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Strategies & Market Trends : YEEHAW CANDIDATES -- Ignore unavailable to you. Want to Upgrade?

To: JoeinIowa who wrote (1004)	1/14/2003 6:43:25 PM
From: Crossy	Read Replies (1) \| Respond to of 23958

Joe, the DAC component is an accounting line item. Insurance carriers have wide latitude over exactly what to apportion for this. My belief is they could just as well stick to their old formulae but the quite sizeable extraordinary gain from the sale of oversea's European operations enabled them to opt for a more conservative treatment on a going forward basis. DAC is basically the cost of acquisition ("writing") of a policy, streched over the expected life of the policy. Usually the lower the DAC, the more conservative the accounting is that the carrier uses. A good relation is the ratio "position under management" vs. DAC. SMAN is getting more and more conservative here. This also means that the projected earnings will be much easier to hold in the future and should also be tilted to the upside.. I usually strip out any DAC modifications. Only an accounting treatment.. Other than goodwill, the fact that DAC is used at all is IMHO nonetheless justified because a policy is a more direct titel to a, more predicatable cash flow stream (only 1 contract involved) instead of the "arbitrary" accounting creation of goodwill.. So strip it out and you get the real earnings position of SMAN. I see it this way: if they didn't choose to get more conservative wrt. to DAC then they would have had to pay taxes on the windfall gain due to the extraordinary earnings resulting from the sales of international operations.. Good timing and the correct thing to do IMHO.. rgrds CROSSY