ASC

ASC 825-944

Financial Services—Insurance

825 Financial Instruments

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In brief

IntermediateFinancial instrumentsDisclosureIndustry-specificRevenue

This subtopic applies the financial instruments guidance to insurance entities, covering investment contracts and disclosures about concentrations of credit risk arising from reinsurance contracts. Amounts received under investment contracts are not revenue; they are recorded as liabilities and accounted for like interest-bearing or other financial instruments, with related deferred acquisition costs reported as an asset. Ceding entities must disclose credit risk concentrations for reinsurance recoverables and prepaid reinsurance premiums, and must disclose the carrying amount of securities deposited with state regulatory authorities.

Key points (7)
  • Amounts received as payments for an investment contract shall not be reported as revenues (825-944-25-1).
  • Payments received from an investment contract are reported as liabilities and accounted for consistently with interest-bearing or other financial instruments (825-944-25-2).
  • Deferred acquisition costs related to investment contracts are reported as an asset, consistent with Subtopic 944-30 (825-944-45-1).
  • An entity shall disclose the carrying amount of securities deposited by insurance subsidiaries with state regulatory authorities (825-944-50-1A).
  • Under Section 825-10-50, a ceding entity discloses concentrations of credit risk for both reinsurance recoverables and prepaid reinsurance premiums (825-944-50-1B).
  • Concentration of credit risk disclosures may be required even absent a significant concentration with a single reinsurer (825-944-50-2).
  • Retrocession of reinsured risks to a diverse group of retrocessionaires does not change the ceding entity's concentration of credit risk with the assuming entity, so disclosure is still required (825-944-50-3).

For students. The classic trap is treating investment-contract deposits as premium revenue: because these contracts lack significant insurance risk, the receipts are deposit liabilities, not revenue. Also remember that a ceding entity cannot look through to retrocessionaires to reduce its disclosed credit risk concentration with the assuming reinsurer.

investment contractsreinsurance contractsconcentrations of credit riskreinsurance recoverablesprepaid reinsurance premiumsdeferred acquisition costsceding entityretrocession

Machine-generated study aid for ASC 825-944. Check the source paragraphs below.

825-944-00Status

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825-944-05Overview and Background

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825-944-05-1
This Subtopic provides guidance to insurance entities on accounting for and financial reporting of financial instruments, including guidance on investment contracts and implementation guidance on disclosures about concentrations of credit risk of reinsurance contracts. The guidance in this Subtopic is provided in the following two Subsections:
  1. a
    General
  2. b
    Reinsurance contracts.

Reinsurance Contracts

825-944-05-2
The Reinsurance Contracts Subsections of this Subtopic provide guidance to insurance entities on disclosures about concentrations of credit risk of reinsurance contracts.

825-944-15Scope and Scope Exceptions

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Overall Guidance

825-944-15-1
This Subtopic follows the same Scope and Scope Exceptions as outlined in the Overall Subtopic, see Section 944-10-15, with specific instrument qualifications noted below.

Instruments

825-944-15-2
The guidance in this Subtopic applies to all financial instruments, including investment contracts. For a guidance on identifying investment contracts, see the discussion beginning in paragraph 944-20-15-16.

Reinsurance Contracts

Overall Guidance

825-944-15-4
The Reinsurance Contracts Subsections of this Subtopic follow the same Scope and Scope Exceptions as outlined in the General Subsection of this Section, with specific instrument qualifications noted below.

Instruments

825-944-15-5
The guidance in the Reinsurance Contracts Subsections of this Subtopic applies only to reinsurance contracts. For guidance on identifying a reinsurance contract, see the Reinsurance Contracts Subsection of Section 944-20-15.

825-944-25Recognition

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Investment Contracts

825-944-25-1
Amounts received as payments for an investment contract shall not be reported as revenues.
825-944-25-2
Payments received by the insurance entity from an investment contract shall be reported as liabilities and accounted for in a manner consistent with the accounting for interest-bearing or other financial instruments.

825-944-45Other Presentation Matters

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Investment Contracts

825-944-45-1
Deferred acquisition costs related to investment contracts shall be reported as an asset to be consistent with the guidance in Subtopic 944-30.

825-944-50Disclosure

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Securities on Deposit

825-944-50-1A
An entity shall disclose the carrying amount of securities deposited by insurance subsidiaries with state regulatory authorities.

Reinsurance Contracts

Disclosures about Concentrations of Credit Risk

825-944-50-1B
Under the provisions of Section 825-10-50, a ceding entity should disclose concentrations of credit risk associated with both of the following:
  1. a
    Reinsurance recoverables
  2. b
    Prepaid reinsurance premiums.
825-944-50-2
Even if a ceding entity does not have a significant concentration of credit risk with a single reinsurer, concentration of credit risk disclosures may be required under the provisions of Section 825-10-50.
825-944-50-3
If a ceding entity is aware that reinsured risks have been retroceded to a diverse group of retrocessionaires, disclosures about concentrations of credit risk still shall be made under Section 825-10-50 because the assuming entity's rights under the retrocessions generally are not available to the ceding entity to mitigate its credit risk. That is, the ceding entity's concentration of credit risk from the assuming entity is unchanged.

825-944-55Implementation Guidance and Illustrations

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Reinsurance Contracts

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