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Acquisition Costs

Definition

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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