# ASC 720-20-25: Other Expenses — Insurance Costs — 25 Recognition Source: FASB Accounting Standards Codification, Basic View [Read online](https://asc.understandingaccounting.org/asc/720/20/#25-recognition) 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): 2026-09-10T01:07:29.882Z to 2026-09-10T01:07:29.882Z Record version: sha256:eb70b47ccbe1892880dd74d8d77caaa92ff7af38d756cd7e21aa4fb188eb5c48 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 720-20-25: 25 Recognition [Read section](https://asc.understandingaccounting.org/asc/720/20/#25-recognition) SEC content: no ##### [720-20-25-1](https://asc.understandingaccounting.org/asc/720/20/#720-20-25-1) Pending content: no Source downloaded (UTC): 2026-09-10T01:07:29.882Z to 2026-09-10T01:07:29.882Z Record version: sha256:0b5d129b06bb71e968bb08b93d7737dd511a38cfeec0ba46e389a8a0298c8e70 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. To the extent that an insurance contract 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 does not, despite its form, provide for indemnification of the insured or the ceding entity by the insurer or reinsurer against loss or liability, the premium paid less the amount of the premium to be retained by the insurer or reinsurer shall be accounted for as a deposit by the insured or the ceding entity. Those contracts may be structured in various ways, but if, regardless of form, their substance is that all or part of the premium paid by the insured or the ceding entity is a deposit, it shall be accounted for as such. ##### [720-20-25-2](https://asc.understandingaccounting.org/asc/720/20/#720-20-25-2) Pending content: no Source downloaded (UTC): 2026-09-10T01:07:29.882Z to 2026-09-10T01:07:29.882Z Record version: sha256:eaa32987671a42b18a78e406f0ee110dc5104d8c1a7945039a6488beea61c78b Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. See Subtopic 340-30 for guidance on deposit accounting. In addition, the preceding paragraph requires that an entity determine whether insurance risk has been transferred through an insurance contract; entities may find the conditions in Section 944-20-15 useful in assessing whether an insurance contract transfers risk. ### Retroactive Contracts #### Purchase of a Retroactive Insurance Policy ##### [720-20-25-3](https://asc.understandingaccounting.org/asc/720/20/#720-20-25-3) Pending content: no Source downloaded (UTC): 2026-09-10T01:07:29.882Z to 2026-09-10T01:07:29.882Z Record version: sha256:28eab03aad6670a77070d7cf4ecb8554b6f3b07cbd35ee686f4c66b58f28c3eb Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Notwithstanding that Topic 944 applies only to insurance entities, purchased retroactive insurance contracts that indemnify the insured shall be accounted for in a manner similar to the manner in which retroactive reinsurance contracts are accounted for under Subtopic 944-605. The guidance in that Subtopic shall be applied, as appropriate, based on the facts and circumstances of the particular transaction. That is, amounts paid for retroactive insurance shall be expensed immediately. Simultaneously, a receivable shall be established for the expected recoveries related to the underlying insured event. ##### [720-20-25-4](https://asc.understandingaccounting.org/asc/720/20/#720-20-25-4) Pending content: no Source downloaded (UTC): 2026-09-10T01:07:29.882Z to 2026-09-10T01:07:29.882Z Record version: sha256:b06484ac90b9207549b6a8d5aac3720039931ea73cc4f5ff821b21d4fc071e8f Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. If the receivable established exceeds the amounts paid for the insurance, the resulting gain is deferred. Immediate gain recognition and liability derecognition are not appropriate because the liability has not been extinguished (the entity is not entirely relieved of its obligation). Additionally, the liability incurred as a result of a past insurable event and amounts receivable under the insurance contract do not meet the criteria for offsetting under paragraph [210-20-45-1](https://asc.understandingaccounting.org/asc/210/20/#210-20-45-1). ##### [720-20-25-5](https://asc.understandingaccounting.org/asc/720/20/#720-20-25-5) Pending content: no Source downloaded (UTC): 2026-09-10T01:07:29.882Z to 2026-09-10T01:07:29.882Z Record version: sha256:36758b7b79057ffb0cbe7994b3d65806fd034834a1b51c9d46d1121d2ad4e02e Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. If the purchased insurance contract includes coverage for legal and other costs, the accounting for those costs shall be consistent between the asset and the liability. That is, if the entity's accounting policy is to accrue legal and other costs, then the insurance receivable shall reflect those costs if they are covered under the terms of the insurance policy. If an entity's accounting policy is not to accrue for those costs, then the insurance receivable shall not reflect those costs on an accrual basis. ### Claims-Made Contracts #### Claims-Made Insurance Policies That Represent Purchased Retroactive Insurance Contracts ##### [720-20-25-6](https://asc.understandingaccounting.org/asc/720/20/#720-20-25-6) Pending content: no Source downloaded (UTC): 2026-09-10T01:07:29.882Z to 2026-09-10T01:07:29.882Z Record version: sha256:dacab776543fe70e560c9e591a25610193b8d589c010626b7eb0d9a473c64287 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. A claims-made insurance policy contains a retroactive provision if it provides coverage for specific known claims that were reportable prior to the policy period. Regardless of whether the insured has recognized a loss contingency for those claims, specific known claims that were reportable (by the insured entity to the insurance entity) would encompass: 1. a Asserted claims 2. b Known unasserted claims 3. c Any known previous event or circumstance that might result in a specific claim (whether asserted or unasserted). Such claims include those that were not reported by the insured to the insurance entity, but would have been reportable to the insurance entity had a claims-made policy been in place in a prior period. ##### [720-20-25-7](https://asc.understandingaccounting.org/asc/720/20/#720-20-25-7) Pending content: no Source downloaded (UTC): 2026-09-10T01:07:29.882Z to 2026-09-10T01:07:29.882Z Record version: sha256:f003a5ebed56672e055473fff8d5143b0db0e6516e5483c9e360941c2c25f887 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. If a claims-made insurance policy contains a retroactive provision, the retroactive and prospective provisions of the policy shall be accounted for separately, if practicable. ##### [720-20-25-8](https://asc.understandingaccounting.org/asc/720/20/#720-20-25-8) Pending content: no Source downloaded (UTC): 2026-09-10T01:07:29.882Z to 2026-09-10T01:07:29.882Z Record version: sha256:8942a1f76dcdbc2d209f34f509f1f0a0d4d98a0fb52b57749a33bff039b39cbc Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. If it is not practicable to separate the retroactive and prospective provisions, the claims-made insurance policy shall be accounted for entirely as a retroactive contract in accordance with Subtopic 944-605. A claims-made insurance policy that contains no retroactive provisions should be accounted for on a prospective basis as described in the [Claims-Made Contracts Subsection](https://asc.understandingaccounting.org/asc/720/20/#35-subsequent-measurement) of Section 720-20-35 and in Examples 4-5 (see paragraphs [720-20-55-13 through 55-20](https://asc.understandingaccounting.org/asc/720/20/#720-20-55-13) ). ##### [720-20-25-9](https://asc.understandingaccounting.org/asc/720/20/#720-20-25-9) Pending content: no Source downloaded (UTC): 2026-09-10T01:07:29.882Z to 2026-09-10T01:07:29.882Z Record version: sha256:db0b7a2e129767e29dade64739407a9037268b35b8f670a3b6313fdb6161af5f Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Paragraph [944-20-15-34B](https://asc.understandingaccounting.org/asc/944/20/#944-20-15-34B) states that in claims-made insurance, the insured event is the reporting to the insurer, within the period specified by the policy, of a claim for a loss covered by the insurance contract. Accordingly, a prospective claims-made insurance policy only covers claims for losses reportable to the insurer during the policy term. A retroactive provision provides coverage for known claims, for which the underlying event had occurred and the incident would have been reportable prior to the effective date of the claims-made policy. A recognized liability for [incurred but not reported](https://asc.understandingaccounting.org/glossary/i/#incurred-but-not-reported "Losses incurred by the insured entity that have not yet been reported to the insurance entity.") claims generally would not be determinative in concluding that a claims-made insurance policy either does or does not contain a retroactive provision. ##### [720-20-25-10](https://asc.understandingaccounting.org/asc/720/20/#720-20-25-10) Pending content: no Source downloaded (UTC): 2026-09-10T01:07:29.882Z to 2026-09-10T01:07:29.882Z Record version: sha256:044ea2dd48135d220404254098a73af654b7e95cd4ed94380eb3a5e8f299a43d Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. All relevant facts and circumstances should be considered in evaluating whether a claims-made policy contains a retroactive provision. The following are indicators that a claims-made insurance policy does not contain a retroactive provision (that is, it does not provide coverage for previously reportable claims) and, therefore, shall be accounted for on a prospective basis. No one indicator is determinative in this evaluation; the determination must be made upon the specific facts and circumstances: 1. a The insured consistently purchases claims-made insurance policies as part of its risk management program for the specific type of risk being insured, and [tail coverage](https://asc.understandingaccounting.org/glossary/t/#tail-coverage "Insurance designed to cover malpractice claims incurred before, but reported after, cancellation or expiration of a claims-made insurance policy.") for both prior periods and prior policies is readily available and not excessively priced as compared to tail coverage offered to similar entities that do not contain retroactive provisions. 2. b The claims-made insurance policy is responsive to unknown risks for a finite or limited period of time, as evidenced by the fact that all of the following conditions exist: 1. 1 The type of risk being insured is inherently short-tailed (that is, the claims are incurred during the policy period and paid out in their entirety shortly after the end of the policy period). 2. 2 The policy term is for a limited period of time (for example, one-year coverage). 3. 3 Claims-made coverage is the most readily available coverage for this type of insurance risk. 4. 4 The occurrence date of the type of risk covered by the policy is unclear (that is, the causal event that gives rise to an insured claim is difficult to determine). Such a lack of identification creates difficulty in assessing risk for an entity considering whether to self-insure its insurance risk (for example, a manufacturing entity may be completely unaware of the potential health hazards attributable to its core products and may want to protect itself in case a by-product of its production process becomes the next asbestos). 3. c The claims-made insurance policy contains an unambiguous trigger indicating that a claim is covered by the policy. That contract trigger should not be subject to interpretation, negotiation, or manipulation. An example of an unambiguous trigger that indicates that a claim is covered by a claims-made insurance policy would include both of the following provisions: 1. 1 The insured notifies the insurance carrier during the policy term that a claim has been asserted or that an incident has occurred. 2. 2 The insured must represent that it was not aware of any such incident when the claims-made policy was purchased. 4. d The premium charged for the claims-made insurance policy is not significantly in excess of the premium that would be charged for a claims-made insurance policy that could be purchased by a similar entity with similar insurance risks and no knowledge of any circumstances or events that would result in any claims, excluding any anticipated amounts for a typical number of claims for which the insured is not aware to have specifically occurred but that it expects would be reported (incurred but not reported). 5. e The insurer may base the premium for the claims-made insurance policy on estimates and predictions that are based on the past experience of the insured but the premium is not based on settlement estimates of specific, known events that are expected to be recovered under the policy. 6. f The premium charged for the policy in the current year is not significantly in excess of that charged in previous years, other than for increases in the amount or type of coverage. An anticipated increase in premiums that is expected to occur because the insured entity is advancing toward the mature stage of premiums for claims-made insurance would not be considered in making that determination. 7. g The claims-made insurance policy is primarily intended to cover insurance risk and is not a financing arrangement. Claims-made insurance policies that are intended to cover insurance risk typically include features such as: 1. 1 An absence of adjustment features based on experience 2. 2 Coverage of the ultimate loss from the claim, once made, regardless of period of settlement. 8. h If the claims-made insurance policy has a specified retroactive date prior to the inception of the claims-made relationship with the insurer, the period from that specified retroactive date to the inception of the claims-made relationship with that insurer is either short or covered by other insurance policies. ##### [720-20-25-11](https://asc.understandingaccounting.org/asc/720/20/#720-20-25-11) Pending content: no Source downloaded (UTC): 2026-09-10T01:07:29.882Z to 2026-09-10T01:07:29.882Z Record version: sha256:d0899bdbf1aa87f0c249c1691e19dc07eefec1cb4ce398029b12fa880a6d42d7 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Although the guidance in the [Retroactive Contracts Subsection](https://asc.understandingaccounting.org/asc/720/20/#25-recognition) of this Section (see paragraph [720-20-25-3](https://asc.understandingaccounting.org/asc/720/20/#720-20-25-3)) applies to situations in which the insured entity uses a claims-made insurance policy to finance known losses (that is, when the insurance contract was purchased in order to provide insurance coverage for specific, known events that occurred or were reportable before the inception of the contract), the guidance in that paragraph does not preclude prospective accounting for those claims-made insurance policies or portions of those policies that contain only prospective provisions. ##### [720-20-25-12](https://asc.understandingaccounting.org/asc/720/20/#720-20-25-12) Pending content: no Source downloaded (UTC): 2026-09-10T01:07:29.882Z to 2026-09-10T01:07:29.882Z Record version: sha256:cc202d91da5d127e34bc9d65d5bf7964a113f0d97e8bf5121ddc28818992ff5e Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. An insured entity may, for various reasons, contemporaneously enter into multiple claims-made insurance policy contracts. In those circumstances, an entity should consider whether those insurance contracts should be combined in order to determine the appropriate accounting treatment. The guidance contained in Section [944-20-15](https://asc.understandingaccounting.org/asc/944/20/#15-scope-and-scope-exceptions) is helpful in those instances. ##### [720-20-25-13](https://asc.understandingaccounting.org/asc/720/20/#720-20-25-13) Pending content: no Source downloaded (UTC): 2026-09-10T01:07:29.882Z to 2026-09-10T01:07:29.882Z Record version: sha256:6b01a71de8fe813d480211017c31ff23d6d631031767260a51578951f39fe9f1 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. See Examples 1-3 (paragraphs [720-20-55-2 through 55-12](https://asc.understandingaccounting.org/asc/720/20/#720-20-55-2) ) for illustrations of the application of the recognition guidance for claims-made contracts. #### Recognizing a Liability for Incurred but Not Reported Claims ##### [720-20-25-14](https://asc.understandingaccounting.org/asc/720/20/#720-20-25-14) Pending content: no Source downloaded (UTC): 2026-09-10T01:07:29.882Z to 2026-09-10T01:07:29.882Z Record version: sha256:95cd98b28277b5f7a7967b4fde8b9e852d9b50b744aeed7c0dfabddb681d098b Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Paragraph [450-20-25-2](https://asc.understandingaccounting.org/asc/450/20/#450-20-25-2) requires that insured entities (except as discussed in Section 944-20-15), including those that use a claims-made approach for insuring certain risks, recognize a liability for the probable losses from incurred but not reported claims and incidents if the loss is both probable and reasonably estimable. Paragraphs [450-20-55-10 through 55-17](https://asc.understandingaccounting.org/asc/450/20/#450-20-55-10) provide implementation guidance about litigation, claims, and assessments. ### Multiple-Year Retrospectively Rated Contracts ##### [720-20-25-15](https://asc.understandingaccounting.org/asc/720/20/#720-20-25-15) Pending content: no Source downloaded (UTC): 2026-09-10T01:07:29.882Z to 2026-09-10T01:07:29.882Z Record version: sha256:d912902414b168e07af43c8aee3de65b60b50c23086a66cd1669e4dc93694938 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. For a multiple-year retrospectively rated insurance contract accounted for as insurance, the insured shall recognize either of the following: 1. a As indicated in paragraph [944-20-25-2](https://asc.understandingaccounting.org/asc/944/20/#944-20-25-2), a liability to the extent that the insured has an obligation to pay cash (or other consideration) to the insurer that would not have been required absent experience under the contract 2. b As indicated in paragraph [944-20-25-2](https://asc.understandingaccounting.org/asc/944/20/#944-20-25-2), an asset to the extent that any cash (or other consideration) would be payable by the insurer to the insured based on experience to date under the contract.