Insurance acquisition cash flows

Commissions are often an insurer's biggest single cost after claims. IFRS 17 spreads them over the cover in a way that grosses up both revenue and expenses, and lets insurers carry commissions paid for expected renewals as an asset. This guide works through both, and explains the premium allocation approach option and the recoverability test.

By Muhammad Bilal, Chartered Accountant. Reviewed by Awais Jameel, Chartered Accountant. 3 minute read.

Short answer

Insurance acquisition cash flows are the costs of selling, underwriting and starting a group of insurance contracts that are directly attributable to the portfolio, such as commissions. Under IFRS 17 they are part of the fulfilment cash flows, so they reduce the CSM rather than being expensed, and they are recognised over the coverage period as both insurance revenue and insurance service expense. Costs paid before the related group is recognised, including those expected to be recovered from renewals, are held as an asset and tested for recoverability. In this guide's example, a 100 commission on a 5-year policy adds 20 to both revenue and expenses each year.

At a glance

What
Directly attributable selling and underwriting costs
GMM
In fulfilment cash flows, reducing the CSM
P&L
Revenue and expense over the cover
Paid early
Asset, allocated to groups
Renewals
Part of the asset may relate to them
PAA
May expense if cover a year or less
Insurance acquisition cash flowsWhat: Directly attributable selling and underwriting costs; GMM: In fulfilment cash flows, reducing the CSM; P&L: Revenue and expense over the cover; Paid early: Asset, allocated to groups; Renewals: Part of the asset may relate to them; PAA: May expense if cover a year or less.KEY FACTS AT A GLANCEInsurance acquisition cash flowsWhatDirectly attributableselling and underwritingcostsGMMIn fulfilment cash flows,reducing the CSMP&LRevenue and expense overthe coverPaid earlyAsset, allocated togroupsRenewalsPart of the asset mayrelate to themPAAMay expense if cover ayear or lessTax BakersInsurance acquisition cash flowsWhat: Directly attributable selling and underwriting costs; GMM: In fulfilment cash flows, reducing the CSM; P&L: Revenue and expense over the cover; Paid early: Asset, allocated to groups; Renewals: Part of the asset may relate to them; PAA: May expense if cover a year or less.KEY FACTS AT A GLANCEInsurance acquisition cash flowsWhatDirectly attributable selling andunderwriting costsGMMIn fulfilment cash flows, reducing the CSMP&LRevenue and expense over the coverPaid earlyAsset, allocated to groupsRenewalsPart of the asset may relate to themPAAMay expense if cover a year or lessTax Bakers
Key facts at a glance, as set out in this guide.

Insurance acquisition cash flows: a five-year policy

An insurer pays a broker a commission of 100 when it issues a 5-year policy measured under the general measurement model. The commission is in the fulfilment cash flows, so the CSM is 100 lower than it would otherwise be. Each year, the insurer recovers part of it.

Acquisition cash flows over a five-year policyAcquisition cash flows over a five-year policy2020Year 12020Year 22020Year 32020Year 42020Year 5Revenue recoveredExpense amortised
Equal revenue and expense each year; profit is affected through the CSM.
Each yearAmount
Insurance revenue: recovery of acquisition cash flows, 100/520
Insurance service expense: amortisation of acquisition cash flows(20)
Net effect on the insurance service resultNil

The commission's effect on profit comes through the CSM, which is 100 lower and so releases less profit each year. The revenue and expense lines show the commission as part of the service the insurer provides and pays for, which grosses up both.

Which costs are acquisition cash flows?

Costs of selling, underwriting and starting contracts that are directly attributable to the portfolio: commissions to agents and brokers, underwriting and policy issue costs, and a systematic allocation of fixed and variable overheads directly attributable to acquisition, such as the sales team. Costs that cannot be directly attributed, such as brand advertising and general product development, are expensed as incurred, outside the insurance service result.

What about commissions paid for expected renewals?

Some commissions cover expected renewals as well as the first policy. Suppose an insurer pays 120 on a one-year policy, of which half relates to renewals it expects in the following years. It allocates 60 to the current group and holds 60 as an asset for insurance acquisition cash flows, transferred into the renewal groups as they are recognised. At each reporting date, if facts and circumstances indicate the asset may be impaired, such as lower than expected renewal rates, the insurer writes it down to the amount it expects to recover, and may reverse that later.

How does the premium allocation approach treat them?

An insurer using the PAA may expense acquisition cash flows when incurred if each contract in the group has a coverage period of one year or less. Otherwise, they reduce the liability for remaining coverage and are amortised over the cover. The asset for renewals still applies to an insurer that defers them. See the premium allocation approach.

What about commission clawbacks?

When an insurer can recover part of a commission if the policy lapses early, the expected clawbacks are part of the fulfilment cash flows, reducing the expected acquisition cash flows. Changes in lapse expectations then change both the expected clawbacks and the CSM.

How does this compare with IFRS 15 contract costs?

Under IFRS 15, incremental costs of obtaining a contract are capitalised as a separate asset and amortised; IFRS 17 includes acquisition costs in the measurement of the contracts themselves and allows directly attributable overheads, which IFRS 15 does not. See contract costs under IFRS 15, the contractual service margin and insurance accounting under IFRS 17.

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Questions people ask

What are insurance acquisition cash flows under IFRS 17?

Costs of selling, underwriting and starting a group of contracts that are directly attributable to the portfolio, such as commissions and directly attributable overheads.

How are acquisition cash flows recognised under the general measurement model?

They are included in the fulfilment cash flows, reducing the CSM, and recognised over the coverage period as insurance revenue and an equal insurance service expense.

Can commissions for expected renewals be deferred?

Yes. They are held as an asset for insurance acquisition cash flows, allocated to renewal groups and tested for recoverability.

Can acquisition costs be expensed under the PAA?

Yes, if each contract's coverage period is one year or less.

Sources

Every fee, date and rule on this page was taken from these official and primary sources.

  1. IFRS Foundation: IFRS 17 Insurance Contracts

Rules and fees change. If you are reading this long after October 7, 2026, confirm the figures with the source before you rely on them.

InsuranceThe premium allocation approachIFRS 15Contract costs: costs to obtain and fulfil a contract under IFRS 15InsuranceInsurance accounting: IFRS 17 in practice

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This guide is general information. It is not tax or legal advice for your situation.