6 Deferred acquisition costs (DAC) and acquired present value of future profits (PVFP)
As of 31 December, the DAC were as follows:
| Download |
2015 |
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 |
| Download |
2016 |
Property & Casualty Reinsurance |
Life & Health Reinsurance |
Corporate Solutions |
Life Capital |
Total |
||
|
|||||||
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:
| Download |
|
Life & Health Reinsurance |
|
Life Capital |
|
Total |
||
2015 |
|
|
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 |
| Download |
|
Life & Health Reinsurance |
|
Life Capital |
|
Total |
||
2016 |
|
|
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%.