THG 2018 Annual Report

claims are settled. Allowances are established for amounts deemed uncollectible and reinsurance recoverables are recorded net of these allowances. The Company evaluates the financial condition of its reinsurers and monitors concentration risk to minimize its exposure to significant credit losses from individual reinsurers . G. PROPERTY, EQUIPMENT AND CAPITALIZED SOFTWARE Property, equipment, leasehold improvements and capitalized software are recorded at cost, less accumulated depreciation and amortization. Depreciation is generally provided using the straight-line method over the estimated useful lives of the related assets, which generally range from 3 to 30 years. The estimated useful life for capitalized software is generally 5 to 7 years. Amortization of leasehold improvements is provided using the straight-line method over the lesser of the term of the leases or the estimated useful life of the improvements. The Company tests for the recoverability of long-lived assets whenever events or changes in circumstances indicate that the carrying amounts may not be recoverable. The Company recognizes impairment losses only to the extent that the carrying amounts of long-lived assets exceed the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the assets. When an impairment loss occurs, the Company reduces the carrying value of the asset to fair value and no longer depreciates the asset. Fair values are estimated using discounted cash flow analysis. H. GOODWILL AND INTANGIBLE ASSETS In accordance with the provisions of ASC 350, Intangibles- Goodwill and Other , the Company carries its goodwill at cost, net of amortization accumulated prior to January 1, 2002, and net of impairments. Increases to goodwill are generated through acquisition and represent the excess of the cost of an acquisition over the fair value of net assets acquired, including any intangibles acquired. Since January 1, 2002, goodwill is no longer amortized but rather, is reviewed for impairment. Additionally, acquisitions can also produce intangible assets, which have either a definite or indefinite life. Intangible assets with definite lives are amortized over that life, whereas those intangible assets determined to have an indefinite life are reviewed at least annually for impairment. The Company tests for the recoverability of goodwill and intangible assets with indefinite lives annually or whenever events or changes in circumstances indicate that the carrying amounts may not be recoverable. The Company recognizes impairment losses only to the extent that the carrying amounts of reporting units with goodwill exceed the fair value. The amount of the impairment loss that would be recognized is determined based upon the excess of the carrying value of goodwill compared to the implied fair value of the goodwill, as determined with respect to all assets and liabilities of the reporting unit. The Company has performed its annual review of goodwill and intangible assets with indefinite lives for impairment in the fourth quarters of 2018 and 2017 with no impairments recognized. At December 31, 2018 and 2017, the Company held goodwill of $178.8 million and intangible assets with indefinite lives of $15.0 million. I. LIABILITIES FOR LOSSES, LAE, AND UNEARNED PREMIUMS /LDELOLWLHV IRU RXWVWDQGLQJ FODLPV ORVVHV DQG ORVV DGMXVWPHQW H[SHQVHV ³/$(´ DUH HVWLPDWHV RI SD\PHQWV WR EH PDGH IRU UHSR rted losses and LAE and estimates of losses and LAE incurred but not reported. These liabilities are determined using case basis evaluations and statistical analyses of historical loss patterns and represent estimates of the ultimate cost of all losses incurred but not paid. These estimates are continually reviewed and adjusted as necessary; adjustments are reflected in current operations. Estimated amounts of salvage and subrogation on unpaid losses are deducted from the liability for unpaid claims. Premiums for direct and assumed business are reported as earned on a pro-rata basis over the contract period. The unexpired portion of these premiums is recorded as unearned premiums. All losses, LAE and unearned premium liabilities are based on the various estimates discussed in this note. Although the adequacy of these amounts cannot be assured, the Company believes that it is more likely than not that these liabilities and accruals will be sufficient to meet future obligations of policies in force. The amount of liabilities and accruals, however, could be revised in the near-term if the estimates discussed above are revised. J. DEBT 7KH &RPSDQ\¶V GHEW DW 'HFHPEHU 31, 2018 includes senior debentures, subordinated debentures, and collateralized borrowings with the )HGHUDO +RPH /RDQ %DQN ³)+/%´ 'HEW LQVWUXPHQWV DUH FDUULHG DW SULQFLSDO DPRXQW borrowed, net of any applicable unamortized discounts and issuance costs. See Note 6 ± ³'HEW DQG &UHGLW $UUDQJHPHQWV´ K. PREMIUM, PREMIUM RECEIVABLE, FEE REVENUE AND RELATED EXPENSES Insurance premiums written are generally recorded at the policy inception and are primarily earned on a pro-rata basis over the terms of the policies for all products. Premiums written may also include estimates that are derived from multiple sources, which include the historical experience of the underlying business, similar businesses and available industry information. These estimates are regularly UHYLHZHG DQG XSGDWHG DQG DQ\ UHVXOWLQJ DGMXVWPHQWV DUH LQFOXGHG LQ WKH FXUUHQW \HDU¶V UHVXOWV 8QHDUQHG SU emium reserves represent the portion of premiums written that relates to the unexpired terms of the underlying in-force insurance policies and reinsurance contracts. Premium receivables reflect the unpaid balance of premium written as of the balance sheet date. Premium receivables are 83 2018 ANNUAL REPORT | THE HANOVER INSURANCE GROUP