Difference Between VOBA and DAC Assets

Insurance companies used to report couple of labels in their financial reports i.e. VOBA and DAC. Let's see what these terms are and what is the basic difference in it as under:

VOBA stands for Value Of Business Acquired which is an intangible asset. It is the amount of in-force business purchased in an acquisition activity. It is calculated at the time of acquisition as the present value of future profits which is linked with the acquired insurance policies.

DAC stands for Deferred Acquisition Cost and is also an intangible asset by nature. It is calculated at the time of acquisition based on the capitalisation percentages of in-force business. It is accomplished through reinsurance assumption where the insurance portfolio is separated into the specified insurance contracts. It is the acquisition cost of agents' and brokers' commissions, marketing and agency costs etc which is capitalised over the specified period of time.

Hope it will help.