In a business combination, other intangible assets must be identified, recognized, and measured at fair value when a contractual relationship exists or the asset is capable of being separately transferable. See BCG 4. Employees do not meet these criteria. Business combinations involving insurance entities typically include the acquisition of various types of intangible assets, including:

Issues involved in accounting for such intangibles, recognized in conjunction with a business combination or as stand-alone asset acquisitions, include identification, valuation, and post-combination accounting. Two major challenges include avoiding use of overlapping cash flows when determining the fair value for more than one intangible asset (e.g., customer relationships and distribution channels) and ensuring that all significant intangibles are identified. In terms of determining fair value, the most common methods used are the discounted cash flow method and the market approach (i.e., market transaction multiple method). Estimating intangible assets relating to customer relationships can be an especially challenging valuation area, given that such estimates are based on customer behavior, which is often difficult to predict. Valuation specialists, including actuaries, will typically be required for this exercise. See BCG 4 and FV 7 for further information on the recognition and valuation of intangible assets.

Accounting issues in the post-combination period include the selection of an amortization pattern and term for finite-lived intangibles. The method of amortization for finite-lived intangibles should reflect the pattern in which the economic benefits of the asset are consumed. The assigned useful lives can vary considerably based on the type of intangible, the type of business, and the specifics of the acquired portfolios. Judgment is needed in selecting an appropriate useful life and pattern of amortization based on the nature of the intangible asset and the benefits derived from that asset.

In the post-combination period, both finite and indefinite-lived intangible assets are subject to impairment testing. Indefinite-lived intangible assets are subject to impairment testing at least annually, while finite-lived intangible assets are subject to impairment testing only upon a “triggering” event. Issues surrounding the impairment of indefinite-lived intangible assets and finite-lived intangible assets are discussed in BCG 8 and PPE 5, respectively.

Question IG 12-4 discusses the life of an intangible asset for contracts with insurance agents.

The life of the intangible asset for contracts with insurance agents is dependent on how long the insurance agents will stay under contract with the acquirer. The intangible asset for the insurance agents cannot be amortized over the life of the insurance contracts the agents are expected to sell.