The essential principles of US GAAP financial reporting are-
Accrual accounting, matching and deferring

Accrual accounting and deferring implies time wise matching(synchronization) of proceeds(income) and expenditures(outgo).

The essence of the principle is - A cost does not become an expense until it is recognized in the financial statement of the company. In an accounting sense, it is the amortization of that cost, and not the original cost itself, that becomes the expense.

Hence, certain costs which are incurred to acquire insurance contracts should not be recognized as an expense in the accounting period in which they are incurred but should be capitalized as an asset on the balance sheet and gradually amortized over the life time of the insurance contracts. Such costs are called Deferred Acquisition expenses(DAE) and capitalization of DAE results in setting up of an asset called Deferred Acquisition Costs(DAC).
Establishment of the DAC asset tends to reduce the policy’s first year strain and generally produces a smoother pattern of earnings.

But not all the expenses are deferred.
To meet the capitalization criteria, these expenses must vary with and be primarily related to the acquisition of new business.
Examples of Deferrable Acquisition Expenses:
Commissions in excess of ultimate commissions
Underwriting costs
Policy Issuance costs

Non-Deferrable Acquisition Expenses

All other expenses associated with the new business that do not vary with and are not primarily related to new policies are classified as non-deferrable acquisition expenses.
Examples- Advertising costs, development of illustration system for new products, agent recruitment and training.
These expenses are not capitalized and are charged in the period incurred.

While doing expense classification, the fundamental question is:
To defer or not to defer?

The answer is:
To defer: If you have to incur these expenses only when you sell a product
Not to defer: If have to incur these expenses independent of the sales volume

Deferred Acquisition Costs(DAC) represents the “un-recovered investment” in the business and are therefore capitalized as an intangible asset to systematically match costs with related revenues. Over a period of time the acquisition costs are recognised as an expense, this is done by reducing the DAC asset. The process of recognizing the costs in the income statement is known as amortization and refers to the DAC asset being amortized, or written-off.
The amortization requires an amortization basis that determines how much DAC should be written-off as an expense in each accounting period. The amortization basis varies by FAS classification of the product and is given below:

FAS 60/97LP - Premiums
FAS 97  - Estimated Gross Profits (EGP)
FAS 120  - Estimated Gross Margins (EGM)