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Movements in equity markets can have a significant impact on the value of the flexible contract accounts and the fees earned on these accounts. As a result estimated future gross profits increase or decrease with these movements. Similarly, changes in interest rate spreads for fixed annuity products (interest credited less interest earned) will affect management’s assumptions with respect to estimated gross profits. 

In the United States (and Canada), DPAC are amortized at a constant rate based on the present value of the estimated gross profit amounts expected to be realized over the life of the policies. If appropriate, the assumptions included in the determination of estimated gross profits are adjusted. A significant assumption related to estimated gross profits on variable annuities and life insurance products is the annual net long-term growth rate of the underlying assets. As equity markets do not move in a systematic manner, assumptions are made as to the net long-term growth rate after considering the net effects of short-term variances from the long-term assumptions (a ”reversion to the mean” assumption). At December 31, 2003 the reversion to the mean assumptions for variable products, primarily annuities in the United States, were as follows: gross long-term equity growth rate was 9% (2002: 9%), gross short term growth rate was 7 $^{1}$⁄2% (2002: 12%), the reversion period for the short term rate is five years, the gross short and long term fixed security growth rate was 6% and the gross short and long term growth rate for money market funds was 3$^{1}$⁄2%. For Canada these assumptions, at December 31, 2003, were as follows: gross long-term equity growth rate was 9$^{1}$⁄2% (2002: 9$^{1}$⁄2%), gross short-term growth rate was 10$^{3}$⁄4% (2002: 12$^{1}$⁄2%). The reconsideration of assumptions may affect the original DPAC amortization schedule, referred to as DPAC unlocking. The difference between the original DPAC amortization schedule and the revised schedule, which is based upon estimates of actual and future gross profits, is recognized in the income statement as an expense or a benefit in the period of determination. 

In the Netherlands, the United Kingdom and other countries the impact of equity market movements on estimated gross profits is covered by the yearly or, if appropriate, quarterly recoverability testing; a negative outcome is charged to the income statement in the period of determination. If appropriate, the assumptions included in the determination of estimated gross profits are adjusted for future periods. 

Included in the DPAC is an amount of value of business acquired (VOBA) resulting from acquisitions, which is equal to the present value of estimated future profits of insurance policies in force related to business acquired at the time of the acquisition and is in its nature the same as deferred policy acquisition costs and also subject to the same recoverability testing. The VOBA is amortized against expense loadings included in the premiums of the acquired portfolios or for acquired unit-linked business against charges arising from the related acquired business. 

The changes in the carrying value of the VOBA (life and non-life) were as follows: 

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$^{1 }$Mainly caused by currency exchange rate differences. 

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Interest rate rebates granted are amortized over the period of the contracts concerned in yearly increasing amounts. 

