The updated guidance prescribes moving “Redeemable noncontrolling interest – DaVinciRe” from the mezzanine
section of the consolidated balance sheet, to a line item, separate from the parent’s equity, in the shareholders’
equity section of the consolidated balance sheet. Similarly, the guidance, prescribes additional disclosures in the
Company’s consolidated statements of operations and consolidated statements of changes in shareholders’
equity, to provide increased transparency of the impact of noncontrolling interests on the Company’s results of
operations and financial position.
However, as noted above, the Company accounts for its redeemable noncontrolling interest in DaVinciRe in the
mezzanine section of the consolidated balance sheet in accordance with the requirements of certain SEC
guidance which is applicable only to SEC registrants. The SEC guidance requires shares, not required to be
accounted for in accordance with FASB ASC Topic Distinguishing Liabilities from Equity, and having redemption
features that are not solely within the control of the issuer, to be classified outside of permanent equity in the
mezzanine section of the balance sheet. Because the share classes related to the noncontrolling interest portion
of DaVinciRe are not considered liabilities in accordance with FASB ASC Topic Distinguishing Liabilities from
Equity and have redemption features that are not solely within the control of DaVinciRe, the noncontrolling
interest in DaVinciRe is disclosed in the mezzanine section on the Company’s consolidated balance sheet in
accordance with the SEC guidance noted above. The minority interest line item has been renamed to
“Redeemable noncontrolling interest – DaVinciRe”. All prior periods have been reclassified to reflect this new
standard. The SEC guidance does not impact the accounting for noncontrolling interest on the consolidated
statements of operations; therefore, the provisions of FASB ASC Topic Consolidation with respect to the
consolidated statements of operations still apply.
In addition to the amendments to FASB ASC Topic Consolidations, the updated guidance amends FASB ASC
Topic Earnings per Share so that earnings per share data will continue to be calculated based on amounts
attributable to the parent, both before and after the adoption of the updated guidance related to FASB ASC Topic
Consolidation.
NOTE 4.
BUSINESS COMBINATIONS
Spectrum Partners Ltd. (“Spectrum Partners”)
On November 2, 2009, the Company acquired 100% of the outstanding and issued common shares of Spectrum
Partners, the parent company and sole owner of Spectrum Syndicate Management Ltd. (“Spectrum”), now
known as RSML, and Spectrum Insurance Services Ltd. Prior to acquiring the outstanding and issued common
shares of Spectrum Partners, the Company had contracted with Spectrum to be the Lloyd’s managing agent of
Syndicate 1458. Spectrum Partners is based in London, United Kingdom (“U.K.”), and prior to the Company’s
acquisition, was an independent Lloyd’s managing agency that provided the requisite services mandated for
entrants into the Lloyd’s market. One of the requirements to enter the Lloyd’s market and establish an
underwriting syndicate is to obtain the services of a Lloyd’s managing agent. Generally, new entrants either solicit
the services of a Lloyd’s managing agency, such as Spectrum, or acquire an existing Lloyd’s managing agent. As
noted above, the Company initially contracted Spectrum to be the Lloyd’s managing agent for Syndicate 1458,
and ultimately made the decision to acquire Spectrum Partners to internalize these services. The total
consideration paid by the Company was $24.7 million, which includes $9.0 million of additional compensation
amounts as determined in accordance with the terms of the purchase agreement. The additional amounts will be
paid in cash and/or equity in accordance with the purchase agreement over four years from the date of
acquisition and will be accounted for as compensation costs in operating expenses, separate from the acquisition
of the outstanding and issued common shares of Spectrum, as these amounts relate to agreements for the prior
owners to continue providing services. In connection with the purchase, the Company recorded $3.1 million of
intangible assets and $5.9 million of goodwill in the fourth quarter of 2009. The acquisition of Spectrum Partners
expedited the Company’s entrance into the Lloyd’s market. Other factors that added to the value of Spectrum
included its Lloyd’s managing agency license, future revenue streams from existing customers, Lloyd’s
relationships and workforce. These factors resulted in a purchase price greater than the fair value of the net
assets acquired and the recognition of goodwill and intangible assets. The acquisition of the net assets was
accounted for using the purchase method in accordance with FASB ASC Topic Business Combinations.
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