11 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.

 

Insurance contracts
2014
£m

Investment contracts
2014
£m

Total
2014
£m

Insurance contracts
2013
£m

Investment contracts
2013
£m

Total
2013
£m

As at 1 January

991

889

1,880

906

998

1,904

Acquisition costs deferred

275

9

284

277

10

287

Amortisation charged to income

(191)

(117)

(308)

(189)

(119)

(308)

Increase/(decrease) due to currency translation

61

(4)

57

(18)

1

(17)

Other

7

16

23

15

(1)

14

As at 31 December

1,143

793

1,936

991

889

1,880

To be amortised within 12 months

109

216

325

107

141

248

To be amortised after 12 months

1,034

577

1,611

884

748

1,632

Of the total gross deferred acquisition costs of £1,064m (2013: £909m) relates to the LGA insurance business.

The deferred acquisition costs for reinsurance contracts are £69m (2013: £67m). The total acquisition costs incurred for the year are £873m (2013: £855m).