Goodwill

9 Months Ended

Sep. 30, 2020

Goodwill and Intangible Assets Disclosure [Abstract]

Goodwill

Goodwill

Goodwill is deemed to have an indefinite life and is not amortized, but rather is tested at least annually for impairment. The Company performs its annual goodwill impairment test as of October 1 each year, or more frequently if indicators of impairment exist. For the year ended December 31, 2019, goodwill of all reporting units was not considered impaired based on qualitative and quantitative tests.

Global Preneed Goodwill Impairment

During the third quarter of 2020, the Company identified impairment indicators impacting the fair value of the Global Preneed reportable segment in connection with exploring strategic alternatives for the Global Preneed business, including the possible sale of the business, to focus on opportunities within the Global Lifestyle and Global Housing segments. Such impairment indicators included the evaluation of the long term economic performance of the segment in light of further expected declines in interest rates from the resurgence of COVID-19 cases. As interest rates are critical to the performance of the business, the anticipated long-term declines in interest rates are expected to have adverse impacts on existing business and cause significant challenges to profitability from new business. The overall expected adverse impact to the business in the segment was an important indicator that triggered the requirement for an interim goodwill impairment analysis in the third quarter of 2020. As a result, an updated fair value assessment was completed based on how a market participant would consider the long-term outlook for business performance, long-term forecasts of the interest rate environment and its impact on the fair value of liabilities.

The fair value of the reportable segment was determined using a discounted cash flow method which calculates the present value of future earnings developed from projected earnings arising from existing and new business and considers all aspects of the business including investment assumptions of asset portfolios. The fair value calculated in the third quarter of 2020 was lower than the carrying value of the reportable segment, resulting in the pre-tax impairment charge of the entire goodwill of $137.8 million and after-tax impairment charge of $135.6 million (substantial portion is not tax deductible) related to the segment. The goodwill impairment charge is reported separately in the consolidated statements of operations for the three and nine months ended September 30, 2020, with a corresponding reduction to goodwill in the consolidated balance sheet as of September 30, 2020.

The Company had previously determined in the first two quarters of 2020 that the impact of COVID-19 and suppression of interest rates was expected to be short term and due to excess fair value over carrying value of the reporting unit from the prior quantitative test, concluded that no indicators were triggered that would have required an interim impairment test.