4.	Acquisition

On January 1, 2015, Global Indemnity Group, Inc., a subsidiary of the Company, acquired 100% of the voting equity interest of American Reliable from American Bankers Insurance Group, Inc. by paying $113.7 million in cash and assuming $283.9 million of customary insurance related liabilities, obligations, and mandates. Per the American Reliable Share Purchase Agreement (“SPA”), the ultimate purchase price is subject to (i) accounting procedures that were performed in 2015 to determine GAAP book value and (ii) indemnification on future development on recorded loss and loss adjustment expenses as of December 31, 2014. In accordance with the SPA, on the third calendar year following the calendar year of the closing, if loss and loss adjustment expenses for accident years 2014 and prior are lower than recorded unpaid loss and loss adjustment expenses as of December 31, 2014, Global Indemnity Group, Inc. will pay the variance to American Bankers Group, Inc. Conversely, if loss and loss adjustment expenses for accident years 2014 and prior exceed recorded unpaid loss and loss adjustment expenses as of December 31, 2014, American Bankers Group, Inc. will pay the variance to Global Indemnity Group, Inc. In accordance with a dispute resolution agreement between Global Indemnity Group, Inc. and American Bankers Group, Inc., any variance paid related to the loss indemnification will be subject to interest of 5% compounded semi-annually. The Company’s purchase price, based on available financial information at the date of acquisition, was $99.8 million.

The results of American Reliable’s operations have been included in the Company’s consolidated financial statements since the date of the acquisition on January 1, 2015.

The purchase of American Reliable expanded Global Indemnity’s product offerings. American Reliable is a specialty company that distributes personal lines products written on an admitted basis that are unusual and harder to place. It complements Global Indemnity’s existing US Insurance Operations that primarily distribute commercial lines products on an excess and surplus lines basis.

American Reliable is domiciled in Arizona and as such is subject to its state insurance department regulations.

For the year ended December 31, 2015, American Reliable had total revenues of $259.0 million and pre-tax loss of $4.2 million. These amounts are included in the Company’s results of operations for the year ended December 31, 2015.

The following table presents the Company’s unaudited pro forma consolidated results of operations for the years December 31, 2015 and 2014 as if the acquisition had occurred on January 1, 2014 instead of January 1, 2015.


	Pro Forma
	Years Ended December 31,
(Dollars in thousands except per share data)	2015		2014
Total Revenue	$	538,778	$	597,583
Net Income (Loss)	$	46,864	$	63,053
Net Income (Loss) per share (diluted)	$	1.91	$	2.46

The pro forma results were calculated by applying the Company’s accounting policies and adjusting the result of American Reliable to reflect (i) the impact of intercompany reinsurance with Global Indemnity Reinsurance, (ii) the impact on interest expense resulting from changes to the Company’s capital structure in connection with the acquisition, (iii) the impact on investment income from the acquisition date adjustments to fair value of investments, (iv) the impact on underwriting expenses from the acquisition date adjustments to fair value of deferred acquisition costs and intangible assets, (v) the impact of excluding transaction costs related to the acquisition and (vi) the tax effects of the above adjustments.

The pro forma results do not include any anticipated cost synergies or other effects of the integration of American Reliable. Such pro forma amounts are not indicative of the results that actually would have occurred had the acquisition been completed on January 1, 2014, nor are they indicative of the future operating results of the combined company.

The Company has finalized its process of valuing the assets acquired and liabilities assumed. The following table summarizes the estimated fair value of the assets acquired and liabilities assumed at the date of the acquisition.


(Dollars in thousands)
ASSETS:
Investments	$	226,458
Cash and cash equivalents		21,360
Premiums receivables, net		26,102
Accounts receivable		11,311
Reinsurance receivables		13,842
Prepaid reinsurance premiums		43,506
Intangible assets		32,000
Deferred federal income taxes		915
Other assets		6,473

Total assets		381,967

LIABILITIES:
Unearned premiums		172,234
Unpaid losses and loss adjustment expenses		89,489
Reinsurance balances payable		13,219
Contingent commissions		3,903
Other liabilities		5,026

Total liabilities		283,871

Estimated fair value of net assets acquired		98,096
Purchase price		99,797

Goodwill	$	1,701

The transaction was accounted for using the purchase method of accounting. The assets and liabilities acquired by the Company were adjusted to estimated fair value. The $1.7 million excess of cash and acquisition cost over the estimated fair value of assets acquired was recognized as goodwill. Under the purchase method of accounting, goodwill is not amortized but is tested for impairment at least annually.

Goodwill of $1.7 million, arising from the acquisition, consists largely of the synergies and economies of scales expected from combining the operations of Global Indemnity and American Reliable. The Company has assigned goodwill of $1.7 million to the Personal Lines segment. There is no tax goodwill.

An identification and valuation of intangible assets was performed that resulted in the recognition of intangible assets of $32.0 million with values assigned as follows:


(Dollars in thousands) Description	Useful Life		Amount
State insurance licenses		Indefinite	$	5,000
Value of business acquired		< 1 year		25,500
Agent relationships		10 years		900
Trade name		7 years		600

			$	32,000

Intangible assets arising from the acquisition are deductible for income tax purposes over 15 years.

The following table presents details of the Company’s intangible assets arising from the American Reliable acquisition as of December 31, 2015:


(Dollars in thousands) Description	Useful Life		Cost		Accumulated Amortization		Net Value
State insurance licenses		Indefinite	$	5,000	$	—	$	5,000
Value of business acquired		< 1 year		25,500		25,500		0
Agent relationships		10 years		900		90		810
Trade name		7 years		600		86		514

			$	32,000	$	25,676	$	6,324

Amortization related to the Company’s definite lived intangible assets resulting from American Reliable acquisition was $25.7 million for the year ended December 31, 2015.

As of December 31, 2015, the Company expected that amortization expense for the next five years related to the American Reliable acquisition will be as follows:


(Dollars in thousands)
2016	$	176
2017		176
2018		176
2019		176
2020		176

As of December 31, 2015, the fair value, gross contractual amounts due, and contractual cash flows not expected to be collected of acquired receivables were as follows:


(Dollars in thousands)	Fair Value		Gross Contractual Amounts Due		Contractual cash flows not expected to be collected
Premium receivables	$	26,102	$	26,896	$	794
Accounts receivable		11,311		11,311		—
Reinsurance receivables		13,842		13,842		—

In connection with the acquisition, the Company agreed to pay to Fox Paine & Company an investment banking fee of 3% of the amount paid plus the additional capital required to operate American Reliable on a standalone basis and a $1.5 million investment advisory fee, which in the aggregate, totaled $6.5 million. This amount was included in corporate and other operating expenses on the Company’s Consolidated Statements of Operations during the year ended December 31, 2015. As payment for these fees, 267,702 A ordinary shares of Global Indemnity were issued under the Global Indemnity plc Share Incentive Plan in May, 2015. These shares were registered but cannot be sold until the earlier of five years or a change of control. See Note 16 for additional information on the Company’s share incentive plan, including the Global Indemnity plc Share Incentive Plan.

Additional costs, mainly professional fees, of $5.1 million were incurred in connection with the acquisition of American Reliable. Of this amount, $1.8 million and $3.3 million was recorded as corporate and other operating expenses on the Company’s Consolidated Statements of Operations during the years ended December 31, 2015 and 2014, respectively.

During the year ended December 31, 2015, the Company paid approximately $1.6 million in employee compensation related costs, which were related to periods prior to the Acquisition. These costs were accrued by American Reliable and were included in the fair value of net assets acquired by Global Indemnity Group, Inc. on January 1, 2015.