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

As of 31 December, the DAC were as follows:

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

5 471

Deferred

4 629

893

571

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

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%.