10 Acquisitions and disposals

IHC Risk Solutions, LLC

On 31 March 2016, the Group acquired IHC Risk Solutions, LLC (IHC), a leading US employer stop loss company and the direct employer stop loss business of Independence Holding Company. The cost of the acquisition was USD 153 million. The transaction includes IHC’s operations, its team of experts and business portfolio, including in-force, new and renewal business and is reflected in the Corporate Solutions Business Unit results. This acquisition broadens the Group’s current employer stop loss capabilities in the small- and middle-market self-funded healthcare benefits segment.

Qualifying purchased intangible assets, including distribution/customer relationships and goodwill, have been established.

The following table presents details of acquired intangible assets subject to amortisation as of the date of acquisition:

The goodwill of USD 65 million relates to the Corporate Solutions Business Unit. The goodwill is expected to be deductible for tax purposes.

Guardian Holdings Europe Limited

On 6 January 2016, the Group acquired 100% of the shares of Guardian Holdings Europe Limited, the holding company for operations trading under the name Guardian Financial Services (“Guardian”) from private equity company Cinven. Guardian provides insurance solutions to financial institutions and insurance companies, either through the acquisition of closed books of business or through entering reinsurance agreements with its customers.

The transaction has further demonstrated progress against the strategy of the Group’s Business Unit Life Capital (formerly Admin Re^®) as a leading closed life book consolidator in the UK, adding approximately 900 000 policies including a mixture of annuities, life insurance and pensions. As a result, the policyholder and asset base of the Group has expanded and Life Capital has diversified its current business mix, with a total of approximately four million policies under administration.

The results of the operations of Guardian have been included in the Group’s consolidated financial statements since 6 January 2016. For the period 6 January until 31 December 2016, Guardian generated USD 1 965 million in revenues (including net investment result – unit-linked and with-profit business of USD 1 015 million) and USD 490 million in net income for the Group.

Determination and allocation of the purchase price

The total cost of acquisition as of 6 January 2016 was USD 2.3 billion in cash, paid in the form of the following components:

The purchase price has been allocated based on estimated fair values of assets acquired and liabilities assumed as of the date of acquisition. The allocation required significant judgement. The estimated fair values of assets acquired and liabilities assumed as of the date of the acquisition were as follows:

Intangible assets

Historical intangible assets including goodwill have been eliminated. The Group has established negative acquired PVFP, which qualifies as a purchased intangible liability, and goodwill.

The negative PVFP of USD 641 million is amortised over a weighted average amortisation period of 12 years. The residual amount is expected to be nil.

The goodwill of USD 153 million recognised upon acquisition is attributed to the Life Capital Business Unit. It is mainly the result of synergies, which the Group expects to receive from cost savings, capital savings and asset allocation management actions. These do not qualify for separate recognition. The recorded goodwill is not expected to be deductible for tax purposes and, as of 31 December 2016, remained unchanged at constant foreign exchange rates.

Receivables

Receivables acquired consisted of the following:

The receivables are expected to be collectible.

Pro forma financial information (unaudited)

The following table shows the Group’s unaudited pro forma consolidated financial information for the year ended 31 December 2015, assuming that the acquisition had occurred on 1 January 2015:

The pro forma information for the period 1 January 2016 to 5 January 2016 is immaterial.

Aurora National Life Assurance Company

In the fourth quarter of 2014, the Group entered into an agreement to sell Aurora National Life Assurance Company (Aurora), a US subsidiary, to Reinsurance Group of America, Incorporated (RGA). Aurora primarily consists of bonds and policyholder liabilities. In the second quarter of 2015, the Group completed the sale following the receipt of all necessary regulatory approvals. The purchase price included a cash payment of USD 184 million.