Dispositions

On March 1, 2016, the Company completed the sale of its Assurant Employee Benefits segment through a series of transactions with Sun Life, for net cash consideration of $926,174 and contingent consideration of $16,000 related to specified account renewals. The transaction was primarily structured as a reinsurance arrangement, as well as the sale of certain legal entities that included ceding commission and other consideration. The reinsurance transaction does not extinguish the Company's primary liability on the policies issued or assumed by subsidiaries that are parties to the reinsurance agreements, thus any gains associated with the prospective component of the reinsurance transaction are deferred and amortized over the contract period, including contractual renewal periods, in proportion to the amount of insurance coverage provided. The Company also has an obligation to continue to write and renew certain policies for a period of time until Sun Life commences policy writing and renewal.

The Company was required to allocate the proceeds considering the relative fair value of the transaction components, including the sale of certain legal entities, the reinsurance for existing claims (accounted for as retroactive reinsurance) and reinsurance for inforce policies with remaining terms and future business (primarily accounted for as prospective reinsurance). As of the close date, the Company originally estimated a gain of $638,517 (which was subsequently increased to $640,497 in the second quarter 2016 based on closing adjustments) based on proceeds compared to the relative net assets transferred and other expenses incurred along with realized gains on invested assets transferred. Of this amount, $120,077 was recognized at the close of the transaction and $518,440 was required to be deferred. The total deferred gain amount will primarily be recognized as revenue over the contract period in proportion to the amount of insurance coverage provided, including estimated contractual renewals pursuant to rate guarantees. The Company recognized $122,835 and $167,428 of amortization of the deferred gain for the three and six months ended June 30, 2016, respectively. The total pre-tax gain recognized during the six months ended June 30, 2016 was $287,505.

Over half of the remaining $352,992 deferred gain related to this transaction as of June 30, 2016 is expected to be earned over the remainder of 2016 and over 90% is expected to be earned by the end of 2018. The ultimate amortization pattern will be dependent on a number of factors including the exact timing of when Sun Life commences directly writing and renewing policies and the sales and persistency on business the Company is obligated to write and renew in the interim.

The following represents a summary of the pre-tax gain recognized in 2016 by transaction component, as well as the related classification within the financial statements:



Total expected gain, after adjustment	$	640,497

Transaction closing gains on March 1, 2016:
Gain on sale of entities, net of transaction costs	$	41,098
Novations, resulting in recognized gains	60,913			(b)
Loss on retroactive reinsurance component, before realized gains	(128,661		)	(c)
Net loss prior to realized gains on transferred securities supporting retroactive component	(26,650		)	(a)
Realized gains on transferred securities supporting retroactive component	146,727			(c)
Net gain realized as of March 1, 2016	$	120,077

Deferred gain as of March 1, 2016, after adjustment	$	520,420
Amortization of deferred gain for the three months ended March 31, 2016	44,593			(d)
Amortization of deferred gain for the three months ended June 30, 2016	122,835			(d)
Deferred gain as of June 30, 2016	$	352,992		(e)
Total net gains realized for 2016	$	287,505


(a)	Amount classified within underwriting, general and administrative expenses within the Consolidated Statements of Operations.


(b)	Novations of certain insurance policies directly to Sun Life allowed for immediate gain recognition.

(c)

Reinsurance of existing claims liabilities requires retroactive accounting necessitating losses to be recognized immediately. However, upon transfer of the associated assets supporting the liabilities, the Company recognized realized gains which more than offset the retroactive losses. The Company was required to classify the realized gains as part of net realized gains on investments, within the Consolidated Statements of Operations.


(d)	Amount classified as amortization of deferred gain on disposal of businesses within the Consolidated Statements of Operations.


(e)	Amount classified as a component of the deferred gain on disposal of businesses within the Consolidated Balance Sheets.

The Company will review and evaluate the estimates affecting the deferred gain each period or when significant information affecting the estimates becomes known to the Company, and will adjust the prospective revenue to be recognized accordingly.

The Assurant Employee Benefits segment pretax income was $16,747 and $32,920 for the periods ending June 30, 2016 and 2015, respectively (excluding the aforementioned gains realized in 2016 which are included in the Corporate & Other segment).