5 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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2012
USD millions

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
USD millions

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:

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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%.