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 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 consideration for the branches was $176.5 million in cash, after receipt of cash for post-closing adjustments. The post-closing adjustments were based on the net asset value of the acquired branches at the date of acquisitions that resulted in the Company receiving $17.4 million in cash. The Company has incurred a cumulative total of $9.2 million in acquisition related expenses, mostly related to advisory, legal and valuation services rendered, which were recorded in “other expense” in the consolidated income statements in 2015 and 2014.

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 consideration	$	176.5

Recognized amounts of identifiable assets acquired and liabilities assumed:
Fixed maturity investments	246.1
Cash and cash equivalents	47.1
Insurance balances receivable	114.4
Prepaid reinsurance	17.5
Reinsurance recoverable	58.9
Value of business acquired	28.9
Intangible assets	79.9
Other assets	9.9
Reserve for losses and loss expenses	(314.1		)
Unearned premiums	(150.5		)
Reinsurance balances payable	(35.8		)
Net deferred tax liabilities	(11.9		)
Accounts payable and accrued liabilities	(20.1		)
Total identifiable net assets acquired	70.3

Goodwill	106.2
Total net assets acquired	$	176.5

Of the $106.2 million of goodwill acquired, $54.7 million and $51.5 million related to the Hong Kong and Singapore branches, respectively. None of the goodwill recorded was deductible for tax purposes.

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 Company also recorded an insurance-related intangible liability related to the reserve for loss and loss expenses of $8.3 million that will be amortized over a weighted average period of 8 years, and included in “net losses and loss expenses” in the consolidated income statements. The insurance-related intangible liability related to the reserve for loss and loss expenses was calculated as the additional risk margin less the impact related to discounting the net reserves for losses and loss expenses. Since the fair value adjustment increased the net reserve for losses and loss expenses, it has been recorded as an insurance-related intangible liability.

The following is a breakdown of the intangible assets acquired.



	Singapore Branch		Estimated Useful Life	Hong Kong Branch		Estimated Useful Life	Total
VOBA	$	17.8	2 years	$	11.1	1.5 years	$	28.9
Customer renewals	8.6		4 years	4.4		5 years	13.0
Distribution channels	47.7		18 years	19.2		18 years	66.9
	$	74.1		$	34.7		$	108.8

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 and impairment 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 and impairment 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 December 31, 2015
Total revenue	$	155.3
Net loss	$	(28.9	)

The following unaudited pro forma information presents the combined results of the Company and the acquired Hong Kong and Singapore RSA branches for the years ended December 31, 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. 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.



	Year Ended December 31, 2015		Year Ended December 31, 2014
Total revenue	$	2,594.2	$	2,681.7
Net income	$	74.2	$	505.9

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 $1.4 million related to this acquisition.

c) Acquisition of Latin American Underwriters Holdings, Ltd.

In January 2015, the Company acquired Latin American Underwriters Holdings Ltd. (“LAU”) for cash consideration of $5.1 million. 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 $2.5 million and customer renewal intangibles of $3.6 million, which have a three-year useful life. The Company also recorded $1.0 million of contingent consideration related to certain earn-out payments. During the third quarter of 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. See note 10 for additional information regarding an impairment recorded related to the customer renewal intangible asset.