{"schema_version":2,"canonical_url":"https://asc.understandingaccounting.org/asc/340/30/#55-implementation-guidance-and-illustrations","source":"FASB Accounting Standards Codification, Basic View","usage":"Study and research edition. Verify current requirements with the official source. Summaries, enrichment, and tags are machine-generated study aids. Paragraph html preserves source markup; snippet is abbreviated. Pending content is not necessarily effective.","topic":"340","topic_title":"Other Assets and Deferred Costs","subtopic":"340-30","subtopic_title":"Insurance Contracts That Do Not Transfer Insurance Risk","section":{"number":"55","label":"55 Implementation Guidance and Illustrations","anchor":"55-implementation-guidance-and-illustrations","is_sec":false,"groups":[{"block":null,"heading":"Illustrations","paragraphs":[{"citation":"340-30-55-1","para":"55-1","html":"
The following Examples illustrate the application of the guidance in this Subtopic. It shall not be construed that any aspect of the illustrations establishes or changes requirements as to when deposit accounting should be applied. Rather, the Examples illustrate how deposit accounting is to be applied when it is determined that it should be applied under other accounting literature. These Examples illustrate the accounting by the insured. The accounting by the insurer would be symmetrical, except as noted in paragraphs
340-30-35-6 through 35-7
.
","snippet":"The following Examples illustrate the application of the guidance in this Subtopic. It shall not be construed that any aspect of the illustrations establishes or changes requirements as to when deposit accounting should …","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:116aad16b7d09bd2557ef8e7216e139fc9a6346a36fdff3cfcca503628313c07","downloaded_from":"2026-09-09T23:56:01.915Z","last_downloaded_at":"2026-09-09T23:56:01.915Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147483027","source_sha256":"d3feefedf0a1e62d64c38427166b739aa7c4793a6b179effe8b71eb5fa6b2426"}},{"citation":"340-30-55-2","para":"55-2","html":"
This Example illustrates the accounting by the insured for an insurance or reinsurance contract that transfers neither significant timing nor significant underwriting risk. The facts are as shown in the following table.
","snippet":"This Example illustrates the accounting by the insured for an insurance or reinsurance contract that transfers neither significant timing nor significant underwriting risk. The facts are as shown in the following table.","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:7012fb8c2b1a98b7d322846442d0e9edfc2f3fa7784fdf63cb50e67f3797c9ab","downloaded_from":"2026-09-09T23:56:01.915Z","last_downloaded_at":"2026-09-09T23:56:01.915Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147483027","source_sha256":"d3feefedf0a1e62d64c38427166b739aa7c4793a6b179effe8b71eb5fa6b2426"}},{"citation":"340-30-55-3","para":"55-3","html":"
At contract inception, the insured records a $1,000 asset. Changes in the amount or timing of cash flows are not anticipated. As they are received, cash recoveries reduce the carrying amount of the deposit, and the carrying amount of the deposit is increased at each reporting date by the amount of the interest earned during the period. The Example assumes that the entity is reporting related financial information as of the end of each year, as shown in the following table.
","snippet":"At contract inception, the insured records a $1,000 asset. Changes in the amount or timing of cash flows are not anticipated. As they are received, cash recoveries reduce the carrying amount of the deposit, and the carry…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:70a6d350c02050b70fd68076a02558b09cfe5db68b812117ec74db89b4e35142","downloaded_from":"2026-09-09T23:56:01.915Z","last_downloaded_at":"2026-09-09T23:56:01.915Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147483027","source_sha256":"d3feefedf0a1e62d64c38427166b739aa7c4793a6b179effe8b71eb5fa6b2426"}},{"citation":"340-30-55-4","para":"55-4","html":"
This Example illustrates the accounting by the insured for an insurance or reinsurance contract that transfers only significant timing risk. The facts are as shown in the following table.
","snippet":"This Example illustrates the accounting by the insured for an insurance or reinsurance contract that transfers only significant timing risk. The facts are as shown in the following table.","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:5d615074a4459d74517af9e8db02a0722a605386563ca97f5020a6a32bbc8a0b","downloaded_from":"2026-09-09T23:56:01.915Z","last_downloaded_at":"2026-09-09T23:56:01.915Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147483027","source_sha256":"d3feefedf0a1e62d64c38427166b739aa7c4793a6b179effe8b71eb5fa6b2426"}},{"citation":"340-30-55-5","para":"55-5","html":"
This implicit rate often will be less than the current risk-free rate because of the uncertainties as to the timing of cash flows in the insurance or reinsurance contract.
","snippet":"This implicit rate often will be less than the current risk-free rate because of the uncertainties as to the timing of cash flows in the insurance or reinsurance contract.","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:2e3d5f192d6c54e8aac50d3abf58fd06d78d850ecca37e56a0be8257ba29f8a1","downloaded_from":"2026-09-09T23:56:01.915Z","last_downloaded_at":"2026-09-09T23:56:01.915Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147483027","source_sha256":"d3feefedf0a1e62d64c38427166b739aa7c4793a6b179effe8b71eb5fa6b2426"}},{"citation":"340-30-55-6","para":"55-6","html":"
At contract inception, the insured records a $1,000 asset. Though the total amount ($1,125) is likely to be paid, changes in estimates of the timing of cash flows are expected. At each subsequent reporting date, the amount of the deposit would be increased by the amount of interest earned during the period, calculated using the estimated future cash flows to determine the then-current implicit discount rate (this is consistent with the retrospective approach in applying the interest method). At the end of Year 2, the timing of anticipated recoveries under the insurance or reinsurance contract is revised. A reevaluation of the implicit interest rate produces a rate of 3.63 percent and an asset of $640 at the end of the year. Given the change in the expected timing of cash flows at the end of Year 2, the carrying amount of the asset would be calculated as shown in the following table.
","snippet":"At contract inception, the insured records a $1,000 asset. Though the total amount ($1,125) is likely to be paid, changes in estimates of the timing of cash flows are expected. At each subsequent reporting date, the amou…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:55b5d87b55f29cfcc49e469d5f6f22cb76d2bd63f61a675c27ae5508fab5bd3e","downloaded_from":"2026-09-09T23:56:01.915Z","last_downloaded_at":"2026-09-09T23:56:01.915Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147483027","source_sha256":"d3feefedf0a1e62d64c38427166b739aa7c4793a6b179effe8b71eb5fa6b2426"}},{"citation":"340-30-55-7","para":"55-7","html":"
This Example builds on Examples 1 and 2 (see paragraphs
340-30-55-2 through 55-6
). It uses the same assumptions and facts as Example 2 for the first two years; however, at the end of Year 3, the estimated recovery is increased from $1,125 to $1,950 (with the remaining recovery to be $450 per year for the remaining 3 years). For purposes of this Example, assume the magnitude of the change in the estimated recovery is such that a determination should be reached that the contract does include significant underwriting risk. The risk-free rate of interest at Year 1 is 6 percent adjusted for default risk. In addition, this rate would be utilized when appropriate for the life of the contract. The following table illustrates the accounting for a conversion from a contract that transfers neither significant timing risk nor significant underwriting risk or a contract that transfers only significant timing risk to a contract that transfers significant underwriting risk.
","snippet":"This Example builds on Examples 1 and 2 (see paragraphs 340-30-55-2 through 55-6). It uses the same assumptions and facts as Example 2 for the first two years; however, at the end of Year 3, the estimated recovery is inc…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:09131e33852ac9a534f5d2fbe99b1cb28ea804cc7e3c51ee480551104dc46b51","downloaded_from":"2026-09-09T23:56:01.915Z","last_downloaded_at":"2026-09-09T23:56:01.915Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147483027","source_sha256":"d3feefedf0a1e62d64c38427166b739aa7c4793a6b179effe8b71eb5fa6b2426"}},{"citation":"340-30-55-8","para":"55-8","html":"
This Example illustrates the accounting by the insured for an insurance or reinsurance contract that transfers only significant underwriting risk. The facts are as shown in the following table.
","snippet":"This Example illustrates the accounting by the insured for an insurance or reinsurance contract that transfers only significant underwriting risk. The facts are as shown in the following table.","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:59ca0f75ea9c32f5b0a6af923dc02df59401d1554663581962bafe9d05ebe756","downloaded_from":"2026-09-09T23:56:01.915Z","last_downloaded_at":"2026-09-09T23:56:01.915Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147483027","source_sha256":"d3feefedf0a1e62d64c38427166b739aa7c4793a6b179effe8b71eb5fa6b2426"}},{"citation":"340-30-55-9","para":"55-9","html":"
A delayed reimbursement clause, which provides that the full amount will be paid to the insured or ceding entity at the end of Year 8, mitigates timing risk. A $5,000 loss is incurred at the end of Year 1 and is expected to be recovered at the end of Year 8. The risk-free rate of interest in Year 1 for the period from the loss to the expected payment date, adjusted for default risk, is 6 percent. (For the insurer, the risk-free rate would be used but it would not be adjusted for default risk.) At the end of Year 3, the estimated loss is increased from $5,000 to $6,000.
","snippet":"A delayed reimbursement clause, which provides that the full amount will be paid to the insured or ceding entity at the end of Year 8, mitigates timing risk. A $5,000 loss is incurred at the end of Year 1 and is expected…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:c6975455df05e38505085ad9e9012d2f5ad246b5473b2d5e2893f7e7631efca7","downloaded_from":"2026-09-09T23:56:01.915Z","last_downloaded_at":"2026-09-09T23:56:01.915Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147483027","source_sha256":"d3feefedf0a1e62d64c38427166b739aa7c4793a6b179effe8b71eb5fa6b2426"}},{"citation":"340-30-55-10","para":"55-10","html":"
At contract inception, the insured records a $1,000 asset. The $1,000 amount is amortized over the coverage period of 1 year. If the $5,000 loss is incurred, the insured increases the amount of the asset by the present value of the $5,000. (Note that the insured has recorded the entire $5,000 loss from the underlying event in the same period.) At each subsequent reporting date, the portion of the carrying amount of the asset attributable to the incurred loss would be recalculated by discounting the estimated future cash flows.
","snippet":"At contract inception, the insured records a $1,000 asset. The $1,000 amount is amortized over the coverage period of 1 year. If the $5,000 loss is incurred, the insured increases the amount of the asset by the present v…","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:f05b2aed508f8bf32f65e6e6cea7b11fe097c2ce7fd36637589fea3de1a8f779","downloaded_from":"2026-09-09T23:56:01.915Z","last_downloaded_at":"2026-09-09T23:56:01.915Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147483027","source_sha256":"d3feefedf0a1e62d64c38427166b739aa7c4793a6b179effe8b71eb5fa6b2426"}},{"citation":"340-30-55-11","para":"55-11","html":"
The carrying amount of the asset would be calculated as shown in the following table.
","snippet":"The carrying amount of the asset would be calculated as shown in the following table.","pending":false,"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:5e46e9aaa3031308a2cb3a7452db600dee22964f915d2b67eca7755ce1386992","downloaded_from":"2026-09-09T23:56:01.915Z","last_downloaded_at":"2026-09-09T23:56:01.915Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147483027","source_sha256":"d3feefedf0a1e62d64c38427166b739aa7c4793a6b179effe8b71eb5fa6b2426"}}],"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:79f0c1f9550764de862420204b2e4c07defa793dd81b155b13a658443cbfddad","downloaded_from":"2026-09-09T23:56:01.915Z","last_downloaded_at":"2026-09-09T23:56:01.915Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147483027","source_sha256":"d3feefedf0a1e62d64c38427166b739aa7c4793a6b179effe8b71eb5fa6b2426"}}],"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:fec48753bb22912c449760d142461cd97e816d75bfd05be2f33e326695a3b1cf","downloaded_from":"2026-09-09T23:56:01.915Z","last_downloaded_at":"2026-09-09T23:56:01.915Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147483027","source_sha256":"d3feefedf0a1e62d64c38427166b739aa7c4793a6b179effe8b71eb5fa6b2426"}},"provenance":{"source_url":"https://asc.fasb.org/","snapshot_version":"sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f","record_version":"sha256:fec48753bb22912c449760d142461cd97e816d75bfd05be2f33e326695a3b1cf","downloaded_from":"2026-09-09T23:56:01.915Z","last_downloaded_at":"2026-09-09T23:56:01.915Z","date_scope":"source_page","effective_as_of":null,"effective_as_of_status":"Not established by retrieval timestamps","source_key":"1943274/2147483027","source_sha256":"d3feefedf0a1e62d64c38427166b739aa7c4793a6b179effe8b71eb5fa6b2426"}}