At the end of section 3.2, the core reading says: Acquisition costs may already have been naturally deferred by an appropriate choice of valuation basis, eg use of a gross premium valuation. Please can anyone explain how acquisition costs are deferred when gross premium valuation is used?
The acquisition costs will have been loaded into the premium when the contract was priced. A gross premium valuation deducts the value of the future premiums, so it deducts the value of all the acquisition expense loadings from the reserve. The net premium makes no allowance for expenses. So a net premium valuation makes no deduction for expense loadings in the premium. Best wishes Mark
