Notes to the consolidated
financial statements
continued
14 Intangible assets
State Software and
Syndicate authorisation development
Goodwill capacity licences costs Other Total
£000 £000 £000 £000 £000 £000
At 1 January 2011
Cost 10,405 24,505 6,308 19,539 9,982 70,739
Accumulated amortisation and impairment (2,430) – – (2,857) (1,344) (6,631)
Net book amount 7,975 24,505 6,308 16,682 8,638 64,108
Year ended 31 December 2011
Opening net book amount 7,975 24,505 6,308 16,682 8,638 64,108
Other additions – – – 7,397 – 7,397
Amortisation charges – – – (3,634) (319) (3,953)
Closing net book amount 7,975 24,505 6,308 20,445 8,319 67,552
At 31 December 2011
Cost 10,405 24,505 6,308 26,936 9,982 78,136
Accumulated amortisation and impairment (2,430) – – (6,491) (1,663) (10,584)
Net book amount 7,975 24,505 6,308 20,445 8,319 67,552
Year ended 31 December 2012
Opening net book amount 7,975 24,505 6,308 20,445 8,319 67,552
Other additions – – – 7,150 – 7,150
Amortisation charges – – – (4,302) (683) (4,985)
Impairment (100) – – – – (100)
Closing net book amount 7,875 24,505 6,308 23,293 7,636 69,617
At 31 December 2012
Cost 10,405 24,505 6,308 34,086 9,982 85,286
Accumulated amortisation and impairment (2,530) – – (10,793) (2,346) (15,669)
Net book amount 7,875 24,505 6,308 23,293 7,636 69,617
Goodwill is allocated to the Group’s cash generating units (CGUs) identified according to country of operation and business segment.
Goodwill is considered to have an indefinite life and as such is tested annually for impairment based on the recoverable amount which
is considered to be the higher of the fair value or value in use.
Value in use is considered to be the best indication of the recoverable amount for goodwill. Value in use calculations are performed using
cash flow projections based on financial forecasts covering a five-year period. A discount factor of 6.7% (2011: 4.8%) has been applied
to the projections to determine the net present value. The outcome of the value in use calculation is measured against the carrying value
of the asset and, where the carrying value is in excess of the value in use, the asset is written down to this amount.
The £100,000 impairment recognised in the year for goodwill is included in operational expenses in the consolidated income statement (2011: £nil).
The Group’s intangible asset relating to Syndicate capacity has been allocated, for impairment testing purposes, to one individual CGU,
being the active Lloyd’s corporate member entity. The asset is tested annually for impairment based on its recoverable amount which
is considered to be the higher of the asset’s fair value or its value in use. The fair value of Syndicate capacity can be determined from the
Lloyd’s of London Syndicate capacity auctions. Based on the average open market price witnessed in the recent Autumn 2012 auction,
the carrying value of Syndicate capacity recognised on the balance sheet is significantly below the market price.
As part of a business combination in 2007, the Group acquired insurance authorisation licences for 50 US states. This intangible asset
has been allocated for impairment testing purposes to one individual CGU, being the Group’s North American underwriting businesses.
The carrying value of this asset is tested for impairment based on its value in use to the Group’s US insurer. The value in use is calculated
using a discounted projected cash flow based on business plans approved by management, and discounted at an appropriate rate. Key
assumptions include new business growth, retention rates, market cycle and claims inflation. The results of that test show no impairment
is due.
Other intangible assets relate to the costs of acquiring rights to customer contractual relationships with additions in the current and prior year
relating to software licence and development costs. These intangible assets are amortised on a straight-line basis over their useful economic life.
82 Notes to the consolidated financial statements Hiscox Ltd Report and Accounts 2012