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BUSINESS COMBINATIONS | 12 Months Ended
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Dec. 31, 2018
Business Combinations [Abstract] |
BUSINESS COMBINATIONS |
a) | Acquisition of Novae Group plc
On October 2, 2017 (the "closing date" or the "acquisition date"), AXIS Specialty UK Holdings Limited, a wholly owned subsidiary of the Company, acquired a 100% ownership interest in Novae Group plc ("Novae") for an aggregate purchase price of $617 million. Novae is a diversified property and casualty (re)insurance business operating through Syndicate 2007 at Lloyd’s. The results of Novae are included in the results of the Company's insurance and reinsurance segments from that date. The acquisition of Novae was undertaken to accelerate the growth strategy of the Company's international insurance business, and to significantly scale up its capabilities to enable the Company to even better serve its clients and brokers. The purchase price was allocated to the assets acquired and liabilities assumed of Novae based on estimated fair values at the closing date and the Company recognized goodwill of $54 million. The allocation of the purchase price was based on information included in Novae's audited financial statements at October 2, 2017. In addition, the Company identified finite lived intangible assets of $385 million, including Value of Business Acquired ("VOBA") which represents the present value of the expected underwriting profit within policies that were in-force at the closing date of the transaction, of $257 million and finite lived intangible assets primarily related to distribution networks of $128 million. The Company also identified indefinite lived intangible assets related to Lloyd's syndicate capacity of $95 million (refer to Note 5 'Goodwill and Intangible Assets' for further information). The fair value of the assets acquired and liabilities assumed and the allocation of the purchase price on the acquisition date are summarized in the following table:
| Total purchase price paid |  | $ | 616,926 |  |
| Assets |  |  |
| Investments |  | 1,733,611 |  |
| Cash and cash equivalents |  | 191,337 |  |
| Insurance and reinsurance premium balances receivable |  | 472,180 |  |
| Reinsurance recoverable on unpaid and paid losses |  | 787,907 |  |
| Prepaid reinsurance premiums |  | 197,907 |  |
| Other assets |  | 42,696 |  |
| Total assets acquired |  | $ | 3,425,638 |  |
| Liabilities |  |  |
| Reserve for losses and loss expenses |  | 2,125,634 |  |
| Unearned premiums |  | 717,442 |  |
| Insurance and reinsurance balances payable |  | 273,405 |  |
| Notes payable |  | 101,846 |  |
| Other liabilities |  | 124,585 |  |
| Total liabilities assumed |  | $ | 3,342,912 |  |
| Fair value of identifiable intangible assets: |  |  |
| Value of business acquired - definite lived intangible asset |  | 256,942 |  |
| Identifiable definite lived intangible assets |  | 128,463 |  |
| Identifiable indefinite lived intangible assets |  | 94,748 |  |
| Excess purchase price over fair value of net assets acquired assigned to goodwill |  | $ | 54,047 |  |
Significant fair value adjustments are explained as follows:
• | Deferred acquisition costs: To eliminate Novae's deferred acquisition costs;
• | Prepaid reinsurance premiums: To reflect adjustments to align premium recognition accounting policies;
• | VOBA: To establish the fair value of VOBA identifiable intangible asset related to the acquisition of Novae;
• | Goodwill: To establish the fair value of goodwill related to the acquisition of Novae;
• | Indefinite lived and finite lived intangible assets: To establish the fair value of identifiable intangible assets related to the acquisition of Novae and to eliminate Novae's pre-existing intangible assets;
• | Other assets: To reflect an investment at fair value and deferred tax assets on fair value adjustments;
• | Reserves for losses and loss expenses: To reflect adjustments arising from the alignment of premium recognition accounting policies and reserving methodologies, as well as the price associated with the Reinsurance to Close ("RITC") of the 2015 and prior years of account of Syndicate 2007;
• | Unearned premiums: To reflect adjustments to align premium recognition accounting policies; and
• | Other liabilities: To reflect deferred tax liabilities on fair value adjustments.
Identifiable intangible assets at the acquisition date are included in intangible assets in the consolidated balance sheets and are shown in the following table:
|  |  |  |  | Economic useful life |
| Indefinite lived intangible assets |  |  |  |  |
| Lloyd's syndicate capacity |  | $ | 94,748 |  |  | Indefinite |
| Finite lived other intangible assets |  |  |  |  |
| Distribution networks: |  |  |  |  |
| Coverholders |  | 63,565 |  |  | 12 years |
| Large brokers |  | 46,641 |  |  | 15 years |
| Small & Mid-sized Enterprise ("SME") brokers |  | 14,126 |  |  | 12 years |
| Managing General Agent ("MGA") Contract |  | 4,131 |  |  | 7 years |
| Total |  | 128,463 |  |  |  |
| Identifiable intangible assets at October 2, 2017 |  | $ | 223,211 |  |  |  |
Identifiable intangible assets are explained as follows:
• | Lloyd's syndicate capacity: The value of Lloyd's syndicate capacity, which represents Novae's right to underwrite a certain allocated limit of premium in the Lloyd's market.
• | Distribution network:
• | Coverholders: The value of sales of insurance policies that result directly from relationships with insurance intermediaries who are authorized by Novae's managing agent to enter into contracts of insurance to be underwritten by Syndicate 2007, in accordance with the terms of a binding authority.
• | Large brokers: These relationships include Novae's large brokers and consideration was given to the expectation of the renewal of these relationships and the associated expenses.
• | SME brokers: These relationships consist of Novae's brokers with the exception of the large brokers listed above and consideration was given to the expectation of the renewal of these relationships and the associated expenses.
• | MGA contract: Represents the value of managing agent fees and profit commission Novae earns related to the provision of underwriting services to Special Purpose Arrangement, SPA 6129.
Valuation methodologies applicable to identifiable intangible assets are explained as follows:
• | Lloyd's syndicate capacity: Lloyd's syndicate capacity was valued using the Multi-Period Excess Earnings Method, an application of the Income Approach. Key inputs used in the valuation model used for this intangible asset included projected pre-tax operating profit attributable to syndicate capacity, contributory asset charges which represent the required return on and of intangibles assets utilized to generate future revenue and operating income, and an appropriate discount rate.
• | Distribution network: Distribution network including coverholders, large broker and SME brokers was valued using the Distributor Method, an application of the Income Approach. Key inputs used in the valuation model used for this intangible asset included net premiums earned attributable to existing distributors, attrition rates, profit margins, projected pre-tax operating profit attributable to existing distributors, contributory asset charges which represent the required return on and of intangibles assets utilized to generate future revenue and operating income, and an appropriate discount rate.
• | MGA contract: MGA contract was valued using the Multi-Period Excess Earnings Method, an application of the Income Approach. Key inputs used in the valuation model used for this intangible asset included SPA 6129's stamp capacity with Lloyd's, return on stamp capacity, fee income and profit commission associated with the managing agent contract for SPA 6129, profit margins, contributory asset charges which represent the required return on and of intangibles assets utilized to generate future revenue and operating income, and an appropriate discount rate.
• | VOBA: VOBA was computed as the difference between the fair value of unearned obligations and the unearned premiums reserve recorded by Novae at the acquisition date. Key inputs used in the valuation model used for this intangible asset included the fair value of the unearned premium computed as the present value of future unearned cash flows, plus the present value of the costs associated with holding capital to support these exposures together with the fair value of reserves computed as the present value of future net losses and loss expense payments, plus the present value of the costs associated with holding capital to support those payments.
Financial Results The following selected audited information is a summary of the results of Novae that has been included in the consolidated financial statements for the year ended December 31, 2017.
|  |  | From acquisition date to |
| (in thousands) |  | December 31, 2017 |
| Net premiums written |  | $ | 140,635 |  |
| Total revenue |  | 191,929 |  |
| Total expenses |  | (197,895 | ) |
| Net income |  | $ | (5,966 | ) |
Supplemental Pro Forma Information The following selected unaudited pro forma financial information is a summary of the combined results of the Company and Novae, assuming the transaction had been effected on January 1, 2016. The unaudited pro forma data is for informational purposes only and does not necessarily represent results that would have occurred if the transaction had taken place on January 1, 2016. The unaudited pro forma consolidated financial information does not consider the impact of possible revenue enhancements, expense efficiencies, or synergies that may result from the acquisition of Novae. In addition, the unaudited pro forma consolidated financial information does not include costs associated with restructuring or integration activities resulting from the acquisition of Novae. In addition to the fair value adjustments and recognition of goodwill and identifiable intangible assets, other material pro forma adjustments directly attributable to the acquisition of Novae primarily included adjustments to recognize transaction and integration related expenses, to align accounting policies, to amortize identifiable indefinite lived intangible assets and to recognize related tax impacts.
|  |  | Years ended December 31, |
|  |  | 2017 |  | 2016 |
| (in thousands) |  | (unaudited) |  | (unaudited) |
| Net premiums earned |  | $ | 4,728,700 |  |  | $ | 4,560,800 |  |
| Net income |  | $ | (468,400 | ) |  | $ | 532,500 |  |
b) | Acquisition of Compagnie Belge d'Assurances Aviation NV/SA
On April 1, 2017 (the "closing date" or the "acquisition date"), the Company acquired a 100% ownership interest in Compagnie Belge d'Assurances Aviation NV/SA ("Aviabel"). Aviabel is an insurer operating under Belgian law that has its head office in Belgium, a branch office in the Netherlands and a reinsurance company, Aviabel RE S.A. ("Aviabel RE"), in Luxembourg. The acquisition of Aviabel was undertaken to increase its scale and relevance in the global aviation market. The purchase price was allocated to the assets acquired and liabilities assumed of Aviabel based on estimated fair values on the closing date. Consequently, the Company recognized investments with a fair value of $182 million, reserves for losses and loss expenses with a fair value of $79 million, and a bargain purchase gain of $15 million. The bargain purchase gain arose as the fair values of the net identifiable assets acquired exceeded the fair value of the consideration transferred at the acquisition date. The allocation of the purchase price was based on information included in unaudited financial statements at March 31, 2017. The fair values of the assets acquired and liabilities assumed may be subject to adjustments, which may impact the amounts recorded for the assets acquired and liabilities assumed, as well as the bargain purchase gain. The underwriting results of Aviabel are included in the underwriting results of the Company's insurance segment from the acquisition date.
c) | Acquisition of Contessa
On September 6, 2017 (the "closing date"), the Company acquired a 100% ownership interest in Contessa Limited ("Contessa"). Contessa is a Managing General Agent that manages, underwrites, services and administers small and medium sized commercial property and casualty business on behalf of the Company. The purchase price was allocated to the assets acquired and liabilities assumed of Contessa based on estimated fair values on the closing date. Consequently, the Company recognized goodwill of $1 million. Transaction and Integration Expenses In connection with the acquisition of Novae, the Company incurred transaction and integration related expenses of $26 million (2017: $27 million). The transaction and integration related expenses included due diligence, legal, accounting, investment banking fees and expenses, as well as integration expenses related to the integration of Novae into the Company's operations and compensation-related costs associated with the termination of certain employees. These expenses are included in transaction and reorganization expenses in the consolidated statement of operations.

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- Definition The entire disclosure for a business combination (or series of individually immaterial business combinations) completed during the period, including background, timing, and recognized assets and liabilities. The disclosure may include leverage buyout transactions (as applicable). + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -URI http://asc.fasb.org/topic&trid=2303972 + Details
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