Note 13. Business Combinations

In August 2011, SICA purchased the renewal rights to the commercial E&S lines business written under contract binding authority by Alterra Excess & Surplus Insurance Company ("Alterra"). Prior to our acquisition, this business generated gross premiums written of approximately $77 million in 2010. If all of this business had been written by SICA in 2010, our NPW would have increased by approximately 6%. Considering the size of the book of business, we do not believe it would be meaningful to provide historical pro forma financial information regarding this transaction.

To provide a nationally-licensed platform that allows us to write contract binding authority E&S business, on December 31, 2011, the Parent purchased MUSIC, a wholly-owned E&S lines subsidiary of Montpelier Re Holdings Ltd. ("Montpelier Re"). Under the terms of the agreement, the Parent acquired all of the issued and outstanding shares of MUSIC's common stock as of December 31, 2011 for $51.5 million, net of cash acquired.

The following table provides the assets and liabilities purchased in the MUSIC transaction:

($ in thousands)
ASSETS:			LIABILITIES:
Investments	$	48,437	Reserve for losses and loss expenses	$	58,836
Cash		3,436	Unearned premium		28,520
Interest and dividends due or accrued		54	Accrued salaries and benefits		43
Premiums receivable		7,073
Reinsurance recoverables, net		43,978	Other liabilities		6,742
Prepaid reinsurance premiums		28,520	Total Liabilities	$	94,141
Property, plant and equipment		219
Deferred federal income taxes		6,221

Other assets		7,525
Total Assets	$	145,463

We have entered into several reinsurance agreements with Montpelier Reinsurance Ltd. as part of the acquisition of MUSIC. Together, these transactions provide protection for new losses on policies written prior to the acquisition and any development on reserves established by MUSIC as of the date of the acquisition. The reinsurance recoverables under these treaties are 100% collateralized.

As part of the acquisition, we purchased intangible assets that amounted to approximately $7.3 million. The most significant of these items are licenses and customer lists. The $4.2 million indefinite intangible related to the licenses is reflective of the ability that these licenses provide us to write E&S business in 50 states and the District of Columbia. The $2.5 million finite life intangible asset related to customer lists reflects the access that we have obtained, through the acquisition, to MUSIC's renewal book of business. Prior to our acquisition, in 2010, MUSIC wrote approximately $48 million of contract binding authority E&S business.

In addition to the assets acquired and liabilities assumed that are detailed in the table above, SICA also purchased intellectual property and information technology assets from Montpelier Re valued at $3.6 million as part of the transaction.