Direct costs an insurer incurs to "acquire" the premium—for example, commissions
paid to a broker or fronting company. These costs are required to be expensed
in the same ratio as the premiums to which they relate are earned. For a calendar
year policy, acquisition costs are expensed evenly each month, with the amount
to be expensed in future periods recorded as deferred acquisition costs (an
asset) in the balance sheet.
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