5.9 Acquisition costs and deferred acquisition costs

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 Note 5.9.1 and 5.9.2

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.

5.9.1 Non-life insurance

Acquisition costs in the case of non-life insurance products are deferred in line with the principles applicable to the unearned premiums reserve and depreciated in the statement of profit or loss (under “Acquisition costs”) over the period of the insurance coverage.

Deferral in time applies to acquisition commissions and some of indirect acquisition costs related to conclusion and extension of insurance policies (especially the costs of operations indirectly related to sales processes which cannot be qualified as indirect acquisition costs) and, primarily, the costs of operations related to: concluding contracts and underwriting processes in sales units (specified on the basis of work time surveys), automatic and manual input of policies into production systems (sales recording) and functioning of the contact center in scope of selling the policies.

5.9.2 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).