deferred acquisition costs

ASC 944-720 tells insurance entities which costs must be expensed as incurred rather than capitalized as deferred acquisition costs. Because 944-30-25-1A permits capitalization only of incremental direct acquisition costs relating to successful contract acquisitions or renewals, everything else — non-qualifying acquisition-related costs and all indirect costs — is charged to expense as incurred (944-720-25-2).

This subtopic applies the financial instruments guidance to insurance entities, covering investment contracts and disclosures about concentrations of credit risk arising from reinsurance contracts. Amounts received under investment contracts are not revenue; they are recorded as liabilities and accounted for like interest-bearing or other financial instruments, with related deferred acquisition costs reported as an asset. Ceding entities must disclose credit risk concentrations for reinsurance recoverables and prepaid reinsurance premiums, and must disclose the carrying amount of securities deposited with state regulatory authorities.

ASC 944-30 governs how insurance entities capitalize, amortize, present, and disclose acquisition costs (DAC) for short-duration contracts, long-duration contracts, investment contracts, and reinsurance, plus deferred sales inducements. Only costs "related directly to the successful acquisition" of new or renewal contracts may be capitalized (944-30-25-1A) — incremental direct costs, directly related compensation/fringe benefits for underwriting, policy issuance and processing, medical and inspection, and sales force contract selling, plus certain other direct costs and qualifying direct-response advertising. Post-ASU 2018-12, long-duration DAC is amortized on a constant level basis over the expected contract term (944-30-35-3A), and the Internal Replacement Transactions Subsections determine whether a modified/replaced contract is "substantially unchanged" (continuation, DAC carried forward) or "substantially changed" (extinguishment, DAC written off).