GOODWILL AND OTHER INTANGIBLE ASSETS

12 Months Ended

Dec. 31, 2019

GOODWILL AND OTHER INTANGIBLE ASSETS

GOODWILL AND OTHER INTANGIBLE ASSETS

13. Goodwill and Other Intangible Assets

Goodwill represents the future economic benefits arising from assets acquired in a business combination that are not individually identified and separately recognized. Goodwill is tested for impairment annually or more frequently if circumstances indicate an impairment may have occurred. At December 31, 2019, the operating segments with goodwill are our General Insurance business – North America and International operating segments, our Life and Retirement business – Life Insurance operating segment and our Other Operations and Legacy Portfolio operating segments. When a business is transferred from one reporting unit to another, as occurred as part of the 2017 segment changes, goodwill from the original operating segment is allocated among reporting units based on the fair value of business transferred, relative to business retained by a reporting unit.

The impairment assessment involves an option to first assess qualitative factors to determine whether events or circumstances exist that lead to a determination that it is more likely than not that the fair value of an operating segment is less than its carrying amount. If the qualitative assessment is not performed, or after assessing the totality of the events or circumstances, we determine it is more likely than not that the fair value of an operating segment is less than its carrying amount, the impairment assessment involves a two-step process in which a quantitative assessment for potential impairment is performed.

If the qualitative test is not performed or if the test indicates a potential impairment is present, we estimate the fair value of each operating segment and compare the estimated fair value with the carrying amount of the operating segment, including allocated goodwill. The estimate of an operating segment’s fair value involves management judgment and is based on one or a combination of approaches including discounted expected future cash flows, market-based earnings multiples of the unit’s peer companies, external appraisals or, in the case of reporting units being considered for sale, third-party indications of fair value, if available. We consider one or more of these estimates when determining the fair value of an operating segment to be used in the impairment test.

If the estimated fair value of an operating segment exceeds its carrying amount, goodwill is not impaired. If the carrying value of an operating segment exceeds its estimated fair value, goodwill associated with that operating segment potentially is impaired. The amount of impairment, if any, is measured as the excess of the carrying value of the goodwill over the implied fair value of the goodwill. The implied fair value of the goodwill is measured as the excess of the fair value of the operating segment over the amounts that would be assigned to the operating segment’s assets and liabilities in a hypothetical business combination. An impairment charge is recognized in earnings to the extent of the excess of carrying value over fair value.

Effective July 1, 2019, we changed the date of our annual goodwill impairment testing from December 31 to July 1. This change does not represent a material change to our method of applying current accounting guidance and is preferable as it better aligns with our strategic planning and forecasting process. This change did not delay, accelerate or avoid any impairment charge and was applied prospectively. We performed our annual goodwill impairment tests of all reporting units using a combination of both qualitative and quantitative assessments and concluded that our goodwill was not impaired.

The following table presents the changes in goodwill by operating segment:

	General Insurance
	North				Life			Other		Legacy
(in millions)	America		International		Insurance		Operations		Portfolio			Total
Balance at January 1, 2017:
Goodwill - gross	$	1,878	$	2,807	$	77	$	27	$	216	$	5,005
Accumulated impairments		(1,264)		(2,136)		-		-		(77)		(3,477)
Net goodwill		614		671		77		27		139		1,528
Increase (decrease) due to:
Acquisitions		-		-		-		4		-		4
Dispositions		(10)		(7)		(6)		-		(2)		(25)
Other		-		74		13		-		-		87
Balance at December 31, 2017:
Goodwill - gross		1,868		2,874		84		31		214		5,071
Accumulated impairments		(1,264)		(2,136)		-		-		(77)		(3,477)
Net goodwill		604		738		84		31		137		1,594
Increase (decrease) due to:
Acquisitions(a)		2,332		157		46		9		-		2,544
Other		(12)		(48)		(5)		9		-		(56)
Balance at December 31, 2018:
Goodwill - gross		4,188		2,983		125		49		214		7,559
Accumulated impairments		(1,264)		(2,136)		-		-		(77)		(3,477)
Net goodwill		2,924		847		125		49		137		4,082
Increase (decrease) due to:
Acquisitions		-		20		-		-		-		20
Other(b)		-		26		8		-		(98)		(64)
Balance at December 31, 2019:
Goodwill - gross		4,188		3,029		133		49		116		7,515
Accumulated impairments		(1,264)		(2,136)		-		-		(77)		(3,477)
Net goodwill	$	2,924	$	893	$	133	$	49	$	39	$	4,038

(a)Includes goodwill of $2.0 billion, $492 million and $46 million relating to the acquisitions of Validus, Glatfelter and Ellipse, respectively.

(b)Reflects $98 million of goodwill that has been reclassified to assets held for sale.

Indefinite lived intangible assets are not subject to amortization. Indefinite lived intangible assets primarily include Lloyd’s syndicate capacity and brand names. Finite lived intangible assets are amortized over their useful lives. Finite lived intangible assets primarily include distribution networks and are recorded net of accumulated amortization. The Company tests intangible assets for impairment on an annual basis or whenever events or circumstances suggest that the carrying value of an intangible asset may exceed the sum of the undiscounted cash flows expected to result from its use and eventual disposition. If this condition exists and the carrying value of an intangible asset exceeds its fair value, the excess is recognized as an impairment and is recorded as a charge against net income.

The Other intangible assets and VODA resulted primarily from the acquisition of Validus.

The following table presents the changes in other intangible assets and the VODA by operating segment:

	General Insurance
	North				Life			Other		Legacy
(in millions)	America		International		Insurance		Operations		Portfolio			Total
Other intangible assets
Balance at January 1, 2018	$	27	$	8	$	34	$	37	$	-	$	106
Increase (decrease) due to:
Acquisitions		61		207		16		-		-		284
Amortization		(2)		(3)		(4)		(2)		-		(11)
Other		-		-		-		(19)		-		(19)
Balance at December 31, 2018	$	86	$	212	$	46	$	16	$	-	$	360
Increase (decrease) due to:
Acquisitions		-		-		-		-		-		-
Amortization		(1)		(1)		(4)		(2)		-		(8)
Other		(3)		-		(18)		2		-		(19)
Balance at December 31, 2019:	$	82	$	211	$	24	$	16	$	-	$	333
Value of distribution network acquired
Balance at January 1, 2018	$	-	$	-	$	-	$	-	$	-	$	-
Increase (decrease) due to:
Acquisitions		-		-		-		582		-		582
Amortization		-		-		-		(15)		-		(15)
Other		-		-		-		2		-		2
Balance at December 31, 2018	$	-	$	-	$	-	$	569	$	-	$	569
Increase (decrease) due to:
Acquisitions		-		-		-		-		-		-
Amortization		-		-		-		(39)		-		(39)
Other		-		-		-		6		-		6
Balance at December 31, 2019:	$	-	$	-	$	-	$	536	$	-	$	536

The percentage of the unamortized balance of Other intangible assets and VODA at December 31, 2019 expected to be amortized in 2020 through 2024 by year is 7.9 percent, 7.9 percent, 7.9 percent, 7.9 percent and 7.9 percent, respectively, with 60.5 percent being amortized after five years.