From the report:
The excess of the fair value of net assets acquired over the purchase price in the amount of $83.5 recorded on the acquisition of GFIC is primarily attributable to the TIG Note being non-interest bearing except in periods, if any, when there is significant inflation in the United States."
from page 15:
On August 17, 2010, TIG Insurance Company (“TIG”), an indirect wholly-owned subsidiary of Fairfax, completed the acquisition of all of the
issued and outstanding shares of General Fidelity Insurance Company (“GFIC”), for total consideration of $240.2 comprised of a cash payment
due upon closing of $100.0 and a contingent promissory note issued by TIG (the “TIG Note”) with an acquisition date fair value of $140.2 (the
“GFIC Transaction”). The TIG Note is non-interest bearing (except interest of 2% per annum will be payable during periods, if any, when there is
an increase in the United States consumer price index of six percentage points or more) and is due following the sixth anniversary of the closing of
the GFIC Transaction. The principal amount of the TIG Note will be reduced based on the cumulative adverse development, if any, of GFIC’s loss
reserves at the sixth anniversary of the closing of the GFIC Transaction. The principal amountwill be reduced by 75% of any adverse development
up to $100, and by 90% of any adverse development in excess of $100 until the principal amount is nil. The fair value of the TIG Note was
determined as the present value of the expected payment at maturity using a discount rate of 6.17% per annum due to the long term nature of
this financial instrument. Fairfax has guaranteed TIG’s obligations under the TIG Note. Following this transaction, the assets and liabilities and
results of operations of GFIC have been included in the company’s consolidated financial reporting in the Runoff reporting segment. The
purchase price of $240.2 is comprised of net assets acquired of $323.7 less the excess of the fair value of net assets acquired over the purchase price of $83.5 recorded in the consolidated statement of earnings. GFIC’s assets and liabilities as summarized in the table below is preliminary and may be revised when estimates and assumptions and the valuations of assets and liabilities are finalized within twelve months of the purchase date.
GFIC is a property and casualty insurance company based in the United States whose insurance business will be run off under the management of
Fairfax’s RiverStone subsidiary.
Sounds like a complicated accounting fiction to me, and not the runoff having better than expected development.