6 Deferred acquisition costs (DAC) and acquired present value of future profits (PVFP)

As of 31 December, the DAC were as follows:

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2015
USD millions

Property & Casualty Rein­surance

Life & Health Rein­surance1

Corporate Solutions

Life Capital1

Total

Opening balance as of 1 January

1 756

2 723

360

1

4 840

Effect of change in Group structure1

 

–12

 

12

0

Deferred

4 132

1 018

486

35

5 671

Effect of acquisitions/disposals and retrocessions

7

2

 

 

9

Amortisation

–3 793

–560

–459

–34

–4 846

Effect of foreign currency translation

–51

–151

 

–1

–203

Closing balance

2 051

3 020

387

13

5 471

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2016
USD millions

Property & Casualty Rein­surance

Life & Health Rein­surance

Corporate Solutions

Life Capital

Total

1

As of 1 January 2016, the primary life and health insurance business (individual and group) is reported in the Life Capital segment instead of the Life & Health Reinsurance segment. Comparative information for 2015 has been adjusted accordingly.

Opening balance as of 1 January

2 051

3 020

387

13

5 471

Deferred

4 629

893

571

34

6 127

Amortisation

–4 379

–312

–513

–36

–5 240

Effect of foreign currency translation

–21

–136

–1

 

–158

Closing balance

2 280

3 465

444

11

6 200

Retroceded DAC may arise on retrocession of reinsurance portfolios, including reinsurance undertaken as part of a securitisation. The associated potential retrocession recoveries are determined by the nature of the retrocession agreements and by the terms of the securitisation.

As of 31 December, the PVFP was as follows:

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Life & Health Reinsurance

 

Life Capital

 

Total

2015
USD millions

 

 

Positive PVFP

Negative PVFP

Total

 

 

Opening balance as of 1 January

1 294

 

2 003

0

2 003

 

3 297

Effect of acquisitions/disposals and retrocessions

 

 

2

 

2

 

2

Amortisation

–159

 

–191

 

–191

 

–350

Interest accrued on unamortised PVFP

40

 

84

 

84

 

124

Effect of change in unrealised gains/losses

 

 

9

 

9

 

9

Effect of foreign currency translation

–41

 

–77

 

–77

 

–118

Closing balance

1 134

 

1 830

0

1 830

 

2 964

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Life & Health Reinsurance

 

Life Capital

 

Total

2016
USD millions

 

 

Positive PVFP

Negative PVFP

Total

 

 

Opening balance as of 1 January

1 134

 

1 830

0

1 830

 

2 964

Effect of acquisitions/disposals and retrocessions

 

 

 

–603

–603

 

–603

Amortisation

–132

 

–198

51

–147

 

–279

Interest accrued on unamortised PVFP

36

 

130

–19

111

 

147

Effect of change in unrealised gains/losses

 

 

1

 

1

 

1

Effect of foreign currency translation

–72

 

–205

50

–155

 

–227

Closing balance

966

 

1 558

–521

1 037

 

2 003

Retroceded PVFP may arise on retrocession of reinsurance portfolios, including reinsurance undertaken as part of a securitisation. The associated potential retrocession recoveries are determined by the nature of the retrocession agreements and by the terms of the securitisation.

In the first quarter 2016, the Group’s Business Unit Life Capital acquired Guardian Holdings Europe Limited, the holding company for operations trading under the name Guardian Financial Services (“Guardian”), and recognised negative PVFP. Upon acquisition, PVFP is calculated as the difference between the estimated fair value and established reserves, which is in line with US GAAP accounting policies and assumptions of the Group. The product mix of Guardian is weighted towards annuity business, for which the fair value of insurance and investment contract liabilities significantly exceeds the established US GAAP reserves. This excess is mainly due to differences in discount rates and risk weightings between fair value and US GAAP estimates. Overall, the excess on the annuity business outweighs the estimated future gross profits of other business and synergy expectations included in the fair value of insurance and investment contract liabilities for the business as a whole, resulting in a negative PVFP.

The subsequent measurement of negative PVFP is in alignment with the existing measurement of positive PVFP assets (please refer to Note 1).

The percentage of PVFP which is expected to be amortised in each of the next five years is 10%, 10%, 9%, 9% and 8%.