120, Accounting and Reporting by Mutual Life Insurance Enterprises and by Insurance Enterprises for Certain Long-Duration Participating Contracts, the estimated gross profits of the replacement contract are treated as revisions to the estimated gross profits or margins of the replaced contract in the determination of the amortization of deferred acquisition costs and deferred sales inducement assets and the recognition of unearned revenues.
If it is not reasonably practicable for an insurance enterprise to account for, in the manner described in paragraph 17 of this SOP, a contract exchange that has resulted in a replacement contract that is substantially unchanged from the replaced contract, the insurance enterprise should determine the balance of unamortized deferred acquisition costs related to the replaced contract to carry forward to the replacement contract and utilize estimated gross profits only of the replacement contract to determine future amortization.
In conjunction with the guidance in paragraph 18 of this SOP, the balance of unamortized deferred acquisition costs and other contract-related balances should be updated based on the most current assumptions at the time of the internal replacement.
60, the replacement contract generally should be viewed as a prospective revision of the replaced contract with future amortization of unamortized deferred acquisition costs adjusted, accordingly, on a prospective basis.
60, a revision to a short-duration contract generally is viewed as a prospective revision with future recognition of unearned premium and amortization of unamortized deferred acquisition costs adjusted, accordingly, on a prospective basis.
Unamortized deferred acquisition costs, (6a) unearned revenue liabilities, and deferred sales inducement assets from the replaced contract in an internal replacement transaction that results in a substantially changed contract should not be deferred in connection with the replacement contract.
Operating earnings does not include the following related to net investment gains and losses: (i) amortization of deferred acquisition costs and value of business acquired, (ii) amortization of unearned revenue, and (iii) changes in policyholder dividend obligation, all net of income tax.
1 Other adjustments to continuing operations include (i) amortization of deferred acquisition costs and value of business acquired, (ii) amortization of unearned revenue, (iii) changes in policyholder dividend obligation, (iv) changes in experience-rated contractholder liabilities due to asset value fluctuations, (v) periodic settlement payments on derivative instruments not qualifying for hedge accounting treatment, (vi) adjustments to all items mentioned above relating to operating joint ventures reported under the equity method of accounting, (vii) discontinued real estate operations and (viii) costs related to business combinations (since January 1, 2009).