Deferred Acquisition Costs

The Deferred Acquisition Costs (German deferred acquisition costs ), often abbreviated as DAC, refer to a balance sheet item in accordance with U.S. GAAP, the acquisition costs for insurance contracts are recognized. Since currently the IFRS 4, the rate applicable to insurance contracts with International Financial Reporting Standard, is in a transitional phase, currently exists according to the standard the opportunity to insurance contracts under certain circumstances in accordance with U.S. GAAP to be accounted for.

Background

Insurance companies can divide their money in four main categories. These are costs that arise in an insurance contract, administrative costs of the insurance portfolio, cost of capital management and other costs.

According to U.S. GAAP, the costs are recognized as an expense in the year of entry. However, the obtained in an insurance contract for the insurance company costs can be activated under certain conditions as a DAC. In order to be activated (English deferrable ), these costs must closely related ( Primarily related ) associated with the contract and with the new business vary ( vary with).

Only the capitalized acquisition costs may be recognized in the balance sheet that satisfy the so-called test of recoverability, ie whose calculated in accordance with U.S. GAAP accounting principles present value can be redeemed by the present value of gross premiums minus reserve premium.

Deferred acquisition costs are amortized over the duration of post count, not yet been amortized cost are recognized as DAC. The annual amortization rate is determined at the beginning of the contractual relationship as the ratio of the present value of capitalized acquisition costs and the present value of gross premiums multiplied by the annual gross premium. Can to simplify rather than individual contracts a calculation procedure for all parts of our portfolio are used so that the amortization over the life of the sub- portfolio is.

Different treatment of acquisition costs in accordance with HGB and U.S. GAAP

In Germany there is according to § 248 para 1 HGB prohibits for closing costs. However, offsetting the acquisition costs with the first contributions paid is assumed generally by the method of so-called zillmerisation in the field of life insurance. The resultant from this process at the beginning of an insurance contract claims of the insurance company are recognized under German law pursuant to § 15 para 1 RechVersV as claims not yet due from the direct insurance business to the policyholder. Since only the calculated Zillmerwert - the prudential restrictions subject - is accounted for, while under U.S. GAAP, other portions of the acquisition costs can be recorded, the DAC has a higher value than not yet due, usually the.