Life companies say a major accounting change will have some effect on assets but no noticeable effect on net income.
The companies are starting to implement Statement of Position 05-01, Accounting by Insurance Enterprises for Deferred Acquisition Costs in Connection with Modifications or Exchanges of Insurance Contracts.
Members of the Financial Accounting Standards Board, Norwalk, Conn., voted 4-3 Jan. 30 to adopt SOP 05-01 with an effective date of Jan. 1, 2007.
SOP 05-01 affects how insurers treat DAC in connection with internal replacements of life insurance contracts.
Lincoln National Corp., Philadelphia, says adoption of SOP 05-1 will affect lapsation assumptions used in the amortization of DAC and the value of business acquired for some blocks of business.
Adopting SOP 05-01 will reduce DAC and VOBA assets by $75 million and $100 million before taxes, according to Lincoln.
The deduction will be taken from retained earnings, with no effect on net income or income from operations, the company says.
In 2007, SOP 05-01 could lead to about $15 million to $20 million in additional DAC and VOBA amortization, pretax, Lincoln says.