Acquisition costs include expenses related to conclusion and extension of insurance contracts. Direct acquisition costs include insurance agent commission costs, payroll costs related to conclusion of insurance contracts, costs of attestation, studies and research regarding the accepted risk. Indirect acquisition costs include advertisement and promotion of insurance products and costs related to analysis of applications and issuing policies.
Under the accrual basis of accounting, acquisition costs are deferred over time, in accordance with the rules laid down in Notes 5.13.1 and 5.13.2.
Deferred acquisition costs capitalized in the statement of financial position, related both to non-life insurance as well as life insurance, are tested for impairment by the means of Liability Adequacy Tests.
5.13.1. Non-life insurance
Acquisition costs in the case of non-life insurance products are deferred in line with the principles applicable to the the unearned premiums reserve and depreciated in the statement of profit or loss (under “Acquisition costs”) over the period of the insurance coverage.
5.13.2. Life insurance
In the case of life insurance products, for traditional individual insurance contracts with discretionary participation features acquisition costs are recognized over time based on the Zillmer method (life insurance, endowment and birth insurance).