Our Accounts 93
Notes to the Financial Statements continued
31 December 2012
22. Net (increase) / decrease in long-term contract liabilities
Group Society
2012 2011 2012 2011
£m £m £m £m
Gross (increase) / decrease in long-term contract liabilities
(Increase) / decrease in long-term insurance contract liabilities (652.1) (814.8) (655.6) (816.6)
Decrease / (increase) in long-term linked insurance contract liabilities 0.9 (9.2) 0.9 (9.2)
(Increase) / decrease in investment contract liabilities (81.0) 33.8 (81.0) 33.8
(732.2) (790.2) (735.7) (792.0)
Mutual bonus (disclosed separately in Note 14) 20.9 18.6 20.9 18.6
(711.3) (771.6) (714.8) (773.4)
Increase / (decrease) in long-term contract liabilities ceded to reinsurers
Increase / (decrease) in long-term insurance contract liabilities 61.9 79.5 61.9 34.4
Increase / (decrease) in long-term linked insurance contract liabilities 12.5 16.5 12.5 (27.3)
74.4 96.0 74.4 7.1
(636.9) (675.6) (640.4) (766.3)
23. Deferred acquisition costs
Accounting for deferred acquisition costs
The costs of acquiring new business, other than for participating business, which are incurred during the financial year, but where
the benefit of such costs will be obtained in subsequent accounting periods are deferred and recognised as an asset to the extent
that they are recoverable out of margins in future matching revenues.
In respect of insurance contracts, acquisition costs comprise all direct and indirect costs incurred in writing new contracts.
Statements and Reviews
Deferred acquisition costs for insurance contracts are amortised over a period which is consistent with the assessment of the
expected pattern of receipt of future revenue margins for each product type.
For investment contracts, the costs of acquiring investment contracts are limited to the direct transaction costs associated with the
acquisition of the business. Deferred acquisition costs for investment contracts are amortised over the expected contract period.
All deferred acquisition costs are tested for recoverability at each reporting date. The carrying values are adjusted to recoverable
amounts and any resulting impairment losses are charged to the Statement of Comprehensive Income.
Our Businesses
Long-term General
insurance insurance
contracts contracts Total
Group £m £m £m
At 1 January 2012 – 94.7 94.7
Acquisition costs deferred – 199.0 199.0
Amortisation and impairment – (193.6) (193.6)
At 31 December 2012 – 100.1 100.1
Risk Management
At 1 January 2011 54.6 84.2 138.8
Acquisition costs deferred 17.7 185.6 203.3
Amortisation and impairment (14.2) (175.1) (189.3)
Write-off following termination of reinsurance contract (58.1) – (58.1)
At 31 December 2011 – 94.7 94.7
Corporate Governance
Deferred acquisition costs are all due within one year for both 2011 and 2012.
Acquisition costs are costs of acquiring new business and include commissions, underwriting expenses and policy issue expenses.
There were no deferred acquisition costs held by the Society in 2012 (2011: £nil).
In 2011 the £58.1m write off in relation to the termination of the reinsurance contract was offset by a £57.4m movement in long-term
insurance contract liabilities disclosed within Note 21. The overall impact on the Statement of Comprehensive Income was a loss of £0.7m.
Our Accounts