Commissions incurred on PDP business

[EricaM-MOIC]

In the insurance industry, specifically related to PDP business, are commissions considered incurred to be accrued for when the contract is signed prior to the policy effective date or on the effective date of the policy? For example: If the policy is signed 11/2020 are the commission incurred to be reported in 2020 or in 2021 on the policy effective date of 1/1/21? Thank you!

[Glenn]

The quick answer is found in SSAP 71 - Policy Acquisition Costs and Commissions.
see paragraph 2.:

Acquisition Costs and commissions shall be expensed as incurred.

unlike prepaid expenses which are capitalized and nonadmitted

rejects former GAAP 60 and 97 ( note GAAP has new guidance under ASC 606 inline with new revenue recognition principle). In GAAP you can defer commissions and acquisition costs. Not in Statutory these costs are periodic costs.

Again for STAT Commissions are expensed as incurred.

In your example I would see the commissions incurred in 2020 when commissions paid and contract signed and policy issued.