# ASC 340-30-55: Other Assets and Deferred Costs — Insurance Contracts That Do Not Transfer Insurance Risk — 55 Implementation Guidance and Illustrations Source: FASB Accounting Standards Codification, Basic View [Read online](https://asc.understandingaccounting.org/asc/340/30/#55-implementation-guidance-and-illustrations) 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. Tables and mathematical or amendment markup are retained as HTML where Markdown would lose structure. Source downloaded (UTC): 2026-09-09T23:56:01.915Z to 2026-09-09T23:56:01.915Z Record version: sha256:fec48753bb22912c449760d142461cd97e816d75bfd05be2f33e326695a3b1cf Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 340-30-55: 55 Implementation Guidance and Illustrations [Read section](https://asc.understandingaccounting.org/asc/340/30/#55-implementation-guidance-and-illustrations) SEC content: no #### Illustrations ##### [340-30-55-1](https://asc.understandingaccounting.org/asc/340/30/#340-30-55-1) Pending content: no Source downloaded (UTC): 2026-09-09T23:56:01.915Z to 2026-09-09T23:56:01.915Z Record version: sha256:116aad16b7d09bd2557ef8e7216e139fc9a6346a36fdff3cfcca503628313c07 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. 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](https://asc.understandingaccounting.org/asc/340/30/#340-30-35-6) . ##### [340-30-55-2](https://asc.understandingaccounting.org/asc/340/30/#340-30-55-2) Pending content: no Source downloaded (UTC): 2026-09-09T23:56:01.915Z to 2026-09-09T23:56:01.915Z Record version: sha256:7012fb8c2b1a98b7d322846442d0e9edfc2f3fa7784fdf63cb50e67f3797c9ab Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Example illustrates the accounting by the insured for an insurance or [reinsurance](https://asc.understandingaccounting.org/glossary/r/#reinsurance "A transaction in which a reinsurer (assuming entity), for a consideration (premium), assumes all or part of a risk undertaken originally by another insurer (ceding entity). For indemnity reinsurance, the legal rights of the insured are not affected by the reinsurance transaction and the insurance entity issuing the insurance contract remains liable to the insured for payment of policy benefits. Assumption or novation reinsurance contracts that are legal replacements of one insurer by another extinguish the ceding entity's liability to the policyholder.") contract that transfers neither significant timing nor significant [underwriting risk](https://asc.understandingaccounting.org/glossary/u/#underwriting-risk "The risk arising from uncertainties about the ultimate amount of net cash flows from premiums, commissions, claims, and claim settlement expenses paid under a contract."). The facts are as shown in the following table. - ![ ](https://asc.understandingaccounting.org/asc-img/GUID-86A135AC-0683-4C02-8865-0A9DDAC1C957-low.gif) Premium "$1,000 " Coverage period 1 year Expected recoveries $250 at the end of each year for 5 years Implicit interest rate 8 percent (a) (a) "Present value of $250 per year for 5 years at 8 percent = $1,000." ##### [340-30-55-3](https://asc.understandingaccounting.org/asc/340/30/#340-30-55-3) Pending content: no Source downloaded (UTC): 2026-09-09T23:56:01.915Z to 2026-09-09T23:56:01.915Z Record version: sha256:70a6d350c02050b70fd68076a02558b09cfe5db68b812117ec74db89b4e35142 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. 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. - ![ ](https://asc.understandingaccounting.org/asc-img/GUID-F0299C64-D9D5-4BAB-8006-5DA35744FBA9-low.gif) Description 8 Percent Interest Income Cash Recoveries Deposit Balance Initial payment " $1,000 " Year 1 $80 " 1,080 " End of Year 1 $(250) 830 Year 2 66 896 End of Year 2 (250) 646 Year 3 52 698 End of Year 3 (250) 448 Year 4 36 484 End of Year 4 (250) 234 Year 5 16 250 End of Year 5 (250) - Totals $250 " $(1,250)" $- ##### [340-30-55-4](https://asc.understandingaccounting.org/asc/340/30/#340-30-55-4) Pending content: no Source downloaded (UTC): 2026-09-09T23:56:01.915Z to 2026-09-09T23:56:01.915Z Record version: sha256:5d615074a4459d74517af9e8db02a0722a605386563ca97f5020a6a32bbc8a0b Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Example illustrates the accounting by the insured for an insurance or reinsurance contract that transfers only significant [timing risk](https://asc.understandingaccounting.org/glossary/t/#timing-risk "The risk arising from uncertainties about the timing of the receipt and payments of the net cash flows from premiums, commissions, claims, and claim settlement expenses paid under a contract."). The facts are as shown in the following table. - ![ ](https://asc.understandingaccounting.org/asc-img/GUID-94C9B8F7-A296-4CA5-8209-330EAFD2FB7C-low.gif) Premium "$1,000 " Coverage period 1 year Initial expected recoveries $225 per year (at end of year) for 5 years Initial implicit rate 4 percent (a) (a) "Present value of $225 per year for 5 years at 4 percent = $1,000." ##### [340-30-55-5](https://asc.understandingaccounting.org/asc/340/30/#340-30-55-5) Pending content: no Source downloaded (UTC): 2026-09-09T23:56:01.915Z to 2026-09-09T23:56:01.915Z Record version: sha256:2e3d5f192d6c54e8aac50d3abf58fd06d78d850ecca37e56a0be8257ba29f8a1 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. 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. ##### [340-30-55-6](https://asc.understandingaccounting.org/asc/340/30/#340-30-55-6) Pending content: no Source downloaded (UTC): 2026-09-09T23:56:01.915Z to 2026-09-09T23:56:01.915Z Record version: sha256:55b5d87b55f29cfcc49e469d5f6f22cb76d2bd63f61a675c27ae5508fab5bd3e Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. 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. - ![ ](https://asc.understandingaccounting.org/asc-img/GUID-90562D98-62DF-41BD-B1BE-E0257A8FD84A-low.gif) Description Interest Income Cash Recoveries Deposit Balance Initial payment " $1,000 " Year 1 (4 percent) (a) $40 " 1,040 " End of Year 1 $(225) 815 Year 2 (4 percent) 33 848 End of Year 2 (200) 648 Yield adjustment (8) 640 Year 3 (3.63 percent) 23 663 End of Year 3 (175) 488 Year 4 (3.63 percent) 18 506 End of Year 4 (175) 331 Year 5 (3.63 percent) 12 343 End of Year 5 (175) 168 Year 6 (3.63 percent) 7 175 End of Year 6 (175) - Totals $125 " $(1,125)" $- (a) Implicit rate at the inception of the insurance or reinsurance contract. ##### [340-30-55-7](https://asc.understandingaccounting.org/asc/340/30/#340-30-55-7) Pending content: no Source downloaded (UTC): 2026-09-09T23:56:01.915Z to 2026-09-09T23:56:01.915Z Record version: sha256:09131e33852ac9a534f5d2fbe99b1cb28ea804cc7e3c51ee480551104dc46b51 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Example builds on Examples 1 and 2 (see paragraphs [340-30-55-2 through 55-6](https://asc.understandingaccounting.org/asc/340/30/#340-30-55-2) ). 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. - ![ ](https://asc.understandingaccounting.org/asc-img/GUID-BE45F953-1F7A-4453-A90A-CE2C7478B1A3-low.gif) Description Interest Income Offset to Recorded Losses Cash Recoveries at End of Year Deposit Balance Initial payment " $1,000 " Year 1 (4 percent) $40 $(225) 815 Year 2 (4 percent) 25 (a) (200) 640 Year 3 (3.63 percent) 23 (175) 488 Adjustment $715 (b) " 1,203 " (c) Year 4 (6 percent) 72 (450) 825 Year 5 (6 percent) 50 (450) 425 Year 6 (6 percent) 25 (450) - Totals $88 $862 " $(1,950)" $- (a) The interest income adjustment at 4 percent of $33 less the yield adjustment of $8 equals $25. (b) "At the end of Year 3, there is a change in the estimated recovery to $1950. The payment of the remaining losses will occur over 3 years, in Years 4, 5, and 6." (c) The present value of $450 per year for 3 years discounted at 6 percent (the risk-free rate at the time of the loss adjusted for default risk). ##### [340-30-55-8](https://asc.understandingaccounting.org/asc/340/30/#340-30-55-8) Pending content: no Source downloaded (UTC): 2026-09-09T23:56:01.915Z to 2026-09-09T23:56:01.915Z Record version: sha256:59ca0f75ea9c32f5b0a6af923dc02df59401d1554663581962bafe9d05ebe756 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. 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. - ![ ](https://asc.understandingaccounting.org/asc-img/GUID-77EC43FE-BAF6-4A02-8678-6CB56571D0DC-low.gif) Initial premium "$1,000 " Coverage period 1 year Expected recoveries "Could aggregate up to $10,000 with none paid prior to Year 8 regardless of when the insured incurs or pays a loss" ##### [340-30-55-9](https://asc.understandingaccounting.org/asc/340/30/#340-30-55-9) Pending content: no Source downloaded (UTC): 2026-09-09T23:56:01.915Z to 2026-09-09T23:56:01.915Z Record version: sha256:c6975455df05e38505085ad9e9012d2f5ad246b5473b2d5e2893f7e7631efca7 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. A delayed reimbursement clause, which provides that the full amount will be paid to the insured or [ceding entity](https://asc.understandingaccounting.org/glossary/c/#ceding-entity "The party that pays a reinsurance premium in a reinsurance transaction. The ceding entity receives the right to reimbursement from the assuming entity under the terms of the reinsurance contract.") 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. ##### [340-30-55-10](https://asc.understandingaccounting.org/asc/340/30/#340-30-55-10) Pending content: no Source downloaded (UTC): 2026-09-09T23:56:01.915Z to 2026-09-09T23:56:01.915Z Record version: sha256:f05b2aed508f8bf32f65e6e6cea7b11fe097c2ce7fd36637589fea3de1a8f779 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. 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. ##### [340-30-55-11](https://asc.understandingaccounting.org/asc/340/30/#340-30-55-11) Pending content: no Source downloaded (UTC): 2026-09-09T23:56:01.915Z to 2026-09-09T23:56:01.915Z Record version: sha256:5e46e9aaa3031308a2cb3a7452db600dee22964f915d2b67eca7755ce1386992 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The carrying amount of the asset would be calculated as shown in the following table. - ![ ](https://asc.understandingaccounting.org/asc-img/GUID-B2719F5A-EC7A-4ABD-B83E-312F0E2E9BF2-low.gif) Description Amortization Offset to Recorded Losses Cash Recoveries at End of Year Deposit Balance Initial payment " $1,000 " Amortization " $1,000 " - Year 1 " $3,325 " (a) " 3,325 " (b) Year 2 200 " 3,525 " Year 3 211 " 3,736 " Adjustment 747 " 4,483 " (c) Year 4 270 " 4,753 " Year 5 284 " 5,037 " Year 6 303 " 5,340 " Year 7 320 " 5,660 " Year 8 340 " $6,000 " - Totals " $1,000 " " $6,000 " " $6,000 " $- (a) The loss occurred on the last day of the year. (b) "The present value of $5,000 received after 7 years discounted at 6 percent. At the end of Year 1, there is no remaining deposit applicable to the unexpired portion of the coverage because it is a 1-year contract." (c) "The present value of $6,000 received after 5 years discounted at 6 percent."