# ASC 805-944-55: Business Combinations — Financial Services—Insurance — 55 Implementation Guidance and Illustrations Source: FASB Accounting Standards Codification, Basic View [Read online](https://asc.understandingaccounting.org/asc/805/944/#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): 2026-09-10T01:27:03.516Z to 2026-09-10T01:27:03.516Z Record version: sha256:c647d6b4f4c33055e86f4f0a3366b9e78df988da4578ad0a418ba947965672a3 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 805-944-55: 55 Implementation Guidance and Illustrations [Read section](https://asc.understandingaccounting.org/asc/805/944/#55-implementation-guidance-and-illustrations) SEC content: no ### Demutualizations #### Implementation Guidance ##### [805-944-55-1](https://asc.understandingaccounting.org/asc/805/944/#805-944-55-1) Pending content: no Source downloaded (UTC): 2026-09-10T01:27:03.516Z to 2026-09-10T01:27:03.516Z Record version: sha256:6f0a0e79f4e3a968ce0166f956737c167f9c45da140f9f4165777d82e673a5a9 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. A stock dividend declared by the stock insurer shall be accounted for in accordance with the guidance in Subtopic 505-20. Under existing laws or regulations, a mutual insurance holding entity is required to own a controlling voting interest in the stock insurance subsidiary and, therefore, shall reflect the stock insurer or intermediate holding entity on a consolidated basis. As a result, intra-entity dividends would be eliminated in the consolidated accounts of the mutual insurance holding entity. #### Illustrations ##### [805-944-55-2](https://asc.understandingaccounting.org/asc/805/944/#805-944-55-2) Pending content: no Source downloaded (UTC): 2026-09-10T01:27:03.516Z to 2026-09-10T01:27:03.516Z Record version: sha256:a663cc9866bd552d88f00f52617f288bf912283658670408c5512100952e5b0b Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Example illustrates emergence of earnings as discussed beginning in paragraph [944-805-25-8](https://asc.understandingaccounting.org/asc/805/944/#805-944-25-8). As part of the negotiations surrounding the [closed block](https://asc.understandingaccounting.org/glossary/c/#closed-block "A mechanism to preserve, over time, the reasonable dividend expectations of individual policyholders with individual life, health, or annuity policies for which dividends are currently being paid or are expected to be paid under the current dividend scale. A closed block comprises a defined, limited group of policies and a defined set of assets, and is governed by a set of operating rules.") and [demutualization](https://asc.understandingaccounting.org/glossary/d/#demutualization "The conversion of a mutual insurance entity to a stock insurance entity.") process, the insurance entity may agree with the insurance regulator to designate participating policies with a [carrying amount](https://asc.understandingaccounting.org/glossary/c/#carrying-amount "The amount of an item as displayed in the financial statements.") (liability) of $2,500,000,000 for the closed block. Fixed maturity available-for-sale investments with a carrying value and [fair value](https://asc.understandingaccounting.org/glossary/f/#fair-value "The price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.") of $2,300,000,000 and an amortized cost of $2,240,000,000 are designated as the closed block assets. If there are no other assets or liabilities included in the closed block, the maximum future earnings from the closed block that would be recognized in income over the period in which the closed block remains [in force](https://asc.understandingaccounting.org/glossary/i/#in-force "Policies and contracts written and recorded on the books of an insurance carrier that are unexpired as of a given date.") is $260,000,000. ##### [805-944-55-3](https://asc.understandingaccounting.org/asc/805/944/#805-944-55-3) Pending content: no Source downloaded (UTC): 2026-09-10T01:27:03.516Z to 2026-09-10T01:27:03.516Z Record version: sha256:eb041e12054528670efc2947cc2c7f662344e57ffc59c83dde1ab36669b4746e Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Example illustrates one application of the disclosure requirements of the [Demutualizations Subsection](https://asc.understandingaccounting.org/updates/page-2147479835/) of Section 944-805-50 for a single hypothetical insurance entity, referred to as ABC Life Insurance Entity. ABC Life Insurance Entity would make the following disclosures. - At the effective date (January XX, 20X1) of the Plan of Demutualization, eligible policyholders received, in the aggregate, approximately $XX million of cash, $XX million of policy credits, and XX million shares of common stock of ABC Holding Entity in exchange for their membership interests in ABC Life Insurance Entity. The demutualization was accounted for as a reorganization. Accordingly, ABC Life Insurance Entity's retained earnings at the Plan Effective Date (net of the aforementioned cash payments and policy credits, which were charged directly to retained earnings) were reclassified to common stock and capital in excess of par. - As of January XX, 20X1, ABC Life Insurance Entity established a closed block for the benefit of certain classes of individual participating policies for which ABC Life Insurance Entity had a dividend scale payable in 20X0 and that were in force on January XX, 20X1. Assets were allocated to the closed block in an amount that, together with anticipated revenues from policies included in the closed block, was reasonably expected to be sufficient to support such business, including provision for payment of benefits, certain expenses, and taxes, and for continuation of dividend scales payable in 20X0, assuming experience underlying such scales continues. Assets allocated to the closed block inure solely to the benefit of the holders of the policies included in the closed block and will not revert to the benefit of stockholders of ABC Life Insurance Entity. No reallocation, transfer, borrowing, or lending of assets can be made between the closed block and other portions of ABC Life Insurance Entity's general account, any of its separate accounts, or any affiliate of ABC Life Insurance Entity without the approval of the Z State Insurance Department. - If, over time, the aggregate performance of the closed block assets and policies is better than was assumed in funding the closed block, dividends to policyholders will be increased. If, over time, the aggregate performance of the closed block assets and policies is less favorable than was assumed in the funding, dividends to policyholders could be reduced. - The assets and liabilities allocated to the closed block are recognized in ABC Life Insurance Entity's financial statements on the same basis as other similar assets and liabilities. The carrying amount of closed block liabilities in excess of the carrying amount of closed block assets at the date of demutualization (adjusted to eliminate the effect of related amounts in accumulated other comprehensive income) represents the maximum future earnings from the assets and liabilities designated to the closed block that can be recognized in income over the period the policies in the closed block remain in force. ABC Life Insurance Entity has developed an actuarial calculation of the timing of such maximum future stockholder earnings, and this is the basis of the policyholder dividend obligation. - If actual cumulative earnings are greater than expected cumulative earnings, only expected earnings will be recognized in income. Actual cumulative earnings in excess of expected cumulative earnings represents undistributed accumulated earnings attributable to policyholders, which are recognized as a policyholder dividend obligation because the excess will be paid to closed block policyholders as an additional policyholder dividend unless otherwise offset by future performance of the closed block that is less favorable than originally expected. If actual cumulative performance is less favorable than expected, only actual earnings will be recognized in income. - The principal cash flow items that affect the amount of closed block assets and liabilities are premiums, net investment income, purchases and sales of investments, policyholders' benefits, policyholder dividends, premium taxes, and income taxes. The principal income and expense items excluded from the closed block are management and maintenance expenses, commissions and net investment income, and realized investment gains and losses of investment assets outside the closed block that support the closed block business. The amounts shown in the following tables for assets, liabilities, revenues, and expenses of the closed block are those that enter into the determination of amounts that are to be paid to policyholders. ##### [805-944-55-4](https://asc.understandingaccounting.org/asc/805/944/#805-944-55-4) Pending content: no Source downloaded (UTC): 2026-09-10T01:27:03.516Z to 2026-09-10T01:27:03.516Z Record version: sha256:510718d634a4fcd959d108146aa27504f16c3468216231a910b99604dd0a3069 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ABC Life Insurance Entity may present summarized financial information for the closed block in a table as follows. - ![](https://asc.understandingaccounting.org/asc-img/GUID-BF693EFC-EF81-4256-89D3-FE4F8B91D84A-low.gif) "December 31, 20X2" 20X2 Activity (a) "December 31, 20X1" Closed block liabilities: Future policy benefits and policyholder account balances " $8,903 " $(8) B " $8,911 " Policyholder dividends payable 88 88 Policyholder dividend obligation 163 93 E 80 (10) C Other closed block liabilities 12 12 Total closed block liabilities " 9,166 " 75 " 9,091 " Assets designated to the closed block: Fixed maturities: "Held to maturity, at amortized cost (estimated fair value, 20X2, $275; 20X1, $319)" 289 289 "Available for sale, at estimated fair value (amortized cost, 20X2, $3,809; 20X1, $3,502)" " 4,001 " " 307 93 " " D E " " 3,601 " "Equity securities, at estimated fair value" 202 202 Mortgage loans on real estate " 1,273 " (307) D " 1,580 " Policy loans " 1,766 " " 1,766 " Real estate 105 105 Short-term investments 62 62 Cash and cash equivalents 119 82 A 37 Other closed block assets 76 76 Total closed block assets " 7,893 " 175 " 7,718 " Excess of reported closed block liabilities over assets designated to the closed block " 1,273 " (100) " 1,373 " Portion of above representing other comprehensive income -increase in unrealized appreciation 192 93 99 -increase in policyholder dividend obligation (93) (93) Total 99 - 99 Maximum future earnings to be recognized from closed block assets and liabilities " $1,372 " $(100) " $1,472 " Change in Policyholder Dividend Obligation: "December 31, 20X2" "December 31, 20X1" Balance at beginning of year $80 $- Impact on net income before income taxes (10) 5 Unrealized investment gains (losses) 93 75 Balance at end of year $163 $80 Change in Other Comprehensive Income: "December 31, 20X2" Change for 20X2 "December 31, 20X1" Fixed maturities available for sale: Fair value " $4,001 " $400 " $3,601 " Amortized cost " 3,809 " 307 D " 3,502 " Unrealized appreciation $192 $93 E $99 (a) "Assumed 20X2 activity for assets and liabilities (similarly identified in statement of operations as applicable): A items are assumed settled in cash, with net impact reflected in "Cash and cash equivalents." B and C are given effect in their respective balance sheet accounts. D represents the assumed sale of mortgage loans at book value and reinvestment of the proceeds in available-for-sale fixed maturities. E represents the increase in unrealized appreciation on available-for-sale securities held at both December 31, 20X1 and December 31, 20X2. It is assumed that there are no related taxes and that the available-for-sale fixed maturities sold (see above) had fair value equal to book value both at December 31, 20X1, and when sold. It is further assumed that the unrealized appreciation at December 31, 20X1, is equal to that at the date of demutualization. Unrealized appreciation that arises since the date of demutualization is to be included in the determination of the policyholder dividend obligation." ##### [805-944-55-5](https://asc.understandingaccounting.org/asc/805/944/#805-944-55-5) Pending content: no Source downloaded (UTC): 2026-09-10T01:27:03.516Z to 2026-09-10T01:27:03.516Z Record version: sha256:8f6dd568c58821a23d871b1aa0225003fe6303ebdb208426b766f7eced48ff59 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ABC Life Insurance Entity may present additional summarized financial information for the closed block in a table as follows. - ![](https://asc.understandingaccounting.org/asc-img/GUID-007EA11C-044A-4487-BA20-E613F05CCA17-low.gif) 20X2(a) 20X1 Closed Block Operations: Closed block revenues: Premiums $303 A $318 Net investment income 205 A 215 Realized investment gains (losses) (2) A 10 Other closed block revenues 5 A 5 Total closed block revenues 511 548 Closed block benefits and expenses: Policyholder benefits 402 A 376 Change in policyholder benefits and interest credited to policyholder account balances (8) B 17 Dividends to policyholders 8 A 8 Change in policyholder dividend obligation (10) C 5 Other closed block expenses 10 A 10 Total closed block benefits and expenses 402 416 "Closed block revenues, net of closed block benefits and expenses, before income taxes" 109 132 Income taxes 9 A 10 "Closed block revenues, net of closed block benefits and expenses and income taxes" $100 $122 Maximum future earnings from closed block assets and liabilities: Beginning of year " $1,472 " " $1,594 " End of year " 1,372 " " 1,472 " Change during the year $(100) $(122) (a) "Assumed 20X2 activity for assets and liabilities (similarly identified in statement of operations as applicable): A items are assumed settled in cash, with net impact reflected in "Cash and cash equivalents." B and C are given effect in their respective balance sheet accounts." ##### [805-944-55-6](https://asc.understandingaccounting.org/asc/805/944/#805-944-55-6) Pending content: no Source downloaded (UTC): 2026-09-10T01:27:03.516Z to 2026-09-10T01:27:03.516Z Record version: sha256:c9682e00e9f6e8bef02d8b998363ab69594c1670a83f7a7339440a204eb07ffc Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Example illustrates the accounting under the Demutualizations Subsections of this Subtopic for closed block business (meaning those assets and liabilities both inside and outside of the closed block that relate to or support the closed block policies) after the demutualization date. This Example illustrates the computations involved in the following: 1. a Determining the amount of the policyholder dividend obligation 2. b [Subparagraph superseded by Accounting Standards Update No. 2018-12](https://asc.understandingaccounting.org/updates/asu-2018-12/). 3. c [Subparagraph superseded by Accounting Standards Update No. 2018-12](https://asc.understandingaccounting.org/updates/asu-2018-12/). ##### [805-944-55-7](https://asc.understandingaccounting.org/asc/805/944/#805-944-55-7) Pending content: no Source downloaded (UTC): 2026-09-10T01:27:03.516Z to 2026-09-10T01:27:03.516Z Record version: sha256:9e7efb00990664900cb2fc9d12dd8060350e15f051ab3c4bbfcd353724b1a23d Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. For simplicity, this Example assumes the closed block has not been funded for income taxes. In practice, the closed block may or may not be funded for income taxes. If the closed block is funded for income taxes, the actuarial calculation would be constructed on a post-tax basis. However, for the purpose of determining the policyholder dividend obligation, pretax amounts should be used. Generally, this would be accomplished by converting post-tax actuarial calculation values to corresponding pretax values for purposes of determining the policyholder dividend obligation. If the closed block is funded for income taxes, a change in income tax rates would result in an experience gain or loss that would affect closed block cash flows. ##### [805-944-55-8](https://asc.understandingaccounting.org/asc/805/944/#805-944-55-8) Pending content: no Source downloaded (UTC): 2026-09-10T01:27:03.516Z to 2026-09-10T01:27:03.516Z Record version: sha256:56904d1143628254fbf70a84228bb1ae0f160cd8db4d3132be86213d8a16c281 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The closed block business is assumed to be written in Year 1, with demutualization occurring at the end of Year 5. Present values are assumed at a discount rate of 8.5 percent. ##### [805-944-55-9](https://asc.understandingaccounting.org/asc/805/944/#805-944-55-9) Pending content: no Source downloaded (UTC): 2026-09-10T01:27:03.516Z to 2026-09-10T01:27:03.516Z Record version: sha256:2d980591a41d4b62dc359ea1cc94af2ba952b6d88adcc6af7a498587b59a2ce8 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. As discussed beginning in paragraph [944-805-25-10](https://asc.understandingaccounting.org/asc/805/944/#805-944-25-10), the table in paragraph [944-805-55-10](https://asc.understandingaccounting.org/asc/805/944/#805-944-55-10) is based on the actuarial calculation for the closed block developed at the demutualization date and represents the expected changes in the [net closed block liability](https://asc.understandingaccounting.org/glossary/n/#net-closed-block-liability "The carrying amount of closed block liabilities in excess of the carrying amount of closed block assets each adjusted to eliminate the effect of related amounts in accumulated other comprehensive income at the actuarial calculation date. Deferred acquisition costs are not assets of the closed block.") (closed block deficit) over the life of the closed block. The data in that table would be compared to actual results throughout the life of the closed block to determine the need for a policyholder dividend obligation. That table assumes an increase in interest rates in Year 6 from 8.5 percent to 9.5 percent, which results in the board of directors increasing dividends in Years 7 through 10. The table assumes demutualization begins in Year 6. For purposes of the Example, all other assumptions are held constant and expenses are assumed to be excluded from the closed block. ##### [805-944-55-10](https://asc.understandingaccounting.org/asc/805/944/#805-944-55-10) Pending content: no Source downloaded (UTC): 2026-09-10T01:27:03.516Z to 2026-09-10T01:27:03.516Z Record version: sha256:497c0f8837767e01b573da2d5abecd7e87e1aa0dbade384a0c9c9e1cf4f03f42 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Components of the illustrative closed block follow. - ![](https://asc.understandingaccounting.org/asc-img/GUID-96750B8C-37FC-48CE-98A0-ED519B7937ED-low.gif) Year Premium Interest on Closed Block Assets Interest on Current Activity Death Benefits Incurred Surrender Benefits Incurred (Increase) Decrease in Net Level Premium Reserve Dividend Incurred (Increase) Decrease in Policyholder Dividend Obligation (a) (b) (c) (d) (e) (f) (g) (h) 1 " $210,000 " $- " $17,850 " " $(9,000)" $- " $(126,103)" " $(18,857)" $- 2 " 184,611 " " 7,231 " " 15,692 " " (10,549)" - " (109,116)" " (21,399)" - 3 " 169,621 " " 7,846 " " 14,418 " " (13,731)" " (7,148)" " (93,669)" " (24,230)" - 4 " 155,763 " " 8,512 " " 13,240 " " (14,835)" " (14,984)" " (79,754)" " (26,574)" - 5 " 142,990 " " 9,236 " " 12,154 " " (15,661)" " (21,760)" " (67,117)" " (28,509)" - 6 " 131,222 " " 11,200 " " 12,466 " " (15,622)" " (17,237)" " (73,236)" " (30,043)" " (2,491)" 7 " 124,333 " " 17,839 " " 10,568 " " (16,578)" " (20,989)" " (66,499)" " (33,061)" 549 8 " 117,768 " " 24,819 " " 10,010 " " (16,824)" " (24,427)" " (60,005)" " (35,127)" 595 9 " 111,526 " " 31,298 " " 9,480 " " (17,526)" " (27,566)" " (53,706)" " (36,990)" 646 10 " 105,582 " " 37,266 " " 8,974 " " (18,603)" " (30,406)" " (47,485)" " (38,675)" 701 11-20 " 779,517 " " 585,648 " " 66,259 " " (311,112)" " (398,831)" " (162,077)" " (424,092)" - 21-55 " 589,392 " " 1,103,633 " " 50,099 " " (1,187,632)" " (686,079)" " 938,767 " " (669,668)" - Total " $2,822,325 " " $1,844,528 " " $241,210 " " $(1,647,673)" " $(1,249,427)" $- " $(1,387,225)" $- Notes: (a) Gross premiums. (b) Interest at 8.5 percent on the liability for future policy benefits at the end of the previous year. (c) "Interest at 8.5 percent on current-year cash flow. This illustration assumes that premiums are received and all expenses are incurred at the start of the year. This illustration assumes that death benefits, surrender benefits, and dividends are all at the end of the year." (d) Death benefits not reduced by related liability for future policy benefits. (e) Surrender benefits not reduced by related liability for future policy benefits. (f) Represents the cumulative (increase) decrease in the liability for future policy benefits. (g) Policyholder dividends for the year. (h) Policyholder dividend obligation as of end of last year minus policyholder dividend obligation as of end of current year. ##### [805-944-55-11](https://asc.understandingaccounting.org/asc/805/944/#805-944-55-11) Pending content: no Source downloaded (UTC): 2026-09-10T01:27:03.516Z to 2026-09-10T01:27:03.516Z Record version: sha256:a06deaf3787760c0791f2ff0d98c9cd6a8af04db73bb57c30a898af5b4a63d74 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. For purposes of the table in paragraph [944-805-55-10](https://asc.understandingaccounting.org/asc/805/944/#805-944-55-10), the product of the closed block policyholder dividend obligation calculation follows. - ![](https://asc.understandingaccounting.org/asc-img/GUID-162A2E03-9916-4063-8215-49C4B1ACF713-low.gif) Actual as of Measurement Date " $18,750 " - Initial Actuarial Calculation " $16,259 " = Policyholder Dividend Obligation at Measurement Date " $2,491 " ##### [805-944-55-12](https://asc.understandingaccounting.org/asc/805/944/#805-944-55-12) Pending content: no Source downloaded (UTC): 2026-09-10T01:27:03.516Z to 2026-09-10T01:27:03.516Z Record version: sha256:3e88d7393f813a2ff78d9f9e0f09beaf074e074d207825f547d6c9d4c2e34434 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. [Paragraph superseded by Accounting Standards Update No. 2018-12](https://asc.understandingaccounting.org/updates/asu-2018-12/). ##### [805-944-55-13](https://asc.understandingaccounting.org/asc/805/944/#805-944-55-13) Pending content: no Source downloaded (UTC): 2026-09-10T01:27:03.516Z to 2026-09-10T01:27:03.516Z Record version: sha256:7a3c829bb0d5aa7d97eb9ad69d2ba691620a8bbc14da188f1da3cc218fca4ed9 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. [Paragraph superseded by Accounting Standards Update No. 2018-12](https://asc.understandingaccounting.org/updates/asu-2018-12/).