ACQUISITIONS

a) Hong Kong and Singapore Branches of Royal & Sun Alliance Insurance plc

On April 1, 2015, the Company completed its acquisitions of certain assets and assumed certain liabilities of the Hong Kong and Singapore operations of Royal & Sun Alliance Insurance plc (“RSA”) to further expand its international insurance operations. The assets acquired and liabilities assumed constituted a business, and as such the Company accounted for the acquisitions of the RSA branches under the acquisition method in accordance with U.S. GAAP. The initial cash consideration for the branches was $193,889. There were post-closing adjustments based on the net asset value of the acquired branches at the date of acquisitions that resulted in a decrease in the initial consideration of $31,160. The post-closing adjustments are still being agreed upon with RSA and as such the assets acquired and liabilities assumed are still preliminary and will be adjusted during the measurement period. In addition, completion of the valuation of the assets acquired and liabilities assumed is currently in process and will be finalized during the measurement period. To date, the Company has incurred a total of $8,948 in acquisition related expenses, mostly related to advisory, legal and valuation services rendered, which were recorded in “other expense” in the unaudited condensed consolidated statements of operations and comprehensive income (“consolidated income statements”).

The following table summarizes the consideration paid for the Hong Kong and Singapore branches of RSA and the preliminary amounts of the assets acquired and liabilities assumed at the acquisition date.



Consideration:	Fair Value
Cash for initial consideration	$	193,889
Receivable for post-closing adjustments	(31,160		)
Fair value of consideration transferred	162,729

Recognized amounts of identifiable assets acquired and liabilities assumed:
Fixed maturity investments	245,997
Cash and cash equivalents	46,853
Insurance balances receivable	113,922
Prepaid reinsurance	17,491
Reinsurance recoverable	57,350
Value of business acquired	37,104
Intangible assets	90,600
Other assets	10,041
Reserve for losses and loss expenses	(310,198		)
Unearned premiums	(150,530		)
Reinsurance balances payable	(35,734		)
Net deferred tax liabilities	(16,488		)
Accounts payable and accrued liabilities	(19,918		)
Total identifiable net assets acquired	86,490

Goodwill	76,239
Total net assets acquired	$	162,729

Of the $76,239 of goodwill acquired, $52,427 and $23,812 related to the Singapore and Hong Kong branches, respectively. All of the goodwill has been allocated to the Global Markets Insurance segment as all of the results of the international insurance operations are included in that segment and the expected synergies from these acquisitions are to be realized in that segment.

The Company recognized identifiable finite lived intangible assets, including an intangible asset for the value of businesses acquired (“VOBA”), which will be amortized over a weighted average period of 12 years. The following is a breakdown of the intangible assets acquired.



	Singapore Branch		Estimated Useful Life	Hong Kong Branch		Estimated Useful Life	Total
VOBA	$	19,845	2 years	$	17,259	1.5 years	$	37,104
Customer renewals	8,600		4 years	6,800		7 years	15,400
Distribution channels	48,500		18 years	26,700		18 years	75,200
	$	76,945		$	50,759		$	127,704

The following is an explanation of identifiable finite lived intangible assets acquired:


•	VOBA: Represents the difference between the expected future losses and expenses and the associated unearned premium reserve. This intangible asset will be amortized consistent with how the associated unearned premiums will be earned and will be recorded in “acquisition costs” in the consolidated income statements.


•	Customer renewals: The value of inforce policies renewing taking into consideration the net cash flows generated from these renewals. The amortization expense for this intangible asset will be recorded in “amortization of intangible assets” in the consolidated income statements.


•	Distribution channels: The value of access to contractual and non-contractual relationships (e.g., brokers and affinity relationships) taking into consideration the net cash flows generated from these relationships. The amortization expense for this intangible asset will be recorded in “amortization of intangible assets” in the consolidated income statements.

The following summarizes the results of the Hong Kong and Singapore branches that have been included in the Company’s consolidated income statement since the acquisitions closed on April 1, 2015.



	From April 1, 2015 to September 30, 2015
Total revenue	$	103,265
Net loss	$	(14,788	)

The following unaudited pro forma information presents the combined results of the Company and the acquired Hong Kong and Singapore RSA branches for the nine months ended September 30, 2015 and 2014, with pro forma adjustments related to the acquisition method of accounting as if the acquisitions had been consummated as of January 1, 2014, which is the beginning of the earliest period presented. This unaudited pro forma information is not necessarily indicative of what would have occurred had the acquisitions and related transactions been made on the dates indicated, or of future results of the Company.



	Nine Months Ended September 30, 2015		Nine Months Ended September 30, 2014
Total revenue	$	1,960,185	$	2,010,308
Net income	$	70,633	$	362,143

b) Acquisition of Labuan branch of RSA

On April 30, 2015, the Company also acquired the assets and assumed the liabilities of the Labuan operations of RSA for consideration of one British pound sterling. The Company recorded goodwill of $1,396 related to this acquisition. The goodwill has been allocated to the Global Markets Insurance segment.

c) Acquisition of Latin American Underwriters Holdings, Ltd.

In January 2015, the Company acquired Latin American Underwriters Holdings Ltd. (“LAU”) for cash consideration of $5,105. LAU had previously underwritten trade credit insurance and political risk coverages solely for the Company since 2010. As part of the acquisition, the Company recorded goodwill of $2,467 and customer relationship intangibles of $3,610, which have a five-year useful life. The goodwill has been allocated to the Global Markets Insurance segment. The Company also recorded $1,000 of contingent consideration related to certain earn-out payments. During the three months ended September 30, 2015, it was determined that LAU will not achieve any of the earn-out payments. As a result, the Company reduced the fair value of the contingent consideration to zero with the corresponding gain recorded as a reduction in “general and administrative expenses” in the consolidated income statements.