12. Goodwill

Goodwill represents the future economic benefits arising from assets acquired in a business combination that are not individually identified and separately recognized. Goodwill is tested for impairment annually or more frequently if circumstances indicate an impairment may have occurred. At December 31, 2017, as a result of the 2017 segment changes, goodwill is reported within our General Insurance business – North America and International operating segments, our Life and Retirement business – Life Insurance operating segment and our Other Operations and Legacy Portfolio operating segments. When a business is transferred from one reporting unit to another, as occurred as part of the 2017 segment changes, goodwill from the original operating segment is allocated among reporting units based on the fair value of business transferred, relative to business retained by a reporting unit. As a result, at December 31, 2017, $1.3 billion of goodwill was re-allocated to the General Insurance – North America and General Insurance – International operating segments based on their respective fair values.

The impairment assessment involves an option to first assess qualitative factors to determine whether events or circumstances exist that lead to a determination that it is more likely than not that the fair value of an operating segment is less than its carrying amount. If the qualitative assessment is not performed, or after assessing the totality of the events or circumstances, we determine it is more likely than not that the fair value of an operating segment is less than its carrying amount, the impairment assessment involves a two-step process in which a quantitative assessment for potential impairment is performed.

If the qualitative test is not performed or if the test indicates a potential impairment is present, we estimate the fair value of each operating segment and compare the estimated fair value with the carrying amount of the operating segment, including allocated goodwill. The estimate of an operating segment’s fair value involves management judgment and is based on one or a combination of approaches including discounted expected future cash flows, market-based earnings multiples of the unit’s peer companies, external appraisals or, in the case of reporting units being considered for sale, third-party indications of fair value, if available. We consider one or more of these estimates when determining the fair value of an operating segment to be used in the impairment test.

If the estimated fair value of an operating segment exceeds its carrying amount, goodwill is not impaired. If the carrying value of an operating segment exceeds its estimated fair value, goodwill associated with that operating segment potentially is impaired. The amount of impairment, if any, is measured as the excess of the carrying value of the goodwill over the implied fair value of the goodwill. The implied fair value of the goodwill is measured as the excess of the fair value of the operating segment over the amounts that would be assigned to the operating segment’s assets and liabilities in a hypothetical business combination. An impairment charge is recognized in earnings to the extent of the excess of carrying value over fair value.

Goodwill was not impaired at December 31, 2017 based on the results of the goodwill impairment test.

The following table presents the changes in goodwill by operating segment:

	North				Life			Other		Legacy
(in millions)	America		International		Insurance		Operations		Portfolio			Total
Balance at January 1, 2015:
Goodwill - gross	$	1,834	$	2,887	$	21	$	7	$	182	$	4,931
Accumulated impairments		(1,264)		(2,136)		-		-		(77)		(3,477)
Net goodwill		570		751		21		7		105		1,454
Increase (decrease) due to:
Acquisition		50		46		55		20		37		208
Other		-		(50)		1		-		-		(49)
Balance at December 31, 2015:
Goodwill - gross		1,884		2,883		77		27		219		5,090
Accumulated impairments		(1,264)		(2,136)		-		-		(77)		(3,477)
Net goodwill		620		747		77		27		142		1,613
Increase (decrease) due to:
Dispositions		(6)		(6)		-		-		-		(12)
Other		-		(70)		-		-		(3)		(73)
Balance at December 31, 2016:
Goodwill - gross		1,878		2,807		77		27		216		5,005
Accumulated impairments		(1,264)		(2,136)		-		-		(77)		(3,477)
Net goodwill		614		671		77		27		139		1,528
Increase (decrease) due to:
Acquisition		-		-		-		4		-		4
Dispositions		(10)		(7)		(6)		-		(2)		(25)
Other		-		74		13		-		-		87
Balance at December 31, 2017:
Goodwill - gross		1,868		2,874		84		31		214		5,071
Accumulated impairments		(1,264)		(2,136)		-		-		(77)		(3,477)
Net goodwill	$	604	$	738	$	84	$	31	$	137	$	1,594