Deferred Policy Acquisition Costs

12 Months Ended

Dec. 31, 2024

Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract]

Deferred Policy Acquisition Costs

9. Deferred Policy Acquisition Costs

Deferred Policy Acquisition Costs (DAC) represent those costs that are incremental and directly related to the successful acquisition of new or renewal of existing insurance contracts. We defer incremental costs that result directly from, and are essential to, the acquisition or renewal of an insurance contract. Such DAC generally include agent or broker commissions and bonuses, premium taxes, and medical and inspection fees that would not have been incurred if the insurance contract had not been acquired or renewed. Each cost is analyzed to assess whether it is fully deferrable. We partially defer costs, including certain commissions, when we do not believe that the entire cost is directly related to the acquisition or renewal of insurance contracts. Commissions that are not deferred to DAC are recorded in General operating and other expenses in the Consolidated Statements of Income (Loss).

We also defer a portion of employee total compensation and payroll-related fringe benefits directly related to time spent performing specific acquisition or renewal activities, including costs associated with the time spent on underwriting, policy issuance and processing, and sales force contract selling. The amounts deferred are derived based on successful efforts for each distribution channel and/or cost center from which the cost originates.

Policy acquisition costs are deferred and amortized over the period in which the related premiums written are earned, generally 12 months. DAC is grouped consistent with the manner in which the insurance contracts are acquired, serviced and measured for profitability and is reviewed for recoverability based on the profitability of the underlying insurance contracts. Investment income is anticipated in assessing the recoverability of DAC. We assess the recoverability of DAC on an annual basis or more frequently if circumstances indicate an impairment may have occurred. This assessment is performed by comparing recorded net unearned premiums and anticipated investment income on in-force business to the sum of expected losses and loss adjustment expenses incurred, unamortized DAC and maintenance costs. If the sum of these costs exceeds the amount of recorded net unearned premiums and anticipated investment income, the excess is recognized as an offset against the asset established for DAC. This offset is referred to as a premium deficiency charge. Increases in expected losses and loss adjustment expenses incurred can have a significant impact on the likelihood and amount of a premium deficiency charge.

The following table presents a rollforward of DAC:

Years Ended December 31,
(in millions)	2024		2023		2022
Balance, beginning of year	$	2,117	$	2,343	$	2,473
Capitalization	3,519		4,157		3,732
Amortization expense	(3,425)		(3,771)		(3,545)
Other, including foreign exchange	(146)		(34)		(317)
Dispositions*	—		(578)		—
Balance, end of year	$	2,065	$	2,117	$	2,343

*Includes amounts related to the sale of Validus Re through the date of disposition.