AIZ. SEC AND NYSE CERTIFICATIONS Assurant has included as Exhibits 31 and 32 to its 2010 Annual Report on Form 10-K filed with the SEC, certifications of Assurant’s Chief Executive Officer and Chief Financial Officer, as required under the Sarbanes-Oxley Act of 2002, as amended, regarding the company’s public disclosures. In 2010, Assurant’s Chief Executive Officer also submitted to the New York Stock Exchange (NYSE) a certification stating that he is not aware of any violations by Assurant of the NYSE corporate governance listing standards. SHAREHOLDER INQUIRIES BNYMellon Shareowner Services LLC is the stock transfer agent. All questions on issuance of stock certificates, changes of ownership, lost stock certificates, changes of address and other similar matters should be addressed to: BNYMellon P .O. Box 358015 Pittsburgh, PA 15252 www.bnymellon.com/shareowner/equityaccess Domestic Shareholders: 877.761.3451 TDD for Hearing Impaired: 800.231.5469 Foreign Shareholders: 201.680.6578 TDD Foreign Shareholders: 201.680.6610 For additional copies of the Assurant Annual Report or Assurant news releases, please visit our website: http://ir.assurant.com In addition, you also may request public Assurant financial information by dialing 866.888.4219. FORWARD-LOOKING STATEMENTS Some of the statements included in this Annual Report are forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. Please see the “Risk Factors” section in our 2010 Annual Report on Form 10-K for a detailed discussion of the risk factors that could cause our actual results to differ from expectations or estimates reflected in these forward-looking statements. Designed by (212) 792-4068 ASSURANT - 2010 Annual Report 52011-04-06T17:01:18+02:00http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=137http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=137Assurant Management Committee and Board of Directors (As of March 28, 2011) MANAGEMENT COMMITTEE Robert B. Pollock President and Chief Executive Officer, Assurant Christopher J. Pagano Executive Vice President and Treasurer, Assurant President and Chief Investment Officer, Assurant Asset Management Alan B. Colberg Executive Vice President, Marketing and Business Development, Assurant Michael J. Peninger Executive Vice President and Chief Financial Officer, Assurant Adam D. Lamnin President and Chief Executive Officer, Assurant Health John S. Roberts President and Chief Executive Officer, Assurant Employee Benefits S. Craig Lemasters President and Chief Executive Officer, Assurant Solutions Bart R. Schwartz Executive Vice President, Chief Legal Officer and Secretary, Assurant Gene E. Mergelmeyer President and Chief Executive Officer, Assurant Specialty Property Sylvia R. Wagner Executive Vice President, Human Resources and Development, Assurant BOARD OF DIRECTORS Date following name = Year joined Board Elaine D. Rosen (2009) Chair of the Board, Assurant; Chair of the Board, The Kresge Foundation; former President, UNUM Life Insurance Company of America David B. Kelso (2007) Financial Advisor, Kelso Advisory Services; former Executive Vice President, Strategy and Finance, Aetna, Inc. Charles J. Koch (2005) Beth L. Bronner (1994) Managing Director, Mistral Equity Partners Former Chairman, President and Chief Executive Officer, Charter One Financial, Inc. Howard L. Carver (2002) Former Office Managing Partner, Ernst & Young LLP H. Carroll Mackin (1996) Principal Owner, Great Northern Manufacturing, LLC; former Executive Vice President and Treasurer, Assurant John M. Palms, Ph.D., D.Sc. (Hon), LHD (Hon) (1990) Distinguished University Professor Emeritus and Distinguished President Emeritus, University of South Carolina Juan N. Cento (2006) President, FedEx Express – Latin American & Caribbean Division Allen R. Freedman (1979) Owner and Principal, arfreedman&co; former Chairman and Chief Executive Officer, Assurant Robert B. Pollock (2006) President and Chief Executive Officer, Assurant Lawrence V. Jackson (2009) Senior Advisor, New Mountain Capital, LLC; Chairman, SourceMark, LLC; former President and Chief Executive Officer, Global Procurement Division, Wal-Mart Stores, Inc. John A.C. Swainson (2010) Senior Advisor, Silver Lake; former Chief Executive Officer, CA, Inc. For more information on our executive officers and directors, please see our 2011 Proxy Statement, which accompanies this report and also is available in the Investor Relations section of the Assurant website: http://ir.assurant.com.2011-04-06T17:01:18+02:00http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=138http://interactivedocument.labrador-company.com/Labrador/US/Assurant/2010AnnualReportForm10K/?Page=138Assurant, Inc. One Chase Manhattan Plaza 41st Floor New York, NY 10005 Telephone: 212.859.7000 www.assurant.com2011-04-06T17:01:18+02:00