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3.3 Acquisition costs — unit of account and “grouping”
Publication date: 30 Sep 2020
us Insurance guide
In general, the unit of account for initial and subsequent measurement of insurance and investment contracts is the individual contract, unless indicated otherwise. For certain purposes, including the allocation of DAC for initial deferral purposes, insurance contracts are required or allowed to be grouped.
ASC 944-30-25-1B provides guidance on the grouping of short-duration insurance contracts for the allocation of DAC at initial deferral. Contracts issued in the same period are typically grouped together. In practice, the “same period” may be considered to be the same quarter, or in some cases, the same year.
To associate acquisition costs with related premium revenue, for acquisition costs that are charged to expense in proportion to premium revenue recognized under Subtopic 944-605, 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.
ASC 944-30-35-3A provides guidance on the grouping for long-duration contracts. For purposes of the DAC amortization, contracts may be grouped consistent with the grouping used in estimating the liability for future policy benefits (or any other related balance) for the corresponding contracts and thus would be subject to the same annual cohort limitation required in ASC 944-40-30-7. However, DAC may also be amortized on an individual contract basis.
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