2. Amend the Master Glossary term Acquisition Costs, with a link to transition paragraph 944-10-65-1, as follows:

Costs incurred in the acquisition of new and renewal insurance contracts. Acquisition costs include those costs that vary with and are primarily related

Costs that are related directly to the successful acquisition of new or renewal insurance contracts.

3. Add the Master Glossary term Incremental Direct Cost of Contract Acquisition, with a link to transition paragraph 944-10-65-1, as follows:

A cost to acquire an insurance contract that has both of the following characteristics:

4. Supersede paragraph 944-30-25-1 and add paragraphs 944-30-25-1A through 25-1B, with a link to transition paragraph 944-10-65-1, as follows:

944-30-25-1A An insurance entity shall capitalize only the following as acquisition costs related directly to the successful acquisition of new or renewal insurance contracts:

944-30-25-1B

Acquisition costs shall be capitalized.

To associate

such costs

acquisition costs with related premium revenue, capitalized acquisition costs shall be allocated by groupings of insurance contracts consistent with the entity's manner of acquiring, servicing, and measuring the profitability of its insurance contracts. [Content amended as shown and moved from paragraph 944-30-25-1]

5. Amend paragraph 944-30-25-2, with a link to transition paragraph 944-10-65-1, as follows:

944-30-25-2 Paragraph 944-720-25-2 requires that an insurance entity charge to expense as incurred certain other costs.

costs incurred during the period—such as those relating to investments, general administration, and policy maintenance—that do not vary with and are not primarily related to the acquisition of new and renewal insurance contracts shall be charged to expense as incurred.

6. Amend paragraph 944-30-50-1, with a link to transition paragraph 944-10-65-1, as follows:

944-30-50-1 Insurance entities shall disclose all of the following in their financial statements:

7. Amend paragraph 944-30-55-1 and its related heading and add paragraphs 944-30-55-1A through 55-1G and their related headings, with a link to transition paragraph 944-10-65-1, as follows:

944-30-55-1

All of the following costs vary with and are primarily related to insurance contracts issued or renewed during the period in which the costs are incurred and shall be considered acquisition costs:

Paragraph 944-30-25-1A(a) requires that an insurance entity capitalize incremental direct costs of contract acquisition. Such costs include the following:

944-30-55-1E The successful-efforts accounting notion utilized at an entity-wide level may result in a standard costing system that does not accurately reflect the amount of costs that may be deferred and amortized under this Subtopic. Successful acquisition efforts can be determined as a percentage of each function (for example, application, underwriting, and medical and inspection) and may be based on the percentage, adjusted for idle time and time spent on activities for which the related costs cannot be deferred, of successful and unsuccessful efforts determined for each function.

8. Amend paragraphs 944-720-25-1 through 25-2, with a link to transition paragraph 944-10-65-1, as follows:

944-720-25-1

Paragraph 944-30-25-1

Paragraph 944-30-25-1A

states that costs that are

requires that an insurance entity capitalize certain acquisition costs directly related to successful contracts.

shall be capitalized.

944-720-25-2

Other costs incurred during the period—such as those relating to investments, general administration, policy maintenance, product development expenses, market research expenses, and general overhead—that do not vary with and are not primarily related to the acquisition of new and renewal insurance contracts shall be charged to expense as incurred.

An insurance entity shall charge to expense as incurred any of the following costs:

9. Add paragraphs 944-720-55-1 through 55-2 and their related headings, with a link to transition paragraph 944-10-65-1, as follows:

10. Add paragraph 944-10-65-1 and its related heading as follows:

11. Amend paragraph 944-10-00-1 as follows:

944-10-00-1 The following table identifies the changes made to this Subtopic.

No updates have been made to this subtopic.

12. Amend paragraph 944-20-00-1 by adding the following item to the table:

944-20-00-1 The following table identifies the changes made to this Subtopic.

13. Amend paragraph 944-30-00-1 as follows:

944-30-00-1 The following table identifies the changes made to this Subtopic.

No updates have been made to this subtopic.

14. Amend paragraph 944-40-00-1 as follows:

944-40-00-1 The following table identifies the changes made to this Subtopic.

No updates have been made to this subtopic.

15. Add paragraph 944-60-00-1 as follows:

16. Amend paragraph 944-605-00-1, by adding the following item to the table, as follows:

17. Add paragraph 944-720-00-1 as follows:

18. Add paragraph 944-805-00-1 as follows:

19. Add paragraph 944-825-00-1 as follows:

The amendments in this Update were adopted by the unanimous vote of the five members of the Financial Accounting Standards Board:

BC2. As a result of the diversity in practice relating to the interpretation of which costs qualify as acquisition costs within the insurance industry, certain stakeholders initially raised the question of whether advertising costs meet the definition of acquisition costs. However, interpretation of the phrase vary with and are primarily related to in the definition of acquisition costs raised broader conceptual issues that also applied to other types of costs; therefore, the Task Force decided that the resolution of this Issue should not be limited to advertising costs.

BC3. In discussing this Issue, some Task Force members indicated that only costs that are both direct and incremental and are incurred as a result of acquiring new or renewal contracts should be considered acquisition costs, while other members preferred expensing all contract acquisition costs. Other Task Force members favored aligning the nature of capitalizable costs in contract acquisition activities with those capitalizable costs of loan origination activities in Topic 310, Receivables. That model encompasses both direct and incremental costs and certain additional direct costs incurred to complete successful contract acquisitions or renewals.

BC4. Some Task Force members noted that the loan origination model does not permit capitalization of costs relating to unsuccessful loan efforts, which, if applied by insurance companies, would result in a significant change from current practice. Other Task Force members questioned the conceptual basis for how costs relating to unsuccessful contract acquisition efforts could be considered to provide a future economic benefit to warrant asset recognition.

BC5. The Task Force concluded that acquisition costs should include only those costs that are directly related to the acquisition or renewal of insurance contracts by applying a model similar to the accounting for loan origination costs in Subtopic 310-20, Receivables—Nonrefundable Fees and Other Costs. The Task Force also concluded that costs related to unsuccessful contract efforts should be expensed as incurred.

BC6. At the November 19, 2009 EITF meeting, the Task Force reached a consensus-for-exposure on EITF Issue No. 09-G, "Accounting for Costs Associated with Acquiring or Renewing Insurance Contracts." A proposed Accounting Standards Update (proposed Update) was issued on December 17, 2009, with a comment period that ended on February 12, 2010. Twenty comment letters were received on the proposed Update. Additionally, a Working Group was formed to assist the staff in advising the Task Force on the effective date and transition questions. The Working Group included preparers and auditors of life insurance and property and casualty insurance entities, a life insurance industry association representative, and an observer from the Securities and Exchange Commission. Several Task Force members also observed and participated in the meeting. The Working Group met on May 13, 2010.

BC7. During the deliberations of this Issue, the Task Force discussed how an insurance entity should incorporate future cash flows attributable to advertising costs in its premium deficiency analysis and assessment of the realizability of direct-response advertising. The Task Force affirmed its consensus-for-exposure that advertising costs should be capitalized only if the criteria for capitalizing such costs in accordance with the direct-response advertising guidance in Topic 340 were met. The Task Force concluded that after those criteria are met, the direct-response advertising costs should be included as deferred acquisition costs for classification, subsequent measurement, and premium deficiency purposes in accordance with Topic 944.

BC8. At the July 29, 2010 EITF meeting, the Task Force was asked to clarify its views on the proposed changes to the deferred acquisition costs model because some of the wording used in the consensus-for-exposure varied from the wording that currently exists in the model for loan origination costs in Subtopic 310-20. Some Task Force members stated that the deferred acquisition costs model in the consensus-for-exposure permitted costs such as commissions paid to internal sales agents to be entirely deferrable. Other Task Force members stated that deferring the entire commission was inconsistent with the Task Force's original intent and that the treatment of commissions should be consistent with the treatment of similar costs under the loan origination cost model. Those Task Force members supported adding language to the amendments in the proposed Update to require incremental direct costs of contract acquisition to be incurred in transactions with independent third parties in order for them to be deferred in their entirety.

BC9. Other Task Force members stated that a commission paid to an individual who is not by law an independent third party, but is independent in most other respects, should be allowed to be deferred in its entirety. Those members discussed whether the right criterion to use was "independent third parties" because for some relationships it may not be clear whether the third party is independent, for example, captive agents. The staff indicated that it would incorporate implementation guidance, similar to the FASB Special Report, A Guide to Implementation of Statement 91 on Accounting for Nonrefundable Fees and Costs Associated with Originating or Acquiring Loans and Initial Direct Costs of Leases, into the amendments in the final Update to help constituents answer similar types of implementation questions.

BC10. The Task Force tentatively concluded that incremental direct costs of contract acquisition must be incurred in transactions with independent third parties to be deferrable in their entirety and that variable compensation paid to an employee must be considered part of an employee's overall compensation and only the pro rata portion associated with successful contract acquisitions must be capitalized as a deferred acquisition cost. However, given the changes from the consensus-for-exposure, the Task Force decided not to re-expose the Issue but rather perform an extended fatal-flaw review, including seeking additional input from Working Group members and posting a staff draft of the final Update to the FASB website for comment.

BC11. On August 19, 2010, the staff posted the staff draft to the FASB website. The staff draft did not formally seek comments; however, it welcomed input from interested parties. As a result, 10 comment letters were received. A number of constituents raised concerns with the staff draft, including concerns that the proposed guidance would result in economically similar acquisition costs (for example, commissions) receiving different accounting treatment depending on whether the person performing the acquisition activity was an independent third party or an employee. Concerns also were raised about the operationality of the model and the costs associated with applying it because many insurance agents might not qualify as independent third parties as defined but also are not employees. Others were concerned that the proposal would significantly differ from the direction of the Board's joint insurance project. In light of those concerns, at the September 16, 2010 meeting, the Task Force decided to reverse its previous tentative decision and reached a final consensus that incremental direct costs of contract acquisition that are incurred in transactions with both independent third parties and employees are deferrable in their entirety if the capitalization criteria are met.

BC12. The Task Force decided that the amendments in this Update should be effective for fiscal years beginning on or after December 15, 2011. The Task Force decided that early application of the amendments should be permitted.

BC13. As a result of the feedback provided by the Working Group, the Task Force supported a one-year deferral of the effective date from the originally proposed Update. The Task Force concluded that deferring the proposed effective date for one year will provide insurance entities with sufficient time to implement the amendments and to complete any necessary time studies or cost analyses, make requisite system changes, and update their internal control processes to integrate any changes into their preexisting deferred acquisition cost internal controls.

BC14. The Task Force concluded that if, as a result of applying the amendments in this Update, entities are required to capitalize more costs than are being capitalized currently, those entities should not be required to capitalize the additional costs. The Task Force did not believe it would be beneficial for insurers to incur costs to develop new systems to capitalize additional acquisition costs, particularly if they may have to change their accounting as a result of the decisions reached as part of the Board's project on insurance contracts.

BC15. The Task Force decided to require prospective application upon the date of adoption and concluded that retrospective application also is permitted, but not required. The Task Force also concluded that if an entity early adopts the amendments, it must do so as of the beginning of the entity's annual reporting period. In the Task Force's view, this would enhance comparability between entities that choose to early adopt.

BC16. The Task Force discussed whether a practical expedient could be developed to allow more entities to retrospectively adopt the amendments (for example, using the current-year data and applying those data to prior years for which historical information was not available). Ultimately, the Task Force decided against providing a practical expedient. However, Task Force members stated that an entity may need to make reasonable estimates of the effect on prior years on the basis of its specific circumstances in order to adopt the amendments retrospectively. In electing retrospective application, the Task Force did not believe that an entity is necessarily expected to reperform its detailed capitalization, amortization, and premium deficiency calculations for every prior year if it has ways to reasonably estimate those amounts in accordance with Subtopic 250-10, Accounting Changes and Error Corrections—Overall.

BC17. The Task Force decided to require certain transition disclosures so that users may better understand the effect of adopting the amendments when an entity adopts those amendments prospectively. The Task Force concluded that if an entity chooses to apply the amendments prospectively, the entity will be required to disclose one of the following disclosures instead of the disclosures required by paragraph 250-10-50-1(b)(2) in the period of adoption:

BC18. The Task Force also concluded that if an entity chooses to apply the guidance retrospectively, the entity will not be required to disclose the effect of the change in the current period as required by paragraph 250-10-50-1(b)(2). However, the other disclosures required by paragraphs 250-10-50-1 through 50-3 will be required under both prospective and retrospective application.

BC19. The objective of financial reporting is to provide information that is useful to present and potential investors, creditors, donors, and other capital market participants in making rational investment, credit, and similar resource allocation decisions. However, the benefits of providing information for that purpose should justify the related costs. Present and potential investors, creditors, donors, and other users of financial information benefit from improvements in financial reporting, while the costs to implement new guidance are borne primarily by present investors. The Task Force's assessment of the costs and benefits of issuing new guidance is unavoidably more qualitative than quantitative because there is no method to objectively measure the costs to implement new guidance or to quantify the value of improved information in financial statements.

BC20. The Task Force anticipates that entities will incur incremental costs to implement the amendments in this Update. The most significant incremental costs are expected to be associated with allocating costs between successful efforts and unsuccessful efforts if entities had not previously performed such an analysis or do not currently capture information in that manner. However, the Task Force believes that the benefits to financial reporting, such as a reduction in the diversity in practice in the types of costs capitalized and the elimination of costs that have been capitalized relating to unsuccessful efforts, are in excess of costs to implement the amendments.

BC21. In deliberating this Issue, the Task Force also considered the tentative conclusions reached by the Boards as part of their joint project on insurance contracts. Specifically, the Task Force considered that the guidance from that project, once finalized, is not currently expected to be effective before 2014. As such, the Task Force concluded that by clarifying the acquisition costs that can be deferred now, the amendments in this Update improve current GAAP by providing a clearer definition of a qualifying capitalizable acquisition cost. The Task Force believes this clarified definition will limit the significant diversity in practice that has developed in this area, particularly as it relates to the capitalization of costs related to unsuccessful acquisition efforts, and that the benefits of this Update justify the costs of implementing the requirements.