Deferred Acquisition Costs and Deferred Sales Inducement Costs

3 Months Ended

Mar. 31, 2012

Deferred Acquisition Costs and Deferred Sales Inducement Costs

Deferred Acquisition Costs and Deferred Sales Inducement Costs

6.  Deferred Acquisition Costs and Deferred Sales Inducement Costs

As described in Note 1 and Note 2, the Company retrospectively adopted a new accounting standard for DAC in the first quarter of 2012. The impact of adoption resulted in a reduction in the DAC balance of $2.0 billion and $2.1 billion at January 1, 2012 and 2011, respectively, and a reduction in DAC capitalization of $40 million and DAC amortization of $41 million for the three months ended March 31, 2011.

The Company incurs costs in connection with acquiring new and renewal insurance and annuity businesses. The portion of these costs which are incremental and direct to the acquisition of a new insurance or annuity contact are deferred.   

Significant costs capitalized by the Company include sales based compensation related to the acquisition of new and renewal insurance policies and annuity contracts, medical inspection costs for successful sales, and a portion of employee compensation and benefit costs based upon the amount of time spent on successful sales. Sales based compensation paid to affiliated advisors and employees and third-party distributers is capitalized. Employee compensation and benefits costs which are capitalized under the new accounting standard relate primarily to sales efforts, underwriting, and processing. All other costs which are not incremental direct costs of acquiring an insurance or annuity contract are expensed as incurred.

The balances of and changes in DAC (subsequent to the adjustment for the new accounting standard) were as follows:

	2012			2011
	(in millions)
Balance at January 1	$	2,440		$	2,556
Capitalization of acquisition costs	82			82
Amortization	(31		)	(75		)
Impact of change in net unrealized securities (gains) losses	(19		)	8
Balance at March 31	$	2,472		$	2,571

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

	2012			2011
	(in millions)
Balance at January 1	$	464		$	545
Capitalization of sales inducement costs	2			3
Amortization	(2		)	(13		)
Impact of change in net unrealized securities (gains) losses	(4		)	1
Balance at March 31	$	460		$	536