5 Deferred acquisition costs (DAC) and acquired present value of future profits (PVFP)
As of 31 December, the DAC were as follows:
| Download |
2012 |
Property & Casualty Reinsurance |
Life & Health Reinsurance |
Corporate Solutions |
Admin Re® |
Group items |
Total |
Opening balance as of 1 January 2012 |
1 247 |
2 663 |
–25 |
34 |
4 |
3 923 |
Cumulative effect of adoption of ASU No. 2010-26 |
|
–35 |
|
|
|
–35 |
Deferred |
2 119 |
399 |
542 |
|
|
3 060 |
Effect of acquisitions/disposals and retrocessions |
|
|
|
|
|
0 |
Amortisation |
–2 266 |
–367 |
–300 |
–1 |
–3 |
–2 937 |
Effect of foreign currency translation |
3 |
53 |
2 |
|
1 |
59 |
Write-off of DAC |
|
|
|
–31 |
|
–31 |
Closing balance as of 31 December 2012 |
1 103 |
2 713 |
219 |
2 |
2 |
4 039 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2013 |
Property & Casualty Reinsurance |
Life & Health Reinsurance |
Corporate Solutions |
Admin Re® |
Group items |
Total |
Opening balance as of 1 January 2013 |
1 103 |
2 713 |
219 |
2 |
2 |
4 039 |
Cumulative effect of adoption of ASU No. 2010-26 |
|
|
|
|
|
0 |
Deferred |
3 217 |
491 |
504 |
|
|
4 212 |
Effect of acquisitions/disposals and retrocessions |
|
57 |
|
|
|
57 |
Amortisation |
–2 710 |
–397 |
–406 |
|
|
–3 513 |
Effect of foreign currency translation |
–19 |
–19 |
2 |
–1 |
–2 |
–39 |
Write-off of DAC |
|
|
|
|
|
0 |
Closing balance as of 31 December 2013 |
1 591 |
2 845 |
319 |
1 |
0 |
4 756 |
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:
| Download |
|
|
|
2012 |
|
|
2013 |
USD millions |
Life & Health Reinsurance |
Admin Re® |
Total |
Life & Health Reinsurance |
Admin Re® |
Total |
Opening balance as of 1 January |
1 674 |
2 552 |
4 226 |
1 358 |
1 665 |
3 023 |
Effect of acquisitions/disposals and retrocessions |
–206 |
126 |
–80 |
206 |
–30 |
176 |
Amortisation |
–201 |
–244 |
–445 |
–151 |
–184 |
–335 |
Interest accrued on unamortised PVFP |
51 |
140 |
191 |
35 |
186 |
221 |
Effect of foreign currency translation |
40 |
56 |
96 |
3 |
44 |
47 |
Effect of change in unrealised gains/losses |
|
–316 |
–316 |
|
405 |
405 |
Write-off of PVFP |
|
–649 |
–649 |
|
|
0 |
Closing balance as of 31 December |
1 358 |
1 665 |
3 023 |
1 451 |
2 086 |
3 537 |
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 2013, based on the results of shadow loss recognition testing the shadow loss reserve was reduced by USD 308 million, net of tax, impacting PVFP and other comprehensive income. The adjustment relates to Admin Re® business and is reflected in the “effect of change in unrealised gains/losses” in the table above. Shadow loss recognition testing considers the adequacy of contractual liabilities, net of DAC and PVFP, using current best estimates of all future cash flows discounted at current market yields. The purpose is to reflect the fact that certain amounts recorded as unrealised investment gains and losses within shareholders’ equity will ultimately accrue to policyholders and not shareholders. Shadow losses recognised can reverse up to the amount of losses recognised due to a loss recognition event.
The percentage of PVFP which is expected to be amortised in each of the next five years is 7%, 6%, 6%, 6% and 6%.