# ASC 944-30-35: Financial Services—Insurance — Acquisition Costs — 35 Subsequent Measurement

Source: FASB Accounting Standards Codification, Basic View

[Read online](https://asc.understandingaccounting.org/asc/944/30/#35-subsequent-measurement)

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## ASC 944-30-35: 35 Subsequent Measurement

[Read section](https://asc.understandingaccounting.org/asc/944/30/#35-subsequent-measurement)

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##### [944-30-35-1](https://asc.understandingaccounting.org/asc/944/30/#944-30-35-1)

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The Subsections in this Section address [acquisition costs](https://asc.understandingaccounting.org/glossary/a/#acquisition-costs "Costs that are related directly to the successful acquisition of new or renewal insurance contracts.") and other costs.

### Short-Duration Contracts

##### [944-30-35-1A](https://asc.understandingaccounting.org/asc/944/30/#944-30-35-1A)

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Acquisition costs capitalized under paragraphs

[944-30-25-1A through 25-1B](https://asc.understandingaccounting.org/asc/944/30/#944-30-25-1A)

shall be charged to expense in proportion to premium revenue recognized under Subtopic 944-605.

##### [944-30-35-2](https://asc.understandingaccounting.org/asc/944/30/#944-30-35-2)

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If acquisition costs for short-duration contracts are determined based on a percentage relationship of costs incurred to premiums from contracts issued or renewed for a specified period, the percentage relationship and the period used, once determined, shall be applied to applicable unearned premiums throughout the period of the contracts.

### Long-Duration Contracts

#### Insurance Contracts

##### [944-30-35-3](https://asc.understandingaccounting.org/asc/944/30/#944-30-35-3)

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Capitalized [acquisition costs](https://asc.understandingaccounting.org/glossary/a/#acquisition-costs "Costs that are related directly to the successful acquisition of new or renewal insurance contracts.") shall be charged to expense using assumptions consistent with those used in estimating the [liability for future policy benefits](https://asc.understandingaccounting.org/glossary/l/#liability-for-future-policy-benefits "An accrued obligation to policyholders that relates to insured events, such as death or disability.")(or any other related balance) for the corresponding contracts (see Subtopic 944-40), as applicable (for example, [terminations](https://asc.understandingaccounting.org/glossary/t/#termination "In general, the failure to renew an insurance contract. Involuntary terminations include death, expirations, and maturities of contracts. Voluntary terminations of life insurance contracts include lapses with or without cash surrender value and contract modifications that reduce paid-up whole-life benefits or term-life benefits.")). For contracts with accumulation and payout phases, the [payout phase](https://asc.understandingaccounting.org/glossary/p/#payout-phase "The period during which the contract holder is receiving periodic payments from an annuity, also referred to as the annuitization phase.") shall be viewed as a separate contract under this Topic and shall not be combined with the [accumulation phase](https://asc.understandingaccounting.org/glossary/a/#accumulation-phase "The period during an annuity contract before annuitization. An insurance entity may call an annuity having an accumulation phase a deferred annuity.") for amortization of capitalized acquisition costs.

##### [944-30-35-3A](https://asc.understandingaccounting.org/asc/944/30/#944-30-35-3A)

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Acquisition costs capitalized under paragraphs [944-30-25-1A through 25-1AA](https://asc.understandingaccounting.org/asc/944/30/#944-30-25-1A) shall be charged to expense on a constant level basis—either on an individual contract basis or on a grouped contract basis—over the expected term of the related contract(s) as follows:

1.  a
    
    Individual contracts. Capitalized acquisition costs shall be charged to expense on a straight-line basis.
    
2.  b
    
    Grouped contracts. Capitalized acquisition costs shall be charged to expense on a constant-level basis that approximates straight-line amortization on an individual contract basis. Contracts shall be grouped consistent with the grouping used in estimating the liability for future policy benefits (or any other related balance) for the corresponding contracts.
    

The resulting amortization amount shall not be a function of revenue or profit emergence. The amortization method shall be applied consistently over the expected term of the related contract(s).

##### [944-30-35-3B](https://asc.understandingaccounting.org/asc/944/30/#944-30-35-3B)

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The balance of capitalized acquisition costs shall be reduced for actual experience in excess of expected experience (that is, as a result of unexpected contract terminations). The effect of changes in future estimates (for example, revisions of mortality or lapse assumptions as required in paragraph [944-40-35-5(a)](https://asc.understandingaccounting.org/asc/944/40/#944-40-35-5)) shall be recognized over the remaining expected contract term as a revision of the future amortization amounts.

##### [944-30-35-3C](https://asc.understandingaccounting.org/asc/944/30/#944-30-35-3C)

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No interest shall accrue on the unamortized balance of capitalized acquisition costs. In determining amortization expense, future deferrable costs shall not be included before the incurrence and capitalization of those costs.

##### [944-30-35-4](https://asc.understandingaccounting.org/asc/944/30/#944-30-35-4)

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[Paragraph superseded by Accounting Standards Update No. 2018-12](https://asc.understandingaccounting.org/updates/asu-2018-12/).

##### [944-30-35-5](https://asc.understandingaccounting.org/asc/944/30/#944-30-35-5)

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[Paragraph superseded by Accounting Standards Update No. 2018-12](https://asc.understandingaccounting.org/updates/asu-2018-12/).

##### [944-30-35-6](https://asc.understandingaccounting.org/asc/944/30/#944-30-35-6)

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[Paragraph superseded by Accounting Standards Update No. 2018-12](https://asc.understandingaccounting.org/updates/asu-2018-12/).

##### [944-30-35-7](https://asc.understandingaccounting.org/asc/944/30/#944-30-35-7)

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[Paragraph superseded by Accounting Standards Update No. 2018-12](https://asc.understandingaccounting.org/updates/asu-2018-12/).

##### [944-30-35-8](https://asc.understandingaccounting.org/asc/944/30/#944-30-35-8)

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[Paragraph superseded by Accounting Standards Update No. 2018-12](https://asc.understandingaccounting.org/updates/asu-2018-12/).

##### [944-30-35-9](https://asc.understandingaccounting.org/asc/944/30/#944-30-35-9)

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##### [944-30-35-10](https://asc.understandingaccounting.org/asc/944/30/#944-30-35-10)

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##### [944-30-35-11](https://asc.understandingaccounting.org/asc/944/30/#944-30-35-11)

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##### [944-30-35-12](https://asc.understandingaccounting.org/asc/944/30/#944-30-35-12)

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##### [944-30-35-13](https://asc.understandingaccounting.org/asc/944/30/#944-30-35-13)

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##### [944-30-35-14](https://asc.understandingaccounting.org/asc/944/30/#944-30-35-14)

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##### [944-30-35-15](https://asc.understandingaccounting.org/asc/944/30/#944-30-35-15)

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##### [944-30-35-16](https://asc.understandingaccounting.org/asc/944/30/#944-30-35-16)

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##### [944-30-35-17](https://asc.understandingaccounting.org/asc/944/30/#944-30-35-17)

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[Paragraph superseded by Accounting Standards Update No. 2018-12](https://asc.understandingaccounting.org/updates/asu-2018-12/).

#### Sales Inducements

##### [944-30-35-18](https://asc.understandingaccounting.org/asc/944/30/#944-30-35-18)

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[Sales inducements](https://asc.understandingaccounting.org/glossary/s/#sales-inducements "Contractually obligated inducements that are identified explicitly in a contract and are in excess of current market conditions. A sales inducement to a contract holder enhances the investment yield to the contract holder. The three main types of sales inducements are an immediate bonus, a persistency bonus, and an enhanced-crediting-rate bonus.")deferred under paragraph [944-30-25-7](https://asc.understandingaccounting.org/asc/944/30/#944-30-25-7) shall be amortized using the same methodology and assumptions used to amortize capitalized acquisition costs. No interest shall accrue to the unamortized balance of deferred sales inducements. In determining the amortization expense, future deferrable sales inducements shall not be included before the incurrence and capitalization of those sales inducements. The payout phase is viewed as a separate contract under this Topic and shall not be combined with the accumulation phase for amortization of deferred sales inducements.

#### Investment Contracts

##### [944-30-35-19](https://asc.understandingaccounting.org/asc/944/30/#944-30-35-19)

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The amortization method described in paragraphs [944-30-35-3 through 35-3C](https://asc.understandingaccounting.org/asc/944/30/#944-30-35-3) shall be used to amortize acquisition costs deferred under paragraphs [944-30-25-1A through 25-1AA](https://asc.understandingaccounting.org/asc/944/30/#944-30-25-1A) for [investment contracts](https://asc.understandingaccounting.org/glossary/i/#investment-contracts "Long-duration contracts that do not subject the insurance entity to risks arising from policyholder mortality or morbidity.") that include significant [surrender charges](https://asc.understandingaccounting.org/glossary/s/#surrender-charges "Amounts expected to be assessed against policyholder balances at contract redemption, whole or partial, regardless of how the charges are labeled, such as contingent deferred sales charges.") or that yield significant revenues from sources other than the investment of contract holders' funds.

##### [944-30-35-20](https://asc.understandingaccounting.org/asc/944/30/#944-30-35-20)

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Acquisition costs deferred under paragraphs [944-30-25-1A through 25-1AA](https://asc.understandingaccounting.org/asc/944/30/#944-30-25-1A) for other investment contracts shall be amortized using an accounting method that recognizes costs as expenses at a constant rate applied to net policy liabilities and that is consistent with the [interest method](https://asc.understandingaccounting.org/glossary/i/#interest-method "The method used to arrive at a periodic interest cost (including amortization) that will represent a level effective rate on the sum of the face amount of the debt and (plus or minus) the unamortized premium or discount and expense at the beginning of each period.") under Subtopic 310-20. The incidence of surrenders (if they are [probable](https://asc.understandingaccounting.org/glossary/p/#probable "The future event or events are likely to occur.") and can be reasonably estimated) can be anticipated for purposes of determining the amortization period. The rate of amortization shall be adjusted for changes in the incidence of surrenders to be consistent with the handling of principal prepayments under Subtopic 310-20.

##### [944-30-35-21](https://asc.understandingaccounting.org/asc/944/30/#944-30-35-21)

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##### [944-30-35-22](https://asc.understandingaccounting.org/asc/944/30/#944-30-35-22)

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##### [944-30-35-23](https://asc.understandingaccounting.org/asc/944/30/#944-30-35-23)

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Under some methods, the contract liabilities may be calculated net of deferred acquisition costs. In that event, the amounts of deferred acquisition costs and contract liabilities have to be determined separately.

### Internal Replacement Transactions

#### Overall

##### [944-30-35-24](https://asc.understandingaccounting.org/asc/944/30/#944-30-35-24)

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If an [internal replacement](https://asc.understandingaccounting.org/glossary/i/#internal-replacement "A modification in product benefits, features, rights, or coverages that occurs by a contract exchange; by amendment, endorsement, or rider to a contract; or by the election of a benefit, feature, right, or coverage within the contract.") (as described in this Subsection) occurs and the rights and obligations of the parties to the contract are substantially unchanged (based on an evaluation of the conditions specified in paragraph [944-30-35-37](https://asc.understandingaccounting.org/asc/944/30/#944-30-35-37)) from those under the [replaced contract](https://asc.understandingaccounting.org/glossary/r/#replaced-contract "A contract that currently is held by the contract holder, and is exchanged or modified in an internal replacement transaction."), the [replacement contract](https://asc.understandingaccounting.org/glossary/r/#replacement-contract "A new or modified contract in an internal replacement transaction.") shall be accounted for as a continuation of the replaced contract in accordance with the guidance beginning in paragraph [944-30-35-38](https://asc.understandingaccounting.org/asc/944/30/#944-30-35-38).

##### [944-30-35-25](https://asc.understandingaccounting.org/asc/944/30/#944-30-35-25)

Pending content: no

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Effective as of: not established by retrieval timestamps.


If the internal replacement occurs and results in a replacement contract that is substantially changed from the replaced contract, the replaced contract shall be accounted for as extinguished in accordance with the guidance in paragraphs

[944-30-40-1 through 40-4](https://asc.understandingaccounting.org/asc/944/30/#944-30-40-1)

.

##### [944-30-35-26](https://asc.understandingaccounting.org/asc/944/30/#944-30-35-26)

Pending content: no

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Effective as of: not established by retrieval timestamps.


Modifications (other than partial withdrawals, surrenders, or reductions in [coverage](https://asc.understandingaccounting.org/glossary/c/#coverage "An insurance entity's exposure to loss. The concept of coverage would typically include policy limits, deductible, insured, and covered property or insured event.") \[see paragraph [944-30-35-29](https://asc.understandingaccounting.org/asc/944/30/#944-30-35-29)\]) that result from the election by the contract holder of a benefit, feature, right, or coverage that was within the [original contract](https://asc.understandingaccounting.org/glossary/o/#original-contract "A contract that was initially entered into by the contract holder before any potential internal replacement activity.") are not internal replacements subject to this guidance as long as all of the following conditions are met:

1.  a
    
    The election is made in accordance with terms fixed or specified within narrow ranges in the original contract.
    
2.  b
    
    The election of the benefit, feature, right, or coverage is not subject to any underwriting.
    
3.  c
    
    The insurance entity cannot decline to provide the coverage or adjust the pricing of the benefit, feature, right, or coverage.
    
4.  d
    
    The benefit, feature, right, or coverage had been accounted for since the inception of the contract.

##### [944-30-35-27](https://asc.understandingaccounting.org/asc/944/30/#944-30-35-27)

Pending content: no

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Effective as of: not established by retrieval timestamps.


Examples of (d) in the preceding paragraph include both of the following:

1.  a
    
    The option to elect the feature is an embedded option within the contract that is required to be accounted for under Subtopic 815-15.
    
2.  b
    
    The existence of the option to elect a feature was assessed in the classification of and accounting for the contract, such as the classification of the contract as an insurance contract under Section 944-30-15.

##### [944-30-35-28](https://asc.understandingaccounting.org/asc/944/30/#944-30-35-28)

Pending content: no

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Effective as of: not established by retrieval timestamps.


The [payout phase](https://asc.understandingaccounting.org/glossary/p/#payout-phase "The period during which the contract holder is receiving periodic payments from an annuity, also referred to as the annuitization phase.") of a contract is separate and distinct from and shall not be accounted for as a continuation of the [accumulation phase](https://asc.understandingaccounting.org/glossary/a/#accumulation-phase "The period during an annuity contract before annuitization. An insurance entity may call an annuity having an accumulation phase a deferred annuity."), even if annuitization is in accordance with terms fixed in the original contract.

##### [944-30-35-29](https://asc.understandingaccounting.org/asc/944/30/#944-30-35-29)

Pending content: no

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Effective as of: not established by retrieval timestamps.


Partial withdrawals, surrenders, or reductions in coverage (for example, reduced face amount on a life insurance contract or higher deductibles on a property casualty contract), as allowed by terms that are fixed and specified at contract inception either in the contract or other information available to the contract holder or, if required by state law or regulation, at terms in effect when the reduction is made for that benefit, feature, right, or coverage, whether or not [surrender charges](https://asc.understandingaccounting.org/glossary/s/#surrender-charges "Amounts expected to be assessed against policyholder balances at contract redemption, whole or partial, regardless of how the charges are labeled, such as contingent deferred sales charges.") or other [termination](https://asc.understandingaccounting.org/glossary/t/#termination "In general, the failure to renew an insurance contract. Involuntary terminations include death, expirations, and maturities of contracts. Voluntary terminations of life insurance contracts include lapses with or without cash surrender value and contract modifications that reduce paid-up whole-life benefits or term-life benefits.") charges are assessed, are not internal replacements subject to this guidance, as long as there are no [reunderwriting](https://asc.understandingaccounting.org/glossary/r/#reunderwriting "The reexamination of the insurance risk of the entire contract for purposes of acceptance or rejection or for rating the risk for pricing purposes.") or other modifications to the contract, at that time, that would require evaluation under paragraph [944-30-35-37](https://asc.understandingaccounting.org/asc/944/30/#944-30-35-37).

#### Integrated and Nonintegrated Contract Features

##### [944-30-35-30](https://asc.understandingaccounting.org/asc/944/30/#944-30-35-30)

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Effective as of: not established by retrieval timestamps.


For long-duration contracts, [integrated contract features](https://asc.understandingaccounting.org/glossary/i/#integrated-contract-feature "A contract feature in which the benefits provided by the feature can be determined only in conjunction with the base contract.") are those for which the benefits provided by the feature can be determined only in conjunction with the account value or other contract holder balances related to the [base contract](https://asc.understandingaccounting.org/glossary/b/#base-contract "The type of contract specified in the policy form before the addition or election of riders or other contract features. For example, for an annuity with a guaranteed-minimum-income-benefit rider, the annuity would be considered the base contract."), and [nonintegrated contract features](https://asc.understandingaccounting.org/glossary/n/#nonintegrated-contract-feature "A contract feature in which the benefits provided are not related or dependent on the provisions of the base contract.") are those for which the determination of benefits provided by the feature is not related to or dependent on the account value or other contract holder balances of the base contract. Underwriting and pricing for nonintegrated contract features typically are executed separately from other components of the contract, and it is inherent in this concept that the premium charged is not in excess of an amount that is commensurate with the incremental insurance coverage provided.

##### [944-30-35-31](https://asc.understandingaccounting.org/asc/944/30/#944-30-35-31)

Pending content: no

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Effective as of: not established by retrieval timestamps.


For short-duration contracts, nonintegrated contract features are those that provide coverage that is underwritten and priced only for that incremental insurance coverage, and do not result in the explicit or implicit reunderwriting or repricing of other components of the contract. It is inherent in this concept that the premium charged is not in excess of an amount that is commensurate with the incremental insurance coverage provided. Additional coverage provided by a nonintegrated contract feature would be considered nonintegrated even though the entire coverage provided by the short-duration contract may be subject to only one deductible or limit in the event of an insured loss. For short-duration contracts, integrated contract features are those where there is explicit or implicit reunderwriting or repricing of existing components of the base contract.

#### Contract Modifications Involving Nonintegrated Contract Features

##### [944-30-35-32](https://asc.understandingaccounting.org/asc/944/30/#944-30-35-32)

Pending content: no

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Effective as of: not established by retrieval timestamps.


If a contract feature or coverage is nonintegrated, the addition or election of that feature or coverage, in and of itself, does not change the existing base contract and, as a result, further evaluation of the base contract under paragraph [944-30-35-37](https://asc.understandingaccounting.org/asc/944/30/#944-30-35-37) is not required.

##### [944-30-35-33](https://asc.understandingaccounting.org/asc/944/30/#944-30-35-33)

Pending content: no

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Effective as of: not established by retrieval timestamps.


The nonintegrated contract feature or coverage shall be accounted for in a manner similar to a separately issued contract.

##### [944-30-35-34](https://asc.understandingaccounting.org/asc/944/30/#944-30-35-34)

Pending content: no

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Effective as of: not established by retrieval timestamps.


Subsequent modifications made only to the nonintegrated contract feature or coverage shall be evaluated under paragraphs

[944-30-35-26 through 35-37](https://asc.understandingaccounting.org/asc/944/30/#944-30-35-26)

separately from the base contract, and any deferred [acquisition costs](https://asc.understandingaccounting.org/glossary/a/#acquisition-costs "Costs that are related directly to the successful acquisition of new or renewal insurance contracts.") related to the nonintegrated contract feature or coverage accounted for accordingly.

##### [944-30-35-35](https://asc.understandingaccounting.org/asc/944/30/#944-30-35-35)

Pending content: no

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Effective as of: not established by retrieval timestamps.


Subsequent termination of a nonintegrated contract feature or coverage shall be accounted for as an extinguishment of only the balances related to the nonintegrated contract feature or coverage.

#### Contract Modifications Involving Integrated Contract Features

##### [944-30-35-36](https://asc.understandingaccounting.org/asc/944/30/#944-30-35-36)

Pending content: no

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Record version: sha256:31b6486f95e1436d58c9045ce5728fcc8d08c1ab3120f9d7cd4bdf881ab16e83

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Effective as of: not established by retrieval timestamps.


For contract modifications involving integrated contract features or coverages (other than those contract modifications described in paragraphs

[944-30-35-26 through 35-29](https://asc.understandingaccounting.org/asc/944/30/#944-30-35-26)

) the insurance entity shall review the conditions set forth in paragraph [944-30-35-37](https://asc.understandingaccounting.org/asc/944/30/#944-30-35-37) to determine whether the contract has changed substantially as a result of the modification. As a result of that review, either of the following actions shall be taken:

1.  a
    
    Continuation. A contract modification meeting all of the conditions in paragraph [944-30-35-37](https://asc.understandingaccounting.org/asc/944/30/#944-30-35-37) results in a replacement contract that is substantially unchanged from the replaced contract, and shall be accounted for as a continuation of the replaced contract in accordance with paragraphs
    
    [944-30-35-38 through 35-40](https://asc.understandingaccounting.org/asc/944/30/#944-30-35-38)
    
    and
    
    [944-30-35-46 through 35-60](https://asc.understandingaccounting.org/asc/944/30/#944-30-35-46)
    
    .
    
2.  b
    
    Extinguishment. A contract modification that fails any of the conditions in paragraph [944-30-35-37](https://asc.understandingaccounting.org/asc/944/30/#944-30-35-37) results in a replacement contract that is substantially changed from the replaced contract, and shall be accounted for as an extinguishment of the replaced contract in accordance with paragraphs
    
    [944-30-40-1 through 40-4](https://asc.understandingaccounting.org/asc/944/30/#944-30-40-1)
    
    .

##### [944-30-35-37](https://asc.understandingaccounting.org/asc/944/30/#944-30-35-37)

Pending content: no

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Effective as of: not established by retrieval timestamps.


An internal replacement (other than those described in paragraphs

[944-30-35-26 through 35-29](https://asc.understandingaccounting.org/asc/944/30/#944-30-35-26)

) is determined to involve contracts that are substantially unchanged only if all the following conditions exist:

1.  a
    
    The insured event, risk, or period of coverage of the contract has not changed, as noted by no significant changes in the kind and degree of [mortality risk](https://asc.understandingaccounting.org/glossary/m/#mortality-risk "The obligation to make payments that are contingent upon the death or continued survival of a specific individual or group."), [morbidity](https://asc.understandingaccounting.org/glossary/m/#morbidity "The relative incidence of disability due to disease or physical impairment.") risk, or other [insurance risk](https://asc.understandingaccounting.org/glossary/i/#insurance-risk "The risk arising from uncertainties about both underwriting risk and timing risk. Actual or imputed investment returns are not an element of insurance risk. Insurance risk is fortuitous; the possibility of adverse events occurring is outside the control of the insured."), if any.
    
2.  b
    
    The nature of the investment return rights (for example, whether amounts are determined by formulas specified by the contract, pass through of actual performance of referenced investments, or at the discretion of the insurer), if any, between the insurance entity and the contract holder has not changed.
    
3.  c
    
    No additional deposit, premium, or charge relating to the original benefit or coverage, in excess of amounts specified or allowed in the original contract, is required to effect the transaction; or if there is a reduction in the original benefit or coverage, the deposit, premiums, or charges are reduced by an amount at least equal to the corresponding reduction in benefits or coverage.
    
4.  d
    
    Other than distributions to the contract holder or contract designee or charges related to newly purchased or elected benefits or coverages, there is no net reduction in the contract holder's account value or, for contracts not having an explicit or implicit account value, the cash surrender value, if any.
    
5.  e
    
    There is no change in the participation or dividend features of the contract, if any.
    
6.  f
    
    There is no change to the amortization method or revenue classification of the contract.
    

If any of the conditions are not met, an internal replacement is determined to involve a replacement contract that is substantially changed from the replaced contract. Example 2 (see paragraph [944-30-55-33](https://asc.understandingaccounting.org/asc/944/30/#944-30-55-33)) illustrates the application of this guidance.

##### [944-30-35-38](https://asc.understandingaccounting.org/asc/944/30/#944-30-35-38)

Pending content: no

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Effective as of: not established by retrieval timestamps.


An internal replacement that is determined to result in a replacement contract that is substantially unchanged from the replaced contract shall be accounted for as a continuation of the replaced contract. However, even if both accumulation and payout phase contracts are [investment contracts](https://asc.understandingaccounting.org/glossary/i/#investment-contracts "Long-duration contracts that do not subject the insurance entity to risks arising from policyholder mortality or morbidity.") involving no life contingencies, the payout phase of a contract is separate and distinct from and cannot be accounted for as a continuation of the accumulation phase of the contract. For a short-duration contract, renewal results in a separate and distinct contract that cannot be accounted for as a continuation of the previous contract. Example 1 (see paragraph [944-30-55-12](https://asc.understandingaccounting.org/asc/944/30/#944-30-55-12)) illustrates the application of this guidance.

##### [944-30-35-39](https://asc.understandingaccounting.org/asc/944/30/#944-30-35-39)

Pending content: no

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Effective as of: not established by retrieval timestamps.


Unamortized deferred acquisition costs, unearned revenue liabilities, and deferred sales inducement assets associated with the replaced contract shall continue to be deferred and amortized or earned in connection with the replacement contract. If the replaced contract was acquired in a business combination, any present value of future profits shall be accounted for in a similar manner.

##### [944-30-35-40](https://asc.understandingaccounting.org/asc/944/30/#944-30-35-40)

Pending content: no

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Effective as of: not established by retrieval timestamps.


Other balances associated with the replaced contract, such as any liability for minimum guaranteed death benefits or guaranteed minimum income benefits, shall be accounted for in a similar manner, that is, as if the replacement contract is a continuation of the replaced contract.

##### [944-30-35-41](https://asc.understandingaccounting.org/asc/944/30/#944-30-35-41)

Pending content: no

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Record version: sha256:05f60d4052757539a4d8a581b39d2ee0d240c79330239a2d62b4477db1c0168e

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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/).

##### [944-30-35-42](https://asc.understandingaccounting.org/asc/944/30/#944-30-35-42)

Pending content: no

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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/).

##### [944-30-35-43](https://asc.understandingaccounting.org/asc/944/30/#944-30-35-43)

Pending content: no

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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/).

##### [944-30-35-44](https://asc.understandingaccounting.org/asc/944/30/#944-30-35-44)

Pending content: no

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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/).

##### [944-30-35-45](https://asc.understandingaccounting.org/asc/944/30/#944-30-35-45)

Pending content: no

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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/).

##### [944-30-35-46](https://asc.understandingaccounting.org/asc/944/30/#944-30-35-46)

Pending content: no

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Effective as of: not established by retrieval timestamps.


For long-duration contracts other than investment contracts described in paragraph [944-30-35-48](https://asc.understandingaccounting.org/asc/944/30/#944-30-35-48), a replacement contract that is substantially unchanged shall be viewed as a prospective revision of the replaced contract with future amortization of unamortized deferred acquisition costs adjusted, accordingly, on a prospective basis. Under the prospective revision methodology for long-duration contracts other than certain investment contracts, the unamortized deferred acquisition costs balance at the time of replacement is unchanged.

##### [944-30-35-47](https://asc.understandingaccounting.org/asc/944/30/#944-30-35-47)

Pending content: no

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Effective as of: not established by retrieval timestamps.


If it is not reasonably practicable for an insurance entity to account for a [contract exchange](https://asc.understandingaccounting.org/glossary/c/#contract-exchange "The legal extinguishment of one contract and the issuance of another.") that has resulted in a replacement contract that is substantially unchanged from the replaced contract, the insurance entity shall determine the balance of unamortized deferred acquisition costs related to the replaced contract to carry forward to the replacement contract and determine future amortization on a prospective basis. The total balance of unamortized deferred acquisition costs before the internal replacement shall be allocated between replaced contracts and contracts remaining in the original book of business based on a reasonable and systematic allocation process.

##### [944-30-35-48](https://asc.understandingaccounting.org/asc/944/30/#944-30-35-48)

Pending content: no

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Record version: sha256:4397d977433ccb7f5a5c84f289abf45b3eff6864413f836fa30c0edee21a4bdf

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


For contracts to which the interest method amortization methodology discussed in Subtopic 310-20 is applied, the replacement contract represents revisions to the cash flows of the replaced contract, and unamortized deferred acquisition costs and deferred sales inducement assets are adjusted accordingly.

##### [944-30-35-49](https://asc.understandingaccounting.org/asc/944/30/#944-30-35-49)

Pending content: no

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Record version: sha256:3185a90763f1a30bf6b4b9a462c0f64b683700d5fb5f53823369ec79a58cccc8

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


The balance of unamortized deferred acquisition costs and other contract-related balances shall be updated based on the most current assumptions at the time of the internal replacement.

##### [944-30-35-50](https://asc.understandingaccounting.org/asc/944/30/#944-30-35-50)

Pending content: no

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Record version: sha256:63fead322be866dae992b4f5568bcb1b961ac3fb4549af95c7b3149f3d4b4263

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


Any related liability for future policy benefits or [market risk benefits](https://asc.understandingaccounting.org/glossary/m/#market-risk-benefit "A contract or contract feature in a long-duration contract issued by an insurance entity that both protects the contract holder from other-than-nominal capital market risk and exposes the insurance entity to other-than-nominal capital market risk.") for a substantially unchanged contract shall be updated as described in Subtopic 944-40 on claim costs and liabilities for future policy benefits.

##### [944-30-35-51](https://asc.understandingaccounting.org/asc/944/30/#944-30-35-51)

Pending content: no

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Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


Other balances that are determined based on activity over the life of the contract, such as an additional liability for death or other insurance benefits (which, under this Subtopic, is determined based on assessments and benefit costs) shall be calculated considering the entire revised life of the contract, including activity during the term of the replaced contract.

##### [944-30-35-52](https://asc.understandingaccounting.org/asc/944/30/#944-30-35-52)

Pending content: no

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Record version: sha256:2333a12062046ecda6f7f1ba502670f607afaf5a196079ee166198d4902a8995

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


A revision to a short-duration contract is viewed as a prospective revision with future recognition of unearned premium and amortization of unamortized deferred acquisition costs adjusted, accordingly, on a prospective basis.

##### [944-30-35-53](https://asc.understandingaccounting.org/asc/944/30/#944-30-35-53)

Pending content: no

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Record version: sha256:293e2333a1ccf0035b813067bac586cb22327630c30ddc67a8a5586e2e8d6a78

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


Consistent with the guidance in paragraphs [944-30-35-1A](https://asc.understandingaccounting.org/asc/944/30/#944-30-35-1A) and [944-605-25-1](https://asc.understandingaccounting.org/asc/605/944/#605-944-25-1), unearned premium is recognized as revenue over the period of the contract in proportion to the amount of insurance protection provided, amortization of deferred acquisition costs continues to be recognized in proportion to the premium recognized, and the revised amortization ratio is used prospectively.

##### [944-30-35-54](https://asc.understandingaccounting.org/asc/944/30/#944-30-35-54)

Pending content: no

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Record version: sha256:7d39e9363cdb385191c89962cb111ba7300d736ea8ba5d0555bf0ce4018a2214

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


If the modification is a reduction in benefits with a directly proportionate reduction in premiums, the modification shall result in an immediate proportionate reduction in unamortized deferred acquisition costs rather than a prospective revision.

##### [944-30-35-55](https://asc.understandingaccounting.org/asc/944/30/#944-30-35-55)

Pending content: no

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Record version: sha256:e85936ec870a1fed9c0f379ca87a91d915ca06f748ee46b20d1037f6deb2c66c

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


Costs incurred in connection with an internal replacement that results in a replacement contract that is substantially unchanged from the replaced contract shall be accounted for as policy [maintenance costs](https://asc.understandingaccounting.org/glossary/m/#maintenance-costs "Costs associated with maintaining records relating to insurance contracts and with the processing of premium collections and commissions.") and charged to expense as incurred.

##### [944-30-35-56](https://asc.understandingaccounting.org/asc/944/30/#944-30-35-56)

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Record version: sha256:9658188a96578b4550e7059bcac9ed3789daa79d1f90be55e2e0ca5d50425683

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


The portion of renewal commissions paid on the replacement contract that meets the criteria for deferral under this Subtopic, limited to the amount of the future deferrable renewal commissions on the replaced contract that would have met the deferral criteria, continues to be deferrable under those provisions.

##### [944-30-35-57](https://asc.understandingaccounting.org/asc/944/30/#944-30-35-57)

Pending content: no

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Effective as of: not established by retrieval timestamps.


If an insurance entity assesses a surrender charge on the replaced contract that is offset by an immediate sales inducement to a contract holder on the replacement contract, the insurance entity shall offset any surrender charges assessed against the contract holder's account balance under the replaced contract against any stated immediate sales inducement to determine whether there has been a net reduction in the contract holder's account value in accordance with paragraph [944-30-35-37](https://asc.understandingaccounting.org/asc/944/30/#944-30-35-37).

##### [944-30-35-58](https://asc.understandingaccounting.org/asc/944/30/#944-30-35-58)

Pending content: no

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Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


The liability for a sales inducement to a contract holder offered in conjunction with an internal replacement of a long-duration contract that is determined to result in a replacement contract that is substantially unchanged from the replaced contract shall be accounted for from the date of its addition to the replacement contract in accordance with the guidance in paragraph [944-40-25-12](https://asc.understandingaccounting.org/asc/944/40/#944-40-25-12).

##### [944-30-35-59](https://asc.understandingaccounting.org/asc/944/30/#944-30-35-59)

Pending content: no

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Effective as of: not established by retrieval timestamps.


[Sales inducements](https://asc.understandingaccounting.org/glossary/s/#sales-inducements "Contractually obligated inducements that are identified explicitly in a contract and are in excess of current market conditions. A sales inducement to a contract holder enhances the investment yield to the contract holder. The three main types of sales inducements are an immediate bonus, a persistency bonus, and an enhanced-crediting-rate bonus.") provided to the contract holder, whether for investment or universal life-type contracts, shall be recognized as part of the liability for policy benefits over the period in which the contract must remain [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.") for the contract holder to qualify for the inducement or at the crediting date, if earlier, in accordance with paragraphs

[944-30-35-46 through 35-51](https://asc.understandingaccounting.org/asc/944/30/#944-30-35-46)

. No adjustments shall be made to reduce the liability related to the sales inducements for anticipated surrender charges, [persistency](https://asc.understandingaccounting.org/glossary/p/#persistency "The complement of the termination rate, persistency is the renewal quality of insurance contracts, that is, the number of insureds that keep their insurance in force during a period. Persistency varies by plan of insurance, age at issue, year of issue, frequency of premium payment, and other factors."), or early withdrawal contractual features.

##### [944-30-35-60](https://asc.understandingaccounting.org/asc/944/30/#944-30-35-60)

Pending content: no

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Record version: sha256:205c63147118201d77e752edd1184d46aa45d2112ff38a9148cb5978223ba2c8

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


The criteria in paragraphs

[944-30-25-6 through 25-7](https://asc.understandingaccounting.org/asc/944/30/#944-30-25-6)

for recognition of a related sales inducement asset cannot be satisfied in these circumstances because the sales inducement was not specifically identified in the original contract.

#### Contract Assessments

##### [944-30-35-61](https://asc.understandingaccounting.org/asc/944/30/#944-30-35-61)

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Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


[Front-end fees](https://asc.understandingaccounting.org/glossary/f/#front-end-fees "See Initiation or Front-End Fees.") assessed in connection with an internal replacement of a long-duration contract shall be evaluated for deferral in accordance with the guidance in Subtopic 944-605 on revenue recognition.

##### [944-30-35-62](https://asc.understandingaccounting.org/asc/944/30/#944-30-35-62)

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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/).

#### Recoverability

##### [944-30-35-63](https://asc.understandingaccounting.org/asc/944/30/#944-30-35-63)

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Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


Unamortized deferred acquisition costs for short-duration contracts and the present value of future profits continue to be subject to premium deficiency testing in accordance with the provisions of Subtopic 944-60.

### Reinsurance Contracts

##### [944-30-35-64](https://asc.understandingaccounting.org/asc/944/30/#944-30-35-64)

Pending content: no

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Record version: sha256:1c37983d8332c7d309a134dcf3d916156bc94fd3c9909f4abfcff312e240b90f

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


Proceeds from [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.") transactions that represent recovery of [acquisition costs](https://asc.understandingaccounting.org/glossary/a/#acquisition-costs "Costs that are related directly to the successful acquisition of new or renewal insurance contracts.") shall reduce applicable unamortized acquisition costs in such a manner that net acquisition costs are capitalized and charged to expense in accordance with the amortization guidance in this Section that applies to those unamortized acquisition costs.