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DAC Attack

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New deferred acquisition cost accounting rules could have a noticeable effect on life insurers in early 2012, a securities analyst says.

The accounting change, EITF 09-G, will change the way insurers handle the costs associated with life insurance and annuity sales.

EITF 09-G recently led to a 40% DAC balance writeoff and a 4% book value reduction at Delphi Group Inc., Wilmington, Del., a group benefits firm, according to Thomas Gallagher, an analyst in the New York office of Credit Suisse.

Life insurers could face similar DAC rule change issues, and, in the past, Credit Suisse has estimated that EITF 09-G would lead to much smaller writedowns than the writedown Delphi took, Gallagher says.

Delphi may taken a relatively big writedown because of factors that would be unique to its business, Gallagher says.

Some are saying that the ultimate effect on typical life insurers could end up being smaller than expected because of the way the final version of EITF 09-G affects handling the cost of salaries associated with successful sales efforts, Gallagher says.

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