40 Deferred acquisition costs.

The Group incurs costs to obtain and process new business. These are accounted for in line with the appropriate accounting standards as follows:

Long term insurance business

Acquisition costs comprise direct costs, such as initial commission, and the indirect costs of obtaining and processing new business. Acquisition costs relating to non-participating insurance contracts written outside the with-profits part of the UK Long Term Funds (LTFs) which are incurred during a financial year are deferred by use of an asset which is amortised over the period during which the costs are expected to be recoverable, and in accordance with the expected incidence of future related margins. For participating contracts, acquisition costs are charged to the income statement when incurred.

General insurance

A proportion of commission and other acquisition costs relating to unearned premiums is carried forward as deferred acquisition costs or, in respect of reinsurance outwards, as deferred income.

Investment contracts

For participating investment contracts, acquisition costs comprise direct costs such as initial commission and the indirect costs of obtaining and processing new business. These costs are charged to the income statement when incurred. For non-participating investment contracts, only directly attributable costs relating to investment management services which vary with, and are related to, securing new contracts and renewing existing contracts, are capitalised and amortised over the period during which the costs are expected to be recoverable from future revenue. All other costs are recognised as expenses when incurred.

(i) Analysis of deferred acquisition costs

(XLS:) Deferred acquisition costs – analysis

 

Notes

Gross
2012

£m

Re­insurance
2012

£m

Gross
2011
Restated1
£m

Re­insurance
2011

£m

1.

Deferred acquisition cost has been restated to reflect the retrospective adoption of ASU 2010-26, issued by the FASB, which specifies the accounting for deferred acquisition costs under US GAAP. Details of this are outlined in Note 1.

Insurance contract deferred acquisition costs

(ii)

906

(71)

875

(78)

Investment contract deferred acquisition costs

(iii)

998

958

Deferred acquisition costs

 

1,904

(71)

1,833

(78)

(ii) Insurance contract deferred acquisition costs

(XLS:) Deferred acquisition costs – insurance contract

 

Gross
2012

£m

Re­insurance
2012

£m

Gross
2011
Restated
£m

Re­insurance
2011

£m

As at 1 January

875

(78)

810

(81)

Acquisition costs deferred

202

(6)

161

Amortisation charged to income

(155)

14

(137)

7

Increase/(decrease) due to currency translation

(46)

4

11

(1)

Other

30

(5)

30

(3)

As at 31 December

906

(71)

875

(78)

To be amortised within 12 months

102

(4)

114

(4)

To be amortised after 12 months

804

(67)

761

(74)

Of the total gross deferred acquisition costs £829m (2011: £808m) relates to the LGA insurance business.

(iii) Investment contract deferred acquisition costs

(XLS:) Deferred acquisition costs – investment contract

 

Gross
2012
£m

Re­insurance
2012
£m

Gross
2011
£m

Re­insurance
2011
£m

As at 1 January

958

968

Acquisition costs deferred

99

123

Amortisation charged to income

(101)

(122)

Decrease due to currency translation

(1)

(1)

Other

43

(10)

As at 31 December

998

958

To be amortised within 12 months

206

198

To be amortised after 12 months

792

760