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12. GOODWILL AND INTANGIBLE ASSETS

Goodwill and intangible assets, as presented on the consolidated balance sheet, is composed of the following items:

2016 Goodwill and Intangible Assets
(in thousands of dollars) 2016 2015
Goodwill $ 26,925 $ 26,925
Intangible assets   140,155   104,650
  $ 167,080 $ 131,575

(a) Goodwill

Goodwill has been allocated to two individual CGUs. The carrying amount of goodwill allocated to each of the CGUs is shown below:

2016 Carrying Amount of Goodwill
(in thousands of dollars) 2016 2015
Economical Mutual Insurance Company $ 24,526 $ 24,526
Westmount Financial Inc.   2,399   2,399
  $ 26,925 $ 26,925

Goodwill is subject to an impairment test that is performed at least annually. When testing for impairment, the recoverable amount of the CGU is determined based on VIU calculations using a discounted cash flow model based on financial forecasts approved by management covering a five-year period and an estimate of the terminal values for the period beyond the five-year forecast.

The key assumptions used for the impairment calculations are as follows:

  • Growth rates represent the rates used to extrapolate new business contributions beyond the business plan period. The growth rate is based on historic performance adjusted for management expectations. The growth rate used for current year impairment calculations of 2.0% (2015: 2.0%) does not exceed the historic long-term average growth rate.
  • A pre-tax, market adjusted discount rate of 9.6% (2015: 9.6%) is used to discount expected profits from future new business.

Management does not believe that a reasonable change in these assumptions would result in the carrying value of the CGUs exceeding the recoverable amounts.

The goodwill impairment testing for the current year determined that there was no evidence of impairment (2015: nil).

(b) Intangible assets

2016 Intangible Assets
2016 (in thousands of dollars)
  Software Other intangible
assets
Total
Cost:
Balance, beginning of year $ 11,439 $ 130,963 $ 142,402
Additions   4,748   47,095   51,843
Disposals   Loss: (3,366)     Loss: (3,366)
Balance, end of year $ 12,821 $ 178,058 $ 190,879
Accumulated amortization:
Balance, beginning of year $ 6,857 $ 30,895 $ 37,752
Amortization expense   2,740   13,598   16,338
Amortization on disposals   Loss: (3,366)     Loss: (3,366)
Balance, end of year $ 6,231 $ 44,493 $ 50,724
Net book value, end of year $ 6,590 $ 133,565 $ 140,155
2015 Intangible Assets
2015 (in thousands of dollars)
  Software Other intangible
assets
Total
Cost:
Balance, beginning of year $ 7,745 $ 57,304 $ 65,049
Additions   3,762   74,846   78,608
Disposals   Loss: (68)     Loss: (68)
Impairment charge     Loss: (1,187)   Loss: (1,187)
Balance, end of year $ 11,439 $ 130,963 $ 142,402
Accumulated amortization:
Balance, beginning of year $ 4,946 $ 25,136 $ 30,082
Amortization expense   1,978   5,759   7,737
Amortization on disposals   Loss: (67)     Loss: (67)
Balance, end of year $ 6,857 $ 30,895 $ 37,752
Net book value, end of year $ 4,582 $ 100,068 $ 104,650

Included in intangible assets is $4.4 million (2015: $74.5 million) that has not yet commenced being amortized as the assets are still under development.