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Notes to the consolidated
financial statements
continued
14 Foreign currency items on economic hedges and intragroup borrowings continued
The contracts expired in January 2009 and a gain of £314,000 was recognised for the year ended 31 December 2009. Formal hedge
accounting designation was not achievable due to the specific effectiveness requirements of IAS 39.
The Group did not enter into any new economic hedging derivative contracts during the current year.
15 Intangible assets
78 Notes to the consolidated financial statements Hiscox Ltd Report and Accounts 2009
State
Syndicate authorisation
Goodwill capacity licences Other Total
£000 £000 £000 £000 £000
At 1 January 2008
Cost 8,496 24,505 5,083 5,361 43,445
Accumulated amortisation and impairment (2,430) – – (563) (2,993)
Net book amount 6,066 24,505 5,083 4,798 40,452
Year ended 31 December 2008
Opening net book amount 6,066 24,505 5,083 4,798 40,452
Additions in year on business combinations 1,909 – 1,225 – 3,134
Other additions – – – 5,230 5,230
Amortisation charges – – – (259) (259)
Closing net book amount
At 31 December 2008
7,975 24,505 6,308 9,769 48,557
Cost 10,405 24,505 6,308 10,591 51,809
Accumulated amortisation and impairment (2,430) – – (822) (3,252)
Net book amount 7,975 24,505 6,308 9,769 48,557
Year ended 31 December 2009
Opening net book amount 7,975 24,505 6,308 9,769 48,557
Other additions – – – 2,775 2,775
Amortisation charges – – – (919) (919)
Closing net book amount
At 31 December 2009
7,975 24,505 6,308 11,625 50,413
Cost 10,405 24,505 6,308 13,366 54,584
Accumulated amortisation and impairment (2,430) – – (1,741) (4,171)
Net book amount 7,975 24,505 6,308 11,625 50,413
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 for impairment annually on a value in use basis similar to that
described below for the Group's intangible asset relating to Syndicate capacity. Accumulated amortisation and impairment of goodwill
relates to the amortisation charged prior to the Group’s adoption of IFRS.
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 Group has considered the recoverable amount from the active Lloyd’s corporate
member entity on a value in use basis. This calculation uses cash flow projections based on financial forecasts approved by management
covering a five-year period. Cash flows beyond the five-year period are extrapolated based on an average level of return and annual
growth estimated at 2.5% (2008: 2%) consistent with the industry long-term average. A pre-tax discount factor of 1.8% (2008: 7%) has
been applied to projected cash flows as part of the exercise. The results of this exercise indicate that the recoverable amount significantly
exceeds the intangible’s carrying value and would not be sensitive to reasonably possible changes in assumptions. The Group’s weighted
average cost recognised on the balance sheet is significantly below the average open market price witnessed in the recent Lloyd’s
of London Syndicate 33 capacity auctions in Autumn 2009.
The Group has previously recognised intangible assets totalling £6,308,000 relating to insurance authorisation licences for 50 US states
acquired in the business combination of ALTOHA Inc. (note 34). This intangible asset has been allocated for impairment testing purposes
to one individual CGU being the Group’s North American underwriting businesses. The Group has considered the recoverable amount
of this CGU on a consistent basis to the active Lloyd’s corporate member entity outlined above.