{"schema_version":2,"canonical_url":"https://asc.understandingaccounting.org/asc/944/20/#10-objectives","source":"FASB Accounting Standards Codification, Basic View","usage":"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.","topic":"944","topic_title":"Financial Services—Insurance","subtopic":"944-20","subtopic_title":"Insurance Activities","section":{"number":"10","label":"10 Objectives","anchor":"10-objectives","is_sec":false,"groups":[{"block":null,"heading":null,"paragraphs":[{"citation":"944-20-10-1","para":"10-1","html":"
This Subtopic establishes a framework for accounting by insurance entities based on the nature of insurance contracts rather than type of insurance entity.
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Life insurance coverage encompasses the concepts of amounts at risk and the relative probability of mortality and morbidity events.
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The insurance model does not override, nor is it inconsistent with, the basic recognition and measurement principles of Subtopic 450-20. Rather, the insurance model is a specialized application of those principles that estimates and allocates revenues and costs that have a future economic benefit over the period in which services are provided or received. For example, that Subtopic prohibits recognition of a loss unless it is probable that a loss has been incurred, and requires recognition of the full amount of a loss that has been incurred in the period of the loss. Likewise, paragraphs 944-40-25-32, 944-60-25-2, 944-60-25-9,
944-60-30-1 through 30-2
, and
944-60-35-3 through 35-5
require recognition of losses in the period the loss occurs.
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A principal objective of the Reinsurance Contracts Subsections of this Subtopic is to account for an agreement with a reinsurer according to its substance. Difficulty in evaluating a contract under the Reinsurance Contracts Subsections of this Subtopic is an indication that the contract's form and substance may differ. For example, if complicated adjustable features or options are present in a contract, close analysis may be required to determine the effect of those contractual provisions on risk transfer.
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A retrospectively rated contract is a multiple-year contract in which events in one period of the contract create rights and obligations in another. The principal issues in accounting for a multiple-year retrospectively rated contract involve how to recognize and measure assets and liabilities resulting from the obligatory retrospective rating provisions. While it may be difficult for some types of retrospectively rated contracts to pass the risk transfer test, the recognition and measurement questions are present regardless of whether the contract transfers risk. In fact, the questions become clearly evident with contracts that meet the risk transfer test and are accounted for as reinsurance.
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