# ASC 720-20-35: Other Expenses — Insurance Costs — 35 Subsequent Measurement Source: FASB Accounting Standards Codification, Basic View [Read online](https://asc.understandingaccounting.org/asc/720/20/#35-subsequent-measurement) 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): 2026-09-10T01:07:34.188Z to 2026-09-10T01:07:34.188Z Record version: sha256:3cff17b9ea0c6be7efa17080cc88b689c47054ddc109e8c12b35849a2caab684 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 720-20-35: 35 Subsequent Measurement [Read section](https://asc.understandingaccounting.org/asc/720/20/#35-subsequent-measurement) SEC content: no ##### [720-20-35-1](https://asc.understandingaccounting.org/asc/720/20/#720-20-35-1) Pending content: no Source downloaded (UTC): 2026-09-10T01:07:34.188Z to 2026-09-10T01:07:34.188Z Record version: sha256:ca5a6dcfa671455d14f35ea75f2adb40a2a87845c341d37bc99fc047be538493 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. See Subtopic 340-30 for measurement guidance on deposit accounting for payments to insurance entities that may not involve transfer of risk. ### Retroactive Contracts #### Deferred Gain Amortization ##### [720-20-35-2](https://asc.understandingaccounting.org/asc/720/20/#720-20-35-2) Pending content: no Source downloaded (UTC): 2026-09-10T01:07:34.188Z to 2026-09-10T01:07:34.188Z Record version: sha256:550bdaf17398cb77cdd5d3e93d21ac08185186e6fe40ac89ed11aa3fdd0bb5e8 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. If the amounts and timing of the insurance recoveries can be reasonably estimated, the deferred gain shall be amortized using the interest method over the estimated period over which the entity expects to recover substantially all amounts due under the terms of the insurance contract. If the amounts and timing of the insurance recoveries cannot be reasonably estimated, then the proportion of actual recoveries to total estimated recoveries shall be used to determine the amount of the amortization. ### Claims-Made Contracts #### Interim Financial Reporting—Entity's Fiscal Year and Policy Year Coincide ##### [720-20-35-3](https://asc.understandingaccounting.org/asc/720/20/#720-20-35-3) Pending content: no Source downloaded (UTC): 2026-09-10T01:07:34.188Z to 2026-09-10T01:07:34.188Z Record version: sha256:c47907a12ee500beac891371c508a87cb80d7ab49493a25dbcb4a3bb68c7e656 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. When the entity's fiscal year and policy year coincide, an appropriate method to recognize expense is through a combination of any of the following: 1. a Accruing the [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.") liability 2. b Accruing any expected increase in insurance recoverables 3. c Amortizing the insurance premium on a pro rata basis over the year. In addition, the liability for any unusual claims or incidents, as well as any applicable insurance recoverable related thereto, would be recognized in the interim period in which they become known. ##### [720-20-35-4](https://asc.understandingaccounting.org/asc/720/20/#720-20-35-4) Pending content: no Source downloaded (UTC): 2026-09-10T01:07:34.188Z to 2026-09-10T01:07:34.188Z Record version: sha256:bda655ef0bcb6c8b0917865b57bc6197a3d8d6530c8d564b572458154f0d979b Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. For interim reporting, the approach treats usual recurring losses as integral to annual reporting, and, therefore, any expected changes in the incurred but not reported liability and related insurance recoverables that are not related to specific events can be spread over the entire year. However, material unusual losses shall be accounted for as discrete items and recognized as they occur. The approach discussed in this Subsection assumes the recurring purchase of a claims-made insurance policy with a one-year term and the payment of premiums on the first day of each policy year. ##### [720-20-35-5](https://asc.understandingaccounting.org/asc/720/20/#720-20-35-5) Pending content: no Source downloaded (UTC): 2026-09-10T01:07:34.188Z to 2026-09-10T01:07:34.188Z Record version: sha256:9ce674e217da573404c381920da17447210ce845ad11be7aaf4758d5e994f590 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. When the entity's fiscal year and policy term coincide, the year-end incurred but not reported liability relates to the entity's obligation for claims and incidents that have been incurred prior to year-end but will be reportable after year-end. The approach for accounting by policyholders who purchase claims-made insurance policies that consist of prospective provisions is as follows: 1. a The premium paid at the beginning of the fiscal year for the new claims-made insurance policy shall be recognized as a prepaid expense. 2. b At the beginning of the fiscal year, the entity shall estimate its incurred but not reported liability as of the end of the fiscal year. That estimate involves estimating the claims and incidents that will be incurred prior to year-end but will not be reportable until after year-end. Presumably the estimated year-end incurred but not reported liability would approximate the beginning incurred but not reported liability adjusted for relevant historical patterns unless the entity has identified new factors (such as a major change in products, manufacturing processes, or risk management systems) that warrant further adjustment of the ending incurred but not reported liability. 3. c The entity shall compute an estimated annual expense as the sum of all of the following: 1. 1 The premium paid for the claims-made policy 2. 2 The difference between the beginning incurred but not reported liability and the estimated year-end incurred but not reported liability 3. 3 The difference between the beginning insurance recoverable related to the incurred but not reported liability and the estimated ending amount. That estimated annual expense shall be recognized in interim periods based on the methodology that best reflects the manner in which the benefits of the insurance coverage are consumed and the incurred but not reported liability is incurred. In addition, liabilities for specific claims incurred during the year that are not included in the incurred but not reported estimate shall be recognized as expense in the interim period in which they are incurred. The method selected shall be appropriate in light of the relevant facts and circumstances and consistently applied. 4. d The estimated year-end incurred but not reported liability shall be reviewed whenever interim financial statements are prepared. Routine adjustments to the estimated liability shall be recognized ratably in each of the remaining interim periods. However, if events and circumstances in that interim period indicate that unusual claims and incidents have been incurred prior to the end of the interim period, the entity shall recognize in that interim period any related significant adjustments of the estimated year-end incurred but not reported liability. 5. e For any insurance recoverable recognized, either related to the incurred but not reported liability or to a specific incurred claim, the entity shall evaluate those assets and adjust them, if necessary, based on changes in circumstances. See paragraphs [410-30-35-8 through 35-11](https://asc.understandingaccounting.org/asc/410/30/#410-30-35-8) for further guidance on the recognition of a receivable for expected insurance recoveries. 6. f Any unusual claims and incidents that have been incurred prior to the end of an interim period but will probably be reported prior to year-end should not affect net income if they will be covered (insured) under the existing claims-made insurance policy. However, both the asset (under the insurance claim) and the liability (for the incident) shall be reflected on the balance sheet. ##### [720-20-35-6](https://asc.understandingaccounting.org/asc/720/20/#720-20-35-6) Pending content: no Source downloaded (UTC): 2026-09-10T01:07:34.188Z to 2026-09-10T01:07:34.188Z Record version: sha256:8102c16815d9e261fb7f582427e99f69149fd133e37d03b15f2fc6713fc370fc Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. See the [Claims-Made Contracts](https://asc.understandingaccounting.org/asc/720/20/#45-other-presentation-matters) Subsection of Section 720-20-45 for guidance on offsetting insurance assets and liabilities. ##### [720-20-35-7](https://asc.understandingaccounting.org/asc/720/20/#720-20-35-7) Pending content: no Source downloaded (UTC): 2026-09-10T01:07:34.188Z to 2026-09-10T01:07:34.188Z Record version: sha256:ef0ef1abc707eeeb6405db4bde1f8b870cb61837f519d6dd9ded644311a8819d Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. See Example 4 (paragraph [720-20-55-13](https://asc.understandingaccounting.org/asc/720/20/#720-20-55-13)) for illustrations of the application of the subsequent measurement guidance for interim financial reporting when an entity's fiscal year and policy year coincide. #### Interim Financial Reporting—Entity's Fiscal Year and Policy Year Do Not Coincide ##### [720-20-35-8](https://asc.understandingaccounting.org/asc/720/20/#720-20-35-8) Pending content: no Source downloaded (UTC): 2026-09-10T01:07:34.188Z to 2026-09-10T01:07:34.188Z Record version: sha256:4d336440f28007e5a232fc004acba9273413925c3fbc7522ece82c414bb97b6e Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. When the entity's fiscal year and policy year do not coincide, the insurance premium component of expense in interim periods could be based on the estimated premium for claims-made coverage that the entity expects to be able to acquire later in the fiscal year. ##### [720-20-35-9](https://asc.understandingaccounting.org/asc/720/20/#720-20-35-9) Pending content: no Source downloaded (UTC): 2026-09-10T01:07:34.188Z to 2026-09-10T01:07:34.188Z Record version: sha256:2d5936ca9b964fca2c1d7e88f0528ba9b911be43fa2a52cf8a72d2a6e8e23e57 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. When the entity's fiscal year and policy term do not coincide, an entity shall recognize all of the following elements at year-end: 1. a An incurred but not reported liability related to the entity's obligation for claims and incidents that have been incurred prior to year-end but will be reportable after year-end 2. b An insurance recoverable for any outstanding claims that are reimbursable under the existing claims-made policy 3. c An asset for prepaid insurance premiums related to the coverage for claims and incidents that will be incurred after year-end but reported prior to the expiration of the existing claims-made policy. ##### [720-20-35-10](https://asc.understandingaccounting.org/asc/720/20/#720-20-35-10) Pending content: no Source downloaded (UTC): 2026-09-10T01:07:34.188Z to 2026-09-10T01:07:34.188Z Record version: sha256:7bf93744f9c5f6d8165c6fb0d5ae7739d5485b64743453d61565fa88823a0193 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The approach for accounting by policyholders who purchase claims-made insurance policies that have terms of duration that do not coincide with the entity's fiscal year is as follows: 1. a At the beginning of the fiscal year the entity shall make an estimate of its future premium cost of the new claims-made policy that is expected to be purchased during the fiscal year. The entity shall also estimate the portion of that future premium cost that would relate to coverage for claims and incidents that will be incurred after the end of the fiscal year but reported prior to the expiration of that new claims-made policy; that portion represents the estimated prepaid asset at the end of the fiscal year. The estimate of the future premium cost involves estimating the effect of past claims and incidents that are expected to affect the premium level, as well as the effect of historical patterns and any new factors (such as a major change in products, manufacturing processes, or risk management systems) that are relevant. 2. b At the beginning of the fiscal year the entity shall make an estimate of its incurred but not reported liability as of the end of the fiscal year. That estimate involves estimating the claims and incidents that will be incurred prior to year-end but will not be reportable until after the year-end. Presumably the estimated year-end incurred but not reported liability would closely approximate the beginning incurred but not reported liability adjusted for relevant historical patterns unless the entity has identified new factors (such as a major change in products, manufacturing processes, or risk management systems) that warrant further adjustment of the ending incurred but not reported liability. 3. c The entity shall compute an estimated annual expense as the sum of all of the following: 1. 1 The balance of the premium cost for the claims-made policy expiring during the year 2. 2 The estimated future premium cost for the new claims-made policy 3. 3 The difference between the beginning incurred but not reported liability and the estimated year-end incurred but not reported liability 4. 4 The difference between the beginning and estimated ending insurance receivable related to incurred but not reported liability. That estimated annual expense should be recognized ratably in interim periods based on the methodology that best reflects the manner in which the benefits of the insurance premiums are consumed and the incurred but not reported liability is incurred. As indicated in paragraph [720-20-35-5(c)](https://asc.understandingaccounting.org/asc/720/20/#720-20-35-5), the method selected should be appropriate in light of the relevant facts and circumstances and consistently applied. In addition, liabilities for specific claims incurred during the year that are not included in the incurred but not reported estimate shall be recognized as expense in the period in which they are incurred. 4. d The estimated year-end incurred but not reported liability should be reviewed whenever interim financial statements are prepared. Routine adjustments in the estimated liability (such as adjusting the estimated future premium cost to reflect actual) would be recognized ratably in each of the remaining interim periods. However, if events and circumstances in that interim period indicate that unusual claims and incidents have been incurred prior to the end of the interim period, the entity shall recognize in that interim period any related significant adjustments of the estimated year-end incurred but not reported liability. 5. e For any insurance recoverable recognized, either related to the incurred but not reported liability or to a specific incurred claim, the entity should evaluate those assets and adjust them, if necessary, based on changes in circumstances. Paragraphs [410-30-35-8 through 35-11](https://asc.understandingaccounting.org/asc/410/30/#410-30-35-8) provide further guidance on the recognition of a receivable for expected insurance recoveries. 6. f Any unusual claims and incidents that have been incurred prior to the end of an interim period and that will probably be reported prior to expiration of the new claims-made insurance policy should not affect net income if they will be covered by insurance. However, both the asset (under the insurance claim) and the liability (for the incident) shall be reflected on the balance sheet. ##### [720-20-35-11](https://asc.understandingaccounting.org/asc/720/20/#720-20-35-11) Pending content: no Source downloaded (UTC): 2026-09-10T01:07:34.188Z to 2026-09-10T01:07:34.188Z Record version: sha256:0243cf84d006d59ea07bea799b3fd998c9c7f5a67eb230f34b575e99451ed577 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. See the [Claims-Made Contracts](https://asc.understandingaccounting.org/asc/720/20/#45-other-presentation-matters) Subsection of Section 720-20-45 for guidance on offsetting insurance assets and liabilities. ##### [720-20-35-12](https://asc.understandingaccounting.org/asc/720/20/#720-20-35-12) Pending content: no Source downloaded (UTC): 2026-09-10T01:07:34.188Z to 2026-09-10T01:07:34.188Z Record version: sha256:e9a31a727bfbb52be68c491dd02b3ca4f6821cf85484bb94ec2bd06313683793 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. See Example 5 (paragraph [720-20-55-20](https://asc.understandingaccounting.org/asc/720/20/#720-20-55-20)) for an illustration of the application of the subsequent measurement guidance for interim financial reporting when an entity's fiscal year and policy year do not coincide. ### Multiple-Year Retrospectively Rated Contracts ##### [720-20-35-13](https://asc.understandingaccounting.org/asc/720/20/#720-20-35-13) Pending content: no Source downloaded (UTC): 2026-09-10T01:07:34.188Z to 2026-09-10T01:07:34.188Z Record version: sha256:d845d7048e5862a5a65cee0eedd15c07a845d010f43558c43726c546c8c861c6 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The insured shall account for changes in coverage in the same manner as changes in other contract costs, as indicated in paragraph [944-20-35-2](https://asc.understandingaccounting.org/asc/944/20/#944-20-35-2). For example, the effects of decreases in coverage without a commensurate reduction in premium shall be recognized as a loss by the insured when the event causing the decrease in coverage takes place.