NU Online News Service, Aug. 30, 1:58 p.m. EDT

A change in how companies account for their deferred acquisitioncosts will probably have a greater impact on life and healthinsurers than property and casualty carriers and will not affectcompanies' bottom lines, a new report said.

In its weekly credit outlook, Moody's Rating Service said theU.S. Financial Accounting Standards Board (FASB) issued a draft proposal to change the way insurance companies accountfor deferred acquisition costs (DAC). These are the costs insurersincur in the acquisition or renewal of insurance contracts.

The previous language gave a broad definition for DAC with thephrase "vary with and are primarily related to" the acquisition ofinsurance contracts.

The current draft, which is still subject to change by the FASB,narrows what insurers can include in their DAC calculations. Underthe draft proposal, the revised standard would limit DAC to:

o Successfully acquired new and renewal business.

o Incremental direct costs that result directly from theacquisition of the business and would not have been incurred by thecarrier if the contact had not been acquired.

o Costs for underwriting, policy issuance and processing,medical and inspection, and contact selling.

Other costs that in the past were placed under DAC would have tobe charged to expense as incurred.

Moody's said life insurers and insurers with a combination oflife and p&c business capitalize a wide array of costs,including advertising, marketing and underwriting costs. Bycontrast, Moody's said, p&c companies are much moreconservative in their approach.

Wallace Enman, vice president-senior accounting analyst, said inhis analysis that if the new standards are adopted and go intoeffect with the first quarter of 2012, they would result in "higherincurred underwriting expense in the near term" but would "notaffect the underlying economics of the industry."

However, for those that aggressively applied the more liberalinterpretation of DAC rules, the change "could affect our view ofquality of historic earnings and capital."

Among the p&c insurers with the highest DAC assets relativeto the firm's business as compared to unearned premium reserve,Moody's listed Unitrin at 72 percent, Assurant at 49 percent, andCNA Financial at 34 percent.

On the low side, Progressive was at less than 10 percent,Travelers was at 16 percent, and Liberty Mutual was at 20percent.

Mr. Enman noted that actual impact would depend on the company'scapitalization process and that some would be unaffected by theaccounting change.