Deferred Acquisition Costs

9 Months Ended

Sep. 30, 2011

NOTE 5 – Deferred Acquisition Costs

The expenses associated with issuing insurance policies – primarily commissions, premium taxes and underwriting costs – are deferred and amortized over the terms of the policies. We update our acquisition cost assumptions periodically to reflect actual experience, and we evaluate our deferred acquisition costs for recoverability. The table below shows the deferred policy acquisition costs and asset reconciliation, including the amortized deferred policy acquisition costs.

(In millions)	Three months ended September 30,						Nine months ended September 30,
	2011			2010			2011			2010
Deferred policy acquisition costs asset, beginning of period	$	511		$	485		$	488		$	481
Capitalized deferred policy acquisition costs		182			168			543			510
Amortized deferred policy acquisition costs		(177	)		(167	)		(510	)		(492	)
Amortized shadow deferred policy acquisition costs		(4	)		(17	)		(9	)		(30	)
Deferred policy acquisition costs asset, end of period	$	512		$	469		$	512		$	469

There were no premium deficiencies recorded in the reported condensed consolidated statements of income, as the sum of the anticipated loss and loss adjustment expenses, policyholder dividends, maintenance expenses and underwriting expenses did not exceed the related unearned premiums and anticipated investment income.

- Definition

Disclosure of accounting policy for capitalizing costs incurred to write or acquire insurance contracts, the basis for and methodology for capitalizing such costs, the accounting for such deferred acquisition costs (DAC) when modifications or internal replacements of related insurance contracts occur and the effect on results of operations, and the methodology and amount of amortization. This disclosure addresses the nature, type, and amount of capitalized costs incurred to write or acquire insurance contracts.

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