Deferred Acquisition Costs and Deferred Sales Inducement Costs

In the third quarter of the year, management conducts its annual review of insurance and annuity valuation assumptions relative to current experience and management expectations. To the extent that expectations change as a result of this review, management updates valuation assumptions. The impact of unlocking in the third quarter of 2016 primarily reflected continued low interest rates that more than offset benefits from persistency on annuity contracts without living benefits. In addition, the Company’s review of its closed LTC business resulted in loss recognition due to continued low interest rates, higher morbidity and higher reinsurance expenses, slightly offset by premium increases. The impact of unlocking in the third quarter of 2015 primarily reflected the difference between the Company’s previously assumed interest rates versus the low interest rate environment partially offset by improved persistency.

The balances of and changes in DAC were as follows:



	2016				2015
	(in millions)
Balance at January 1	$	2,725			$	2,608
Capitalization of acquisition costs	274			⁽¹⁾	264
Amortization, excluding the impact of valuation assumptions review	(279		)		(296		)
Amortization, impact of valuation assumptions review	(81		)		(6		)
Impact of change in net unrealized securities (gains) losses	(105		)		64
Balance at September 30	$	2,534			$	2,634

⁽¹⁾Includes a $27 million benefit related to the write-off of the deferred reinsurance liability in connection with the loss recognition on LTC business.

The balances of and changes in DSIC, which is included in other assets, were as follows:



	2016			2015
	(in millions)
Balance at January 1	$	335		$	362
Capitalization of sales inducement costs	4			3
Amortization, excluding the impact of valuation assumptions review	(32		)	(44		)
Amortization, impact of valuation assumptions review	4			1
Impact of change in net unrealized securities (gains) losses	(14		)	10
Balance at September 30	$	297		$	332