# ASC 605-944-55: Revenue Recognition — Financial Services—Insurance — 55 Implementation Guidance and Illustrations

Source: FASB Accounting Standards Codification, Basic View

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## ASC 605-944-55: 55 Implementation Guidance and Illustrations

[Read section](https://asc.understandingaccounting.org/asc/605/944/#55-implementation-guidance-and-illustrations)

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### Reinsurance Contracts

#### Implementation Guidance

##### [605-944-55-1](https://asc.understandingaccounting.org/asc/605/944/#605-944-55-1)

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If a [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 provides the ceding entity's policyholders and claimants with the right to recover their claims directly from the [reinsurer](https://asc.understandingaccounting.org/glossary/r/#reinsurer "The assuming entity in a reinsurance transaction.") (a cut-through provision), the [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.") shall not net the recoverable due from the reinsurer against the gross loss obligations on the underlying insurance contracts. As stated in paragraphs

[944-20-40-3 through 40-4](https://asc.understandingaccounting.org/asc/944/20/#944-20-40-3)

, reinsurance contracts in which a ceding entity is not relieved of its legal liability to its policyholder do not result in removal of the related assets and liabilities from the ceding entity's financial statements. Amounts recoverable and payable between the ceding entity and a reinsurer may be offset only if a right of setoff exists, as defined in Subtopic 210-20.

##### [605-944-55-2](https://asc.understandingaccounting.org/asc/605/944/#605-944-55-2)

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Similarly, if the circumstances discussed in the preceding paragraph involved [retroactive reinsurance](https://asc.understandingaccounting.org/glossary/r/#retroactive-reinsurance "Reinsurance in which an assuming entity agrees to reimburse a ceding entity for liabilities incurred as a result of past insurable events covered under contracts subject to the reinsurance. A reinsurance contract may include both prospective and retroactive reinsurance provisions.") of short-duration insurance policies that resulted in a gain to the ceding entity, the gain shall not be recognized in income immediately. Paragraph [944-40-25-33](https://asc.understandingaccounting.org/asc/944/40/#944-40-25-33) states that reinsurance contracts do not result in immediate recognition of gains unless the reinsurance contract is a legal replacement of one insurer by another and thereby extinguishes the ceding entity's liability to the policyholder.

##### [605-944-55-3](https://asc.understandingaccounting.org/asc/605/944/#605-944-55-3)

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Under the definition of [settlement period](https://asc.understandingaccounting.org/glossary/s/#settlement-period "The estimated period over which a ceding entity expects to recover substantially all amounts due from the reinsurer under the terms of the reinsurance contract."), if the ceding entity does not expect to receive any recoveries because the reinsurer has agreed to reimburse claimants under the reinsured contracts directly, the settlement period shall not be considered to have ended on the effective date of the contract. Unless the reinsurance contract results in legal replacement of one reinsurer by another, a gain shall not be recognized at the inception of the contract. In the circumstances discussed in paragraph [944-605-55-1](https://asc.understandingaccounting.org/asc/605/944/#605-944-55-1) the reinsurer is substantively acting as disbursing agent for the ceding entity. Therefore, the ceding entity cannot be said to have recovered amounts due from the reinsurer before payment is made to the claimant.

##### [605-944-55-4](https://asc.understandingaccounting.org/asc/605/944/#605-944-55-4)

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This implementation guidance addresses circumstances in which a ceding entity enters into a retroactive contract to reinsure short-duration insurance policies that gives rise to a deferred gain. Specifically, it addresses whether, if the reinsurer prepays its obligation under the contract, the ceding entity may recognize its deferred gain at the time the prepayment is received.

##### [605-944-55-5](https://asc.understandingaccounting.org/asc/605/944/#605-944-55-5)

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The amortization period (the settlement period) is based on the period over which the reinsurer settles its obligations to the ceding entity, and it may be appropriate to recognize the gain over the expected prepayment period. However, all of the facts and circumstances shall be considered to determine whether the reinsurer has substantively settled its obligation to the ceding entity. For example, if the ceding entity agrees to compensate the reinsurer for the prepayment, such as by crediting the reinsurer with investment income on prepaid amounts or balances held, the reinsurer has not, in substance, settled its obligation but rather has made a deposit with the ceding entity that shall be accounted for accordingly.

#### Illustrations

##### [605-944-55-6](https://asc.understandingaccounting.org/asc/605/944/#605-944-55-6)

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The following Cases illustrate how the requirement in paragraphs

[944-605-25-22 through 25-23](https://asc.understandingaccounting.org/asc/605/944/#605-944-25-22)

that gains arising from retroactive reinsurance be deferred and losses be charged to expense immediately is affected by the requirements in paragraphs

[944-605-35-11 through 35-13](https://asc.understandingaccounting.org/asc/605/944/#605-944-35-11)

for a catch-up adjustment to reflect changes in estimates of amounts recoverable from reinsurers:

1.  a
    
    Adverse development occurs (Case A)
    
2.  b
    
    Favorable development occurs (Case B).

##### [605-944-55-7](https://asc.understandingaccounting.org/asc/605/944/#605-944-55-7)

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Cases A and B share all of the following assumptions:

1.  a
    
    Entity A pays $100 of premium in 1993 for $150 limit of retroactive reinsurance.
    
2.  b
    
    Entity A has recorded related liabilities of $110.
    
3.  c
    
    There is a 5-year settlement period.
    
4.  d
    
    At inception, Entity A recorded a reinsurance recoverable of $110 and a deferred gain of $10.

##### [605-944-55-8](https://asc.understandingaccounting.org/asc/605/944/#605-944-55-8)

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If an adverse development of $30 occurred in the first year, paragraphs

[944-605-35-11 through 35-13](https://asc.understandingaccounting.org/asc/605/944/#605-944-35-11)

require an adjustment to bring the balance of the deferred gain to the balance that would have existed had the revised estimate been available at inception, less cumulative amortization. The balance that would have existed at inception is $40 ($140 reserves less $100 premium) and cumulative amortization to date is $8 ($40/5 years). Therefore, a net $32 deferred gain balance is required. Entity A would defer $30 of additional gain ($40 less the $10 already recorded) and credit income for $8 amortization. Straight-line amortization is used for simplicity of illustration rather than the interest method or recovery method as required by paragraph [944-605-35-9](https://asc.understandingaccounting.org/asc/605/944/#605-944-35-9).

##### [605-944-55-9](https://asc.understandingaccounting.org/asc/605/944/#605-944-55-9)

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If a favorable development of $15 occurred in the first year, the amount of ceded premiums ($100) would exceed the related revised liabilities ($95). Paragraphs

[944-605-35-11 through 35-13](https://asc.understandingaccounting.org/asc/605/944/#605-944-35-11)

state that decreases in the estimated amount of the liabilities reduce the related amount recoverable and reduce previously deferred gains. Further, if the revised estimate of the liabilities is less than the amounts paid to the reinsurer, the difference shall be charged to earnings. Entity A would therefore reduce the reinsurance recoverable by $15, reduce the $10 deferred gain to zero, and charge $5 to earnings.

##### [605-944-55-10](https://asc.understandingaccounting.org/asc/605/944/#605-944-55-10)

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This Example illustrates the application of the requirements in the Reinsurance Contracts Subsections of this Subtopic to a property-casualty insurance entity (Property-Casualty Insurance Entity) that issues short-duration contracts.

##### [605-944-55-11](https://asc.understandingaccounting.org/asc/605/944/#605-944-55-11)

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Property-Casualty Insurance Entity's statement of financial position follows.

-   ![](https://asc.understandingaccounting.org/asc-img/GUID-53703E17-A6A9-48A4-88A2-9B47DCEA0275-low.gif)
    
    Property-Casualty Insurance Entity Statement of Financial Position (in millions) Gross Assets: Investments " $8,500 " Cash 20 Reinsurance recoverables (a) " 1,400 " Receivables " 1,900 " Deferred policy acquisition costs 300 Prepaid reinsurance premiums (b) 250 Other assets " 1,400 " Total assets " $13,770 " Liabilities and equity: Liabilities for claims and claim settlement expenses " $7,600 " Unearned premiums " 1,700 " Other liabilities " 2,300 " Equity " 2,170 " Total liabilities and equity " $13,770 " Property-Casualty Insurance Entity Statement of Earnings (in millions) Gross Revenues: Premiums earned " $3,350 " Premiums ceded (c) (450) Net premiums earned " 2,900 " Net investment income " 1,700 " Other revenues 400 Total revenues " 5,000 " Expenses: Claims and claim settlement expenses " 2,200 " Reinsurance recoveries (c) (300) Net claims and claim settlement expenses " 1,900 " Policy acquisition costs " 1,450 " Other expenses " 1,150 " Total expenses " 4,500 " Earnings before tax $500 $500
    

1.  a
    
    The Reinsurance Contracts Subsections of this Subtopic require that estimated amounts recoverable from reinsurers include amounts related to paid and unpaid claims and claims incurred but not reported. Details of the amounts comprising reinsurance recoverables may be presented separately.
    
2.  b
    
    [Prepaid reinsurance premiums](https://asc.understandingaccounting.org/glossary/p/#prepaid-reinsurance-premiums "Amounts paid to the reinsurer relating to the unexpired portion of reinsured contracts.") include amounts paid to reinsurers relating to the unexpired portion of reinsured policies, often referred to as ceded unearned premiums.
    
3.  c
    
    Alternatively, the effect of reinsurance on premiums earned and [claim](https://asc.understandingaccounting.org/glossary/c/#claim "A demand for payment of a policy benefit because of the occurrence of an insured event.") costs may be shown parenthetically or may be disclosed. An illustration of a parenthetical presentation follows.
    

-   ![](https://asc.understandingaccounting.org/asc-img/GUID-06D5B046-120F-441A-963B-838E9F3E7791-low.gif)
    
    Premiums earned (net of premiums ceded totaling $450) " $2,900 " Claims and claim settlement expenses (net of reinsurance recoveries totaling $300) " $1,900 "

##### [605-944-55-12](https://asc.understandingaccounting.org/asc/605/944/#605-944-55-12)

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Property-Casualty Insurance Entity's related notes to financial statements follow.

-   Property-Casualty Insurance Entity— Notes to Financial Statements
    
    -   Summary of Significant Accounting Policies
        
        -   In the normal course of business, the Entity seeks to reduce the loss that may arise from catastrophes or other events that cause unfavorable underwriting results by reinsuring certain levels of risk in various areas of exposure with other insurance entities or reinsurers.
            
        -   Amounts recoverable from reinsurers are estimated in a manner consistent with the claim liability associated with the reinsured policy. The amount by which the liabilities associated with the reinsured policies exceed the amounts paid for retroactive reinsurance contracts is amortized in income over the estimated remaining settlement period using the interest method. The effects of subsequent changes in estimated or actual cash flows are accounted for by adjusting the previously deferred amount to the balance that would have existed had the revised estimate been available at the inception of the reinsurance transactions, with a corresponding charge or credit to income.
            
    -   Reinsurance
        
        -   Reinsurance contracts do not relieve the Entity from its obligations to policyholders. Failure of reinsurers to honor their obligations could result in losses to the Entity; consequently, allowances are established for amounts deemed uncollectible. The Entity evaluates the financial condition of its reinsurers and monitors concentrations of credit risk arising from similar geographic regions, activities, or economic characteristics of the reinsurers to minimize its exposure to significant losses from reinsurer insolvencies. At December 31, 19X3, reinsurance recoverables with a carrying value of $260 million and prepaid reinsurance premiums of $45 million were associated with a single reinsurer. The Entity holds collateral under related reinsurance agreements in the form of letters of credit totaling $150 million that can be drawn on for amounts that remain unpaid for more than 120 days.
            
        -   The effect of reinsurance on premiums written and earned is as follows (in millions).
            
            -   ![](https://asc.understandingaccounting.org/asc-img/GUID-07E63250-7E72-403C-84C4-FB33FF7292DE-low.gif)
                
                Written Earned Direct " $2,880 " " $2,730 " Assumed 630 620 Ceded (470) (450) Net premiums " $3,040 " " $2,900 "

##### [605-944-55-13](https://asc.understandingaccounting.org/asc/605/944/#605-944-55-13)

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This Example illustrates the application of the requirements in the Reinsurance Contracts Subsections of this Subtopic to a [life insurance entity](https://asc.understandingaccounting.org/glossary/l/#life-insurance-entity "An entity that can issue annuity, endowment, and accident and health insurance contracts as well as life insurance contracts. Life insurance entities may be either stock or mutual entities.") (Life Insurance Entity) that issues long-duration contracts.

##### [605-944-55-14](https://asc.understandingaccounting.org/asc/605/944/#605-944-55-14)

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Life Insurance Entity's statement of financial position follows.

-   ![](https://asc.understandingaccounting.org/asc-img/GUID-999EA1A0-73DC-4452-BB9E-D0D632C73C1E-low.gif)
    
    Life Insurance Entity Statement of Financial Position (in millions) Gross Assets: Investments " $13,100 " Cash 20 Receivables: Reinsurance (a) " 1,400 " Other " 1,900 " Deferred policy acquisition costs 300 Other assets " 1,400 " Total assets " $18,120 " Liabilities and equity: Liability for policy benefits " $7,200 " Policyholders' contract deposits " 5,000 " Other liabilities " 3,750 " Equity " 2,170 " Total liabilities and equity " $18,120 " Life Insurance Entity Statement of Earnings (in millions) Gross Revenues: Premiums and policyholder fees earned " $3,350 " Premiums ceded (b) (450) Net premiums and policyholder fees earned " 2,900 " Net investment income " 1,700 " Other revenues 400 Total revenues " 5,000 " Expenses: Policyholder benefits " 2,200 " Reinsurance recoveries (b) (300) Net policyholder benefits " 1,900 " Amortization of deferred policy acquisition costs 950 Other expenses " 1,650 " Total expenses " 4,500 " Earnings before tax $500
    
    1.  a
        
        The Reinsurance Contracts Subsections of this Subtopic require that estimated amounts recoverable from reinsurers include amounts related to paid and unpaid benefits, including amounts related to liabilities recognized for future policy benefits. Details of the amounts comprising reinsurance recoverables may be presented separately.
        
    2.  b
        
        Alternatively, the effect of reinsurance on premiums earned and benefit costs may be shown parenthetically or may be disclosed. An illustration of a parenthetical presentation follows.
        
    
    -   ![](https://asc.understandingaccounting.org/asc-img/GUID-F11712C8-4A58-4ACE-924F-13CBD38F90A3-low.gif)
        
        Premiums and policyholder fees earned (net of premiums ceded totaling $450) " $2,900 " Benefits (net of reinsurance recoveries totaling $300) " $1,900 "

##### [605-944-55-15](https://asc.understandingaccounting.org/asc/605/944/#605-944-55-15)

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Life Insurance Entity's related notes to financial statements follow.

-   Life Insurance Entity—Notes to Financial Statements
    
    -   Summary of Significant Accounting Policies
        
        -   In the normal course of business, the Entity seeks to limit its exposure to loss on any single insured and to recover a portion of benefits paid by ceding reinsurance to other insurance entities or reinsurers under excess [coverage](https://asc.understandingaccounting.org/glossary/c/#coverage "An insurance entity's exposure to loss. The concept of coverage would typically include policy limits, deductible, insured, and covered property or insured event.") and coinsurance contracts. The Entity retains a maximum of $500,000 of coverage per individual life.
            
        -   Amounts paid or deemed to have been paid for reinsurance contracts are recorded as reinsurance recoverables. The cost of reinsurance related to long-duration contracts is accounted for over the life of the underlying reinsured policies using assumptions consistent with those used to account for the underlying policies.
            
    -   Reinsurance
        
        -   Reinsurance contracts do not relieve the Entity from its obligations to policyholders. Failure of reinsurers to honor their obligations could result in losses to the Entity; consequently, allowances are established for amounts deemed uncollectible. The Entity evaluates the financial condition of its reinsurers and monitors concentrations of credit risk arising from similar geographic regions, activities, or economic characteristics of the reinsurers to minimize its exposure to significant losses from reinsurer insolvencies. At December 31, 19X3, reinsurance recoverables with a carrying value of $260 million were associated with a single reinsurer. The Entity holds collateral under related reinsurance agreements in the form of letters of credit totaling $150 million that can be drawn on for amounts that remain unpaid for more than 120 days.
            
        -   The effect of reinsurance on premiums and amounts earned is as follows (in millions).
            
            -   ![](https://asc.understandingaccounting.org/asc-img/GUID-12A2786E-583B-430E-AECF-EB328F169B0D-low.gif)
                
                Direct premiums and amounts assessed against policyholders " $2,730 " Reinsurance assumed 620 Reinsurance ceded (450) Net premiums and amounts earned " $2,900 "

### Financial Guarantee Insurance Contracts

##### [605-944-55-16](https://asc.understandingaccounting.org/asc/605/944/#605-944-55-16)

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This example illustrates the application of paragraph [944-605-30-7](https://asc.understandingaccounting.org/asc/605/944/#605-944-30-7), which states that if the premiums are received as payments over the period of the financial guarantee insurance contract, the insurance entity shall initially measure the unearned premium revenue at an amount equal to the present value of the premiums due or expected to be collected over the period of the financial guarantee insurance contract. For example, if the insurance entity expects to receive total premiums due over the period of the financial guarantee insurance contract of $28 million and the present value of that amount is $24.3 million, both the unearned premium revenue and the premium receivable initially shall be recognized at $24.3 million.

##### [605-944-55-17](https://asc.understandingaccounting.org/asc/605/944/#605-944-55-17)

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This Example illustrates the application of paragraphs

[944-605-25-27 through 25-28](https://asc.understandingaccounting.org/asc/605/944/#605-944-25-27)

to insured principal payments made over the period of a contract. On January 1, 20X0, an insurance entity issues a single-premium financial guarantee insurance contract for a financial obligation (municipal bond) with a contract period of 10 years. The premium amount is $5 million. Insured principal payments of $100 million will be made by the issuer of the bond over the period of the contract. The contractual schedule of expected insured principal payments follows.

-   ![ ](https://asc.understandingaccounting.org/asc-img/GUID-A0CFA450-6C69-437B-A646-0568BF54C4A1-low.gif)
    
    Year "Insured Principal Amounts Outstanding (a)" "Principal Payments" "Premium Revenue Recognized" "Unearned Premium Revenue" " $5,000,000 " 1 " $100,000,000 " " $5,000,000 " " $877,193 " " 4,122,807 " 2 " 95,000,000 " " 5,000,000 " " 833,333 " " 3,289,474 " 3 " 90,000,000 " " 10,000,000 " " 789,474 " " 2,500,000 " 4 " 80,000,000 " " 10,000,000 " " 701,754 " " 1,798,246 " 5 " 70,000,000 " " 15,000,000 " " 614,035 " " 1,184,211 " 6 " 55,000,000 " " 15,000,000 " " 482,456 " " 701,755 " 7 " 40,000,000 " " 15,000,000 " " 350,877 " " 350,878 " 8 " 25,000,000 " " 15,000,000 " " 219,298 " " 131,580 " 9 " 10,000,000 " " 5,000,000 " " 87,719 " " 43,861 " 10 " 5,000,000 " " 5,000,000 " " 43,861 " - Total " $570,000,000 " " $100,000,000 " " $5,000,000 " (a) Insured Principal Amounts Outstanding represents beginning-of-the-year balances.

##### [605-944-55-18](https://asc.understandingaccounting.org/asc/605/944/#605-944-55-18)

Pending content: no

Source downloaded (UTC): 2026-09-10T00:49:43.753Z to 2026-09-10T00:49:43.753Z

Record version: sha256:f684e552a98fab460eb4f143f2681b5baa95f6e8ac18ca31fb96b259c9050070

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


The ratio of the premium to the sum of all contractual insured principal amounts outstanding during each reporting period (the constant rate) is 0.00877193 (calculated as $5 million divided by $570 million). Accordingly, the insurance entity would recognize $877,193 of premium revenue (calculated as $100 million of insured principal amount outstanding multiplied by 0.00877193) in the first year of the contract. In the second year of the contract, the insurance entity would recognize $833,333 (calculated as $95 million multiplied by 0.00877193) of premium revenue. Thus, premium revenue is recognized based on the insurance protection being provided (represented by the constant rate and the insured principal amounts outstanding).

##### [605-944-55-19](https://asc.understandingaccounting.org/asc/605/944/#605-944-55-19)

Pending content: no

Source downloaded (UTC): 2026-09-10T00:49:43.753Z to 2026-09-10T00:49:43.753Z

Record version: sha256:7c085ecca4b5fc6560b9b89c48b482da4e45b3922be48501755855cc2c91dc11

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


The Example illustrates the application of paragraph [944-605-25-29](https://asc.understandingaccounting.org/asc/605/944/#605-944-25-29) to an insured principal payment made at the end of period of a contract. Assume all of the following:

1.  a
    
    On January 1, 200X, an insurance entity issues a single-premium financial guarantee insurance contract for a financial obligation (a zero-coupon municipal bond).
    
2.  b
    
    The insured financial obligation was issued at $61.4 million, resulting in an effective yield of 5 percent.
    
3.  c
    
    The premium amount is $5 million.
    
4.  d
    
    The insured principal payment of $100 million will be made by the issuer of the bond in total at the end of the 10-year period of the contract.

##### [605-944-55-20](https://asc.understandingaccounting.org/asc/605/944/#605-944-55-20)

Pending content: no

Source downloaded (UTC): 2026-09-10T00:49:43.753Z to 2026-09-10T00:49:43.753Z

Record version: sha256:e645d24160375b839a87e5c6ce49cbd37f3510acb7acda4cdc6af2ef51483e74

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


In this Example, the insured accreted principal amount outstanding represents the obligation of the insurance entity. The schedule of the insured accreted principal amounts outstanding during each reporting period follows.

-   ![ ](https://asc.understandingaccounting.org/asc-img/GUID-8C4DD2BF-49A5-4F1C-8CA3-1B9CA4EE87D7-low.gif)
    
    Year "Insured Accreted Principal Amounts Outstanding (a)" "Principal Payments" "Premium Revenue Recognized" "Unearned Premium Revenue" " $5,000,000 " 1 " $61,400,000 " - " $397,514 " " 4,602,486 " 2 " 64,500,000 " - " 417,584 " " 4,184,902 " 3 " 67,700,000 " - " 438,301 " " 3,746,601 " 4 " 71,100,000 " - " 460,313 " " 3,286,288 " 5 " 74,600,000 " - " 482,973 " " 2,803,315 " 6 " 78,400,000 " - " 507,575 " " 2,295,740 " 7 " 82,300,000 " - " 532,824 " " 1,762,916 " 8 " 86,400,000 " - " 559,368 " " 1,203,548 " 9 " 90,700,000 " - " 587,207 " " 616,341 " 10 " 95,200,000 " " $100,000,000 " " 616,341 " - Total " $772,300,000 " " $100,000,000 " " $5,000,000 " (a) Insured Accreted Principal Amounts Outstanding represents beginning-of-the-year balances and is calculated based on the effective yield of the insured financial obligation.

##### [605-944-55-21](https://asc.understandingaccounting.org/asc/605/944/#605-944-55-21)

Pending content: no

Source downloaded (UTC): 2026-09-10T00:49:43.753Z to 2026-09-10T00:49:43.753Z

Record version: sha256:d781d0f454abc743e617827c5ae9a1652173d6296dcc869642e80080a632d482

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


The ratio of the premium to the sum of the insured accreted principal amounts outstanding (the constant rate) is 0.006474168 (calculated as $5 million divided by $772.3 million). Accordingly, the insurance entity would recognize $397,514 of premium revenue (calculated as $61.4 million of insured accreted principal amount outstanding multiplied by 0.006474168) in the first year of the contract. In accordance with the Financial Guarantee Insurance Contracts Subsection of Section 944-605-25, premium revenue is recognized based on the insurance protection being provided (represented by the constant rate and the insured accreted principal amount outstanding).

##### [605-944-55-22](https://asc.understandingaccounting.org/asc/605/944/#605-944-55-22)

Pending content: no

Source downloaded (UTC): 2026-09-10T00:49:43.753Z to 2026-09-10T00:49:43.753Z

Record version: sha256:039ca68f3605ba77370e963113182ec16a1bbd705472d5dedd75585ea3cab8a0

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


This Example illustrates the application of paragraphs

[944-605-25-32 through 25-33](https://asc.understandingaccounting.org/asc/605/944/#605-944-25-32)

to the early retirement and replacement of an insured financial obligation if the same insurance entity insured the new financial obligation. This Example makes all of the following assumptions:

1.  a
    
    On January 1, 20X0, an insurance entity issues a nonrefundable, single premium financial guarantee insurance contract for a 30-year financial obligation (municipal bond).
    
2.  b
    
    The premium amount is $5 million.
    
3.  c
    
    On the municipal bond's 10th anniversary, the issuer of the insured financial obligation retires the municipal bond.
    
4.  d
    
    Premium recognized by the insurance entity for the financial guarantee insurance contract over the first 10 years was $2 million.

##### [605-944-55-23](https://asc.understandingaccounting.org/asc/605/944/#605-944-55-23)

Pending content: no

Source downloaded (UTC): 2026-09-10T00:49:43.753Z to 2026-09-10T00:49:43.753Z

Record version: sha256:b8161a22fe398c873c61b71b3fc6039d35d9e3c5b1795358b85c25acfad3329f

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


At early retirement on the 10th anniversary, the insurance entity would recognize as premium revenue the remaining unearned premium revenue ($3 million) because the risk to the insurance entity is extinguished. In addition, any remaining associated deferred acquisition costs are expensed.

##### [605-944-55-24](https://asc.understandingaccounting.org/asc/605/944/#605-944-55-24)

Pending content: no

Source downloaded (UTC): 2026-09-10T00:49:43.753Z to 2026-09-10T00:49:43.753Z

Record version: sha256:dd480c35b75e14671d4f1c68216d36362470368072671f15c0615f73bf395b14

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


This Example makes all of the following further assumptions:

1.  a
    
    The issuer of the financial obligation facilitated the early retirement of the municipal bond by issuing a new municipal bond at a lower interest rate.
    
2.  b
    
    The same insurance entity insures the new municipal bond.
    
3.  c
    
    The premium amount for the financial guarantee insurance contract for the new financial obligation is $3 million.
    
4.  d
    
    The amount of premium charged to insure a similar financial obligation in a separate standalone transaction is $4 million.

##### [605-944-55-25](https://asc.understandingaccounting.org/asc/605/944/#605-944-55-25)

Pending content: no

Source downloaded (UTC): 2026-09-10T00:49:43.753Z to 2026-09-10T00:49:43.753Z

Record version: sha256:4bebf92761fd85491a849a1a04bd6e9ee9ab49ac69e63f832640605d491a74cc

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


The insurance entity would recognize unearned premium revenue of $4 million. It also would recognize a debit to earnings in the amount of $1 million. This represents the difference between the amount of premium charged ($3 million) and the amount of premium that would be charged for a similar financial obligation in a separate standalone transaction.