ODYSSEY RE HOLDINGS CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued (d) Acquisition costs, which are reported net of acquisition costs ceded, consist principally of commissions and brokerage expenses incurred on business written under insurance policies and reinsurance contracts or certificates, and are deferred and amortized over the period in which the related premiums are ear ned. Commission adjustments are accrued based on premiums and losses recorded by the Company. Deferred acquisition costs ar e limited to their estimated realized value, which considers anticipated losses and loss adjustment expenses and estimated r emaining costs of servicing the contracts or certificates, all based on historical experience. Realization is determined without consideration of investment income. (e) A purchase price in excess of net assets (“goodwill”), arising fr om a business combination is recorded as an asset, and is not amortized. Intangible assets with a finite life ar amortized over the estimated useful life of the asset. Intangible assets with an indefinite useful life ar not amortized. Goodwill and intangible assets are tested for impairment on an annual basis or more frequently if events or changes in circumstances indicate that the carrying amount may not be recoverable. If the goodwill or intangible asset is impaired, it is written down to its realized value with a corresponding expense reflected in the consolidated statements of operations. Management has determined that the goodwill and intangible assets of $37.1 million and $30.7 million, reflected in other assets as of December 31, 2004 and 2003, r espectively, is not impaired. Unamortized deferred credits related to net assets acquired in excess of purchase price (“negative goodwill”) arising from a business combination are recognized as an extraordinary gain in the statement of operations. Effective January 1, 2002, the Company, in accordance with the pr ovisions of SFAS 141, “Business Combinations” and SFAS 142, “Goodwill and Other Intangible Assets,” fully amortized its negative goodwill of $36.9 million related to the 1996 acquisition of Clearwater and reflected the amortization as a cumulative ef fect of a change in accounting principle in its statement of operations for the year ended December 31, 2002. There is no ef fect on the Company’s federal and foreign income taxes resulting from the amortization of negative goodwill. (f) The reserve for unpaid losses and loss adjustment expenses is based on evaluations by the Company’s in-house claims department of the reports and individual case estimates received fr om ceding companies for reinsurance business or the estimates advised by the Company’ outside claims adjusters for insurance business. The Company’s in-house actuaries utilize generally accepted actuarial methodologies to determine a reserve for losses incurred but not reported on the basis of historical experience and other estimates. The reserves are reviewed continually during the year and changes in estimates are reflected in losses and loss adjustment expenses in the consolidated statements of operations currently. Accordingly, losses and loss adjustment expenses, net of reinsurance recoverables, are char ged to income as incurred. Reinsurance recoverables on unpaid losses and loss adjustment expenses are reported as assets. A r eserve for uncollectible reinsurance recoverables is established based on an evaluation of each retrocessionair and historical experience. The Company uses tabular reserving for workers’ compensation liabilities that are considered fixed and determinable and discounts such reserves using an interest rate of 3.5% and standard mortality assumptions. The reserves for losses and loss adjustment expenses ar estimates of amounts needed to pay reported and unreported claims and related loss adjustment expenses. The estimates ar based on assumptions related to the ultimate cost to settle such claims. The Company’s reserves for losses and loss adjustment expenses are determined in accordance with sound actuarial practices and management believes that such reserves ar adequate. The inherent uncertainties of estimating reserves are greater for reinsurers than for primary insurers, due to the diversity of development patterns among different types of reinsurance contracts and the necessary reliance on ceding companies for information regarding reported claims. As a result, there can be no assurance that the ultimate liability will not exceed amounts reserved with a resulting adverse effect on the Company. (g) During 2002 and through March 3, 2003, the Company and its United States subsidiaries filed a separate consolidated tax return. On March 4, 2003, Fairfax increased its ownership inter est in the Company to approximately 81%. As a result, the Company and its United States subsidiaries ar included in the United States tax group of Fairfax Inc., an affiliate that is wholly owned by Fairfax. Inclusion of the Company into Fairfax Inc.’s tax gr oup did not have an effect on the Company’s tax position. The federal income tax provision is allocated to each of the companies in the consolidated group pursuant to a written agreement, on the basis of each company’s separate retur taxable income. 49