The costs of acquiring new business, which may be significant, are deferred for accounting purposes. The costs are carried forward as an asset on the balance sheet and released to (that is, charged to) profit or loss over the period in which margins from the related policies are recognised. The Companies Act 2006 defines acquisition costs as the costs of acquiring insurance policies which are incurred during a financial year but relate to a subsequent financial year. The deferral of acquisition costs acts to offset ‘new business strain’, that is, the requirement to establish policyholder liabilities at inception of a policy in excess of premiums received for those policies.

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