# ASC 944-40-55: Financial Services—Insurance — Claim Costs and Liabilities for Future Policy Benefits — 55 Implementation Guidance and Illustrations

Source: FASB Accounting Standards Codification, Basic View

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## ASC 944-40-55: 55 Implementation Guidance and Illustrations

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#### Implementation Guidance

##### [944-40-55-1](https://asc.understandingaccounting.org/asc/944/40/#944-40-55-1)

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This implementation guidance addresses paragraph [944-40-25-6](https://asc.understandingaccounting.org/asc/944/40/#944-40-25-6), which states that the conditions in paragraph [450-20-25-2](https://asc.understandingaccounting.org/asc/450/20/#450-20-25-2) shall be considered with respect to the risk of loss assumed by an insurance entity for catastrophes that may occur during the terms of policies [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.") to determine whether accrual of a loss is appropriate.

##### [944-40-55-2](https://asc.understandingaccounting.org/asc/944/40/#944-40-55-2)

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At the time that a property and casualty insurance entity or [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.") entity issues an insurance policy covering risk of loss from catastrophes, a contingency arises. The contingency is the risk of loss assumed by the insurance entity; that is, the risk of loss from catastrophes that may occur during the term of the policy. The insurance entity has not assumed risk of loss for catastrophes that may occur beyond the term of the policy. Clearly, therefore, no asset has been impaired or liability incurred with respect to catastrophes that may occur beyond the terms of policies in force.

##### [944-40-55-3](https://asc.understandingaccounting.org/asc/944/40/#944-40-55-3)

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To satisfy the condition in paragraph [450-20-25-2(a)](https://asc.understandingaccounting.org/asc/450/20/#450-20-25-2) that it be [probable](https://asc.understandingaccounting.org/glossary/p/#probable "The future event or events are likely to occur.") that a liability has been incurred to existing policyholders, the occurrence of catastrophes (that is, the confirming future events) would have to be reasonably predictable within the terms of policies in force. Further, to satisfy the condition in (b) in that paragraph, the amounts of losses therefrom would have to be reasonably estimable. Actuarial techniques are employed by insurance entities to predict the rate of occurrence of and amounts of losses from catastrophes over long periods of time for insurance rate-setting purposes. Predictions over relatively short periods of time, such as an individual accounting period or the terms of a large number of existing insurance policies in force, are subject to substantial deviations. Consequently, assumption of risk of loss from catastrophes by property and casualty insurance entities and reinsurance entities fails to satisfy the conditions for accrual in paragraph [450-20-25-2(a) through (b)](https://asc.understandingaccounting.org/asc/450/20/#450-20-25-2). Moreover, deferral of unearned premiums within the terms of policies in force represents the unknown liability for loss (including catastrophe losses) on unexpired policies, making an accrual inappropriate. Recognition of premium income as earned revenue within the terms of policies in force is discussed in Subtopic 944-605.

##### [944-40-55-4](https://asc.understandingaccounting.org/asc/944/40/#944-40-55-4)

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Deferral of any portion of premium income beyond the terms of policies in force is, in substance, similar to premature accrual of catastrophe losses and, therefore, also does not meet the conditions of paragraph [450-20-25-2](https://asc.understandingaccounting.org/asc/450/20/#450-20-25-2).

##### [944-40-55-5](https://asc.understandingaccounting.org/asc/944/40/#944-40-55-5)

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The conditions for accrual in paragraph [450-20-25-2](https://asc.understandingaccounting.org/asc/450/20/#450-20-25-2) do not prohibit a property and casualty insurance entity from accruing probable catastrophe losses that have been incurred on or before the date of its financial statements but that have not been reported by its policyholders as of that date. If the amount of loss can be reasonably estimated, that paragraph requires accrual of those incurred-but-not-reported losses.

#### Illustrations

##### [944-40-55-6](https://asc.understandingaccounting.org/asc/944/40/#944-40-55-6)

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This Example illustrates information an insurance entity would disclose to meet the requirements of paragraph [944-40-50-3](https://asc.understandingaccounting.org/asc/944/40/#944-40-50-3). This Example presents amounts incurred and paid net of reinsurance. The information may also be presented before the effects of reinsurance with separate analysis of reinsurance recoveries and [reinsurance recoverables](https://asc.understandingaccounting.org/glossary/r/#reinsurance-recoverable "All amounts recoverable from reinsurers for paid and unpaid claims and claim settlement expenses, including estimated amounts receivable for unsettled claims, claims incurred but not reported, or policy benefits.") related to the incurred and paid amounts.

##### [944-40-55-7](https://asc.understandingaccounting.org/asc/944/40/#944-40-55-7)

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An illustrative disclosure of a [liability for unpaid claims](https://asc.understandingaccounting.org/glossary/l/#liability-for-unpaid-claims "The amount needed to provide for the estimated ultimate cost of settling claims relating to insured events that have occurred on or before a particular date (ordinarily, the balance sheet date).") and [claim adjustment expenses](https://asc.understandingaccounting.org/glossary/c/#claim-adjustment-expenses "Expenses incurred in the course of investigating and settling claims.") follows.

-   Note X. Liability for Unpaid Claims and Claim Adjustment Expenses
    
-   Activity in the liability for unpaid claims and claim adjustment expenses is summarized as follows.
    
    -   ![](https://asc.understandingaccounting.org/asc-img/GUID-E6F35FC9-2313-4C40-986F-A08A6C29DFFA-low.gif)
        
        20X2 20X1 Balance at January 1 " $7,030 " " $6,687 " Less reinsurance recoverables " 1,234 " 987 Net balance at January 1 " 5,796 " " 5,700 " Incurred related to: Current year " 2,700 " " 2,600 " Prior years (171) 96 Total incurred " 2,529 " " 2,696 " Paid related to: Current year 781 800 Prior years " 2,000 " " 1,800 " Total paid " 2,781 " " 2,600 " Net balance at December 31 " 5,544 " " 5,796 " Plus reinsurance recoverables " 1,255 " " 1,234 " Balance at December 31 " $6,799 " " $7,030 "
        
    
    As a result of changes in estimates of insured events in prior years, the claims and claim adjustment expenses (net of reinsurance recoveries of $X and $X in 20X2 and 20X1, respectively) decreased by $171 million in 20X2 reflecting lower-than-anticipated losses on Hurricane Howard, and increased by $96 million in 20X1 reflecting higher-than-anticipated losses and related expenses for claims for asbestos-related illnesses, toxic waste cleanup, and workers' compensation.

##### [944-40-55-8](https://asc.understandingaccounting.org/asc/944/40/#944-40-55-8)

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This Example illustrates an insurance entity disclosure designed to meet the requirements of paragraph [944-40-50-4](https://asc.understandingaccounting.org/asc/944/40/#944-40-50-4). Additional disclosures about the liabilities for unpaid claims and claim adjustment expenses may be required under Section 450-20-50 or 275-10-50.

##### [944-40-55-9](https://asc.understandingaccounting.org/asc/944/40/#944-40-55-9)

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An illustrative disclosure of environmental-related claims follows.

-   Note X. Environmental-Related Claims
    
-   In establishing the liability for unpaid claims and claim adjustment expenses related to asbestos-related illnesses and toxic waste cleanup, management considers facts currently known and the current state of the law and [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.") litigation. Liabilities are recognized for known claims (including the cost of related litigation) when sufficient information has been developed to indicate the involvement of a specific insurance policy, and management can reasonably estimate its liability. In addition, liabilities have been established to cover additional exposures on both known and unasserted claims. Estimates of the liabilities are reviewed and updated continually. Developed case law and adequate [claim](https://asc.understandingaccounting.org/glossary/c/#claim "A demand for payment of a policy benefit because of the occurrence of an insured event.") history do not exist for such claims, especially because significant uncertainty exists about the outcome of coverage litigation and whether past claim experience will be representative of future claim experience.

### Short-Duration Contracts

#### Implementation Guidance

##### [944-40-55-9A](https://asc.understandingaccounting.org/asc/944/40/#944-40-55-9A)

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Paragraphs [944-40-50-4A](https://asc.understandingaccounting.org/asc/944/40/#944-40-50-4A) and [944-40-50-4H](https://asc.understandingaccounting.org/asc/944/40/#944-40-50-4H) require an insurance entity to aggregate or disaggregate certain disclosures so that useful information is not obscured by either the inclusion of a large amount of insignificant detail or the aggregation of items that have significantly different characteristics to allow users to understand the amount, timing, and uncertainty of cash flows arising from contracts issued by insurance entities. Consequently, the extent to which an insurance entity's information is aggregated or disaggregated for the purposes of those disclosures depends on the facts and circumstances that pertain to the characteristics of the [liability for unpaid claims](https://asc.understandingaccounting.org/glossary/l/#liability-for-unpaid-claims "The amount needed to provide for the estimated ultimate cost of settling claims relating to insured events that have occurred on or before a particular date (ordinarily, the balance sheet date).") and [claim adjustment expenses](https://asc.understandingaccounting.org/glossary/c/#claim-adjustment-expenses "Expenses incurred in the course of investigating and settling claims.").

##### [944-40-55-9B](https://asc.understandingaccounting.org/asc/944/40/#944-40-55-9B)

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When selecting the type of category to use to aggregate or disaggregate disclosures, an insurance entity should consider how information about the insurance entity's liability for unpaid claims and claim adjustment expenses has been presented for other purposes, including all of the following:

1.  a
    
    Disclosures presented outside the financial statements (for example, in earnings releases, annual reports, statutory filings, or investor presentations)
    
2.  b
    
    Information regularly viewed by the chief operating decision maker for evaluating financial performance
    
3.  c
    
    Other information that is similar to the types of information identified in (a) and (b) and that is used by the insurance entity or users of the insurance entity's financial statements to evaluate the insurance entity's financial performance or make resource allocation decisions.

##### [944-40-55-9C](https://asc.understandingaccounting.org/asc/944/40/#944-40-55-9C)

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Examples of categories that might be appropriate include any of the following:

1.  a
    
    Type of coverage (for example, major product line)
    
2.  b
    
    Geography (for example, country or region)
    
3.  c
    
    Reportable segment as defined in Topic 280 on segment reporting
    
4.  d
    
    Market or type of customer (for example, personal or commercial lines of business)
    
5.  e
    
    Claim duration (for example, claims that have short settlement periods or claims that have long settlement periods).
    

When applying the guidance in paragraphs [944-40-50-4A](https://asc.understandingaccounting.org/asc/944/40/#944-40-50-4A) and [944-40-50-4H](https://asc.understandingaccounting.org/asc/944/40/#944-40-50-4H), an insurance entity should not aggregate amounts from different reportable segments according to Topic 280.

##### [944-40-55-9D](https://asc.understandingaccounting.org/asc/944/40/#944-40-55-9D)

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Claim frequency information may be tracked and analyzed by an insurance entity in a variety of ways. For example, an insurance entity may track claim frequency by claim event (such as a car accident), while another entity may track claim frequency by individual claimant (such as the number of individual claimants in a car accident). Also, certain types of insurance coverage, such as excess-of-loss insurance or supplemental insurance, can experience claim activity that does not result in a liability to the insurance entity. This Subtopic does not require a particular methodology. Therefore, to allow users to understand the context of the information presented, an insurance entity should describe qualitatively the methodologies used to determine the quantitative claim frequency information presented. In certain circumstances, such as providing [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.") on short-duration contracts or participating in residual market pools, an insurance entity may not have access to claim frequency information, in which case it may be impracticable to disclose this information. The insurance entity should disclose that fact and explain why the disclosure is impracticable.

#### Illustrations

##### [944-40-55-9E](https://asc.understandingaccounting.org/asc/944/40/#944-40-55-9E)

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The following Example illustrates the information that an insurance entity with one major short-duration product line (homeowners' insurance) would disclose in its 20Y6 financial statements to meet the requirements of paragraphs

[944-40-50-4B through 50-4D](https://asc.understandingaccounting.org/asc/944/40/#944-40-50-4B)

.

-   Note X: Liability for Unpaid Claims and Claim Adjustment Expenses
    
-   The following is information about incurred and paid claims development as of December 31, 20Y6, net of reinsurance, as well as cumulative claim frequency and the total of incurred-but-not-reported liabilities plus expected development on reported claims included within the net incurred claims amounts.
    
-   The information about incurred and paid claims development for the years ended December 31, 20X7, to 20Y5, is presented as supplementary information.
    
-   ![ ](https://asc.understandingaccounting.org/asc-img/GUID-DADFD572-3F7F-4BE8-A2C8-DBF2AEE5C2F1-low.gif)
    
    Homeowners' Insurance in thousands "Accident Year" "Incurred Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance" "As of December 31, 20Y6" Total of Incurred-but-Not-Reported Liabilities Plus Expected Development on Reported Claims Cumulative Number of Reported Claims "For the Years Ended December 31," 20X7 20X8 20X9 20Y0 20Y1 20Y2 20Y3 20Y4 20Y5 20Y6 20X7 " $10,000 " " $9,900 " " $9,700 " " $9,800 " " $9,750 " " $9,750 " " $9,600 " " $9,650 " " $9,575 " " $9,550 " $5 39 20X8 " 10,950 " " 11,000 " " 10,500 " " 10,750 " " 10,850 " " 10,600 " " 10,250 " " 10,150 " " 10,250 " 30 37 20X9 " 12,000 " " 11,750 " " 11,500 " " 10,900 " " 10,900 " " 10,850 " " 10,750 " " 10,500 " 90 38 20Y0 " 12,250 " " 12,500 " " 12,550 " " 12,400 " " 12,200 " " 12,150 " " 12,000 " 300 36 20Y1 " 12,300 " " 12,500 " " 12,650 " " 12,750 " " 12,800 " " 12,850 " 900 35 20Y2 " 12,800 " " 12,900 " " 12,750 " " 12,700 " " 12,700 " " 1,100 " 34 20Y3 " 13,000 " " 13,250 " " 13,100 " " 13,150 " " 1,500 " 31 20Y4 " 13,150 " " 13,250 " " 13,300 " " 2,100 " 29 20Y5 " 13,500 " " 13,250 " " 3,100 " 26 20Y6 " 13,750 " " 5,000 " 22 Total " $121,300 "
    
-   ![ ](https://asc.understandingaccounting.org/asc-img/GUID-62216048-8BE3-404B-8F2B-C0AA575061E8-low.gif)
    
    Homeowners' Insurance in thousands "Cumulative Paid Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance" "Accident Year" "For the Years Ended December 31," 20X7 20X8 20X9 20Y0 20Y1 20Y2 20Y3 20Y4 20Y5 20Y6 20X7 " $3,000 " " $5,000 " " $5,500 " " $6,000 " " $6,800 " " $7,500 " " $8,500 " " $9,000 " " $9,050 " " $9,075 " 20X8 " 3,500 " " 5,750 " " 6,500 " " 7,500 " " 7,750 " " 8,250 " " 8,500 " " 9,000 " " 9,500 " 20X9 " 3,750 " " 6,000 " " 6,500 " " 7,500 " " 7,900 " " 8,250 " " 8,950 " " 9,700 " 20Y0 " 3,750 " " 6,250 " " 7,250 " " 7,750 " " 8,900 " " 9,700 " " 9,950 " 20Y1 " 4,250 " " 5,500 " " 6,750 " " 8,000 " " 8,950 " " 9,250 " 20Y2 " 4,125 " " 5,250 " " 7,000 " " 8,000 " " 9,000 " 20Y3 " 4,500 " " 5,750 " " 7,250 " " 7,750 " 20Y4 " 4,600 " " 6,000 " " 6,950 " 20Y5 " 4,750 " " 6,125 " 20Y6 " 4,850 " Total " $82,150 " "All outstanding liabilities before 20X7, net of reinsurance" " 1,400 " "Liabilities for claims and claim adjustment expenses, net of reinsurance" " $40,550 "
    
-   **Reconciliation of the Disclosure of Incurred and Paid Claims Development to the Liability for Unpaid Claims and Claim Adjustment Expenses**
    
-   The reconciliation of the net incurred and paid claims development tables to the liability for claims and claim adjustment expenses in the consolidated statement of financial position is as follows.
    
-   ![ ](https://asc.understandingaccounting.org/asc-img/GUID-69C43639-CBE0-4CC5-990B-2B23F89DCEF7-low.gif)
    
    "December 31, 20Y6" 20X4 Net outstanding liabilities Homeowners' insurance " $40,550 " Other short-duration insurance lines " 1,976 " " 1,596 " 1976 "Liabilities for unpaid claims and claim adjustment expenses, net of reinsurance" " 42,526 " Reinsurance recoverable on unpaid claims Homeowners' insurance " 13,880 " Other insurance lines 283 Total reinsurance recoverable on unpaid claims " 14,163 " "14,163" Insurance lines other than short-duration " 3,315 " "3,315" Unallocated claims adjustment expenses " 2,420 " "2,420" Other 10 " 5,745 " "Total gross liability for unpaid claims and claim adjustment expense " " $62,434 "

##### [944-40-55-9F](https://asc.understandingaccounting.org/asc/944/40/#944-40-55-9F)

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An illustrative Example of the supplementary information that an insurance entity would disclose to meet the requirements in paragraph [944-40-50-4G](https://asc.understandingaccounting.org/asc/944/40/#944-40-50-4G) is as follows.

-   Note X: Liability for Unpaid Claims and Claim Adjustment Expenses
    
-   The following is supplementary information about average historical claims duration as of December 31, 20Y6.
    
-   ![ ](https://asc.understandingaccounting.org/asc-img/GUID-9EE6915C-D0D5-4B05-BE8D-4F626CDD9D79-low.gif)
    
    "Average Annual Percentage Payout of Incurred Claims by Age, Net of Reinsurance" Years 1 2 3 4 5 6 7 8 9 10 Homeowners' insurance 33.8% 14.9% 8.5% 7.2% 6.6% 4.9% 5.4% 5.7% 2.7% 0.3%

##### [944-40-55-9G](https://asc.understandingaccounting.org/asc/944/40/#944-40-55-9G)

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Source downloaded (UTC): 2026-09-10T02:16:51.609Z to 2026-09-10T02:16:51.609Z

Record version: sha256:af8dffacd3cf71c0fbe30f6314757fbaa01ac56cc347b87e1b4cf828a10d1205

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


For this illustrative Example, the approach selected by the insurance entity to compute historical claims duration using the information about claims development included in paragraph [944-40-55-9F](https://asc.understandingaccounting.org/asc/944/40/#944-40-55-9F) is as follows. These calculations are for illustrative purposes only and would not be included in the disclosure.

-   ![ ](https://asc.understandingaccounting.org/asc-img/GUID-AC11C486-D40F-4E1C-9381-576500BE7F68-low.gif)
    
    Percentage of Claims Paid in Year 1 Percentage of Claims Paid in Year 2 Accident Year "Claims Paid in Year 1 (A)" "Most Recently Re-estimated Incurred Claims (B)" "Percentage of Claims Paid in Year 1 (A) / (B) = (C) " Accident Year "Total Claims Paid End of Year 2 (D)" "Claims Paid in Year 2 (D) - (A) = (E)" "Percentage of Claims Paid in Year 2 (E) / (B)" 20X7 " $3,000 " " $9,550 " 31.4% 20X7 " $5,000 " " $2,000 " 20.9% 20X8 " 3,500 " " 10,250 " 34.1% 20X8 " 5,750 " " 2,250 " 22.0% 20X9 " 3,750 " " 10,500 " 35.7% 20X9 " 6,000 " " 2,250 " 21.4% 20Y0 " 3,750 " " 12,000 " 31.3% 20Y0 " 6,250 " " 2,500 " 20.8% 20Y1 " 4,250 " " 12,850 " 33.1% 20Y1 " 5,500 " " 1,250 " 9.7% 20Y2 " 4,125 " " 12,700 " 32.5% 20Y2 " 5,250 " " 1,125 " 8.9% 20Y3 " 4,500 " " 13,150 " 34.2% 20Y3 " 5,750 " " 1,250 " 9.5% 20Y4 " 4,600 " " 13,300 " 34.6% 20Y4 " 6,000 " " 1,400 " 10.5% 20Y5 " 4,750 " " 13,250 " 35.8% 20Y5 " 6,125 " " 1,375 " 10.4% 20Y6 " 4,850 " " 13,750 " 35.3% Average 33.8% Average 14.9%
    
-   ![ ](https://asc.understandingaccounting.org/asc-img/GUID-21739473-BE7E-468D-907E-E8F1CF822954-low.gif)
    
    Percentage of Claims Paid in Year 3 Percentage of Claims Paid in Year 4 Accident Year "Total Claims Paid End of Year 3 (F)" "Claims Paid in Year 3 (F) - (D) = (G)" "Percentage of Claims Paid in Year 3 (G) / (B)" Accident Year "Total Claims Paid End of Year 4 (H)" "Claims Paid in Year 4 (H) - (F) = (I)" "Percentage of Claims Paid in Year 4 (I) / (B)" 20X7 " $5,500 " $500 5.2% 20X7 " $6,000 " $500 5.2% 20X8 " 6,500 " 750 7.3% 20X8 " 7,500 " " 1,000 " 9.8% 20X9 " 6,500 " 500 4.8% 20X9 " 7,500 " " 1,000 " 9.5% 20Y0 " 7,250 " " 1,000 " 8.3% 20Y0 " 7,750 " 500 4.2% 20Y1 " 6,750 " " 1,250 " 9.7% 20Y1 " 8,000 " " 1,250 " 9.7% 20Y2 " 7,000 " " 1,750 " 13.8% 20Y2 " 8,000 " " 1,000 " 7.9% 20Y3 " 7,250 " " 1,500 " 11.4% 20Y3 " 7,750 " 500 3.8% 20Y4 " 6,950 " 950 7.1% Average 8.5% Average 7.2%
    
-   ![ ](https://asc.understandingaccounting.org/asc-img/GUID-A2AD46AB-8CE0-490A-BD9F-52511BD720C5-low.gif)
    
    Percentage of Claims Paid in Year 5 Percentage of Claims Paid in Year 6 Accident Year "Total Claims Paid End of Year 5 (J)" "Claims Paid in Year 5 (J) - (H) = (K)" "Percentage of Claims Paid in Year 5 (K) / (B)" Accident Year "Total Claims Paid End of Year 6 (L)" "Claims Paid in Year 6 (L) - (J) = (M)" "Percentage of Claims Paid in Year 6 (M) / (B)" 20X7 " $6,800 " $800 8.4% 20X7 " $7,500 " $700 7.3% 20X8 " 7,750 " 250 2.4% 20X8 " 8,250 " 500 4.9% 20X9 " 7,900 " 400 3.8% 20X9 " 8,250 " 350 3.3% 20Y0 " 8,900 " " 1,150 " 9.6% 20Y0 " 9,700 " 800 6.7% 20Y1 " 8,950 " 950 7.4% 20Y1 " 9,250 " 300 2.3% 20Y2 " 9,000 " " 1,000 " 7.9% Average 6.6% Average 4.9%
    
-   ![ ](https://asc.understandingaccounting.org/asc-img/GUID-96D07659-1259-4A94-ACBC-6635118AF734-low.gif)
    
    Percentage of Claims Paid in Year 7 Percentage of Claims Paid in Year 8 Accident Year "Total Claims Paid End of Year 7 (N)" "Claims Paid in Year 7 (N) - (L) = (O)" "Percentage of Claims Paid in Year 7 (O) / (B)" Accident Year "Total Claims Paid End of Year 8 (P)" "Claims Paid in Year 8 (P) - (N) = (Q)" "Percentage of Claims Paid in Year 8 (Q) / (B)" 20X7 " $8,500 " " $1,000 " 10.5% 20X7 " $9,000 " $500 5.2% 20X8 " 8,500 " 250 2.4% 20X8 " 9,000 " 500 4.9% 20X9 " 8,950 " 700 6.7% 20X9 " 9,700 " 750 7.1% 20Y0 " 9,950 " 250 2.1% Average 5.4% Average 5.7%
    
-   ![ ](https://asc.understandingaccounting.org/asc-img/GUID-816BEDB8-1F8C-4C78-8BF5-0C9E1FF6E2D7-low.gif)
    
    Percentage of Claims Paid in Year 9 Percentage of Claims Paid in Year 10 Accident Year "Total Claims Paid End of Year 9 (R)" "Claims Paid in Year 9 (R) - (P) = (S)" "Percentage of Claims Paid in Year 9 (S) / (B)" Accident Year "Total Claims Paid End of Year 10 (T)" "Claims Paid in Year 10 (T) - (R) = (U)" "Percentage of Claims Paid in Year 10 (U) / (B)" 20X7 " $9,050 " $50 0.5% 20X7 " $9,075 " $25 0.3% 20X8 " 9,500 " 500 4.9% Average 2.7% Average 0.3%

### Long-Duration Contracts

#### Implementation Guidance

##### [944-40-55-10](https://asc.understandingaccounting.org/asc/944/40/#944-40-55-10)

Pending content: no

Source downloaded (UTC): 2026-09-10T02:16:51.609Z to 2026-09-10T02:16:51.609Z

Record version: sha256:440e46138c4fb29d42d48ffbee1ffa060e7440145f0efdd8407b44e8266c19ee

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


This implementation guidance discusses application of paragraphs

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

to the following types of [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."):

1.  a
    
    Immediate bonuses
    
2.  b
    
    Persistency bonuses
    
3.  c
    
    Enhanced crediting rate bonuses.

##### [944-40-55-11](https://asc.understandingaccounting.org/asc/944/40/#944-40-55-11)

Pending content: no

Source downloaded (UTC): 2026-09-10T02:16:51.609Z to 2026-09-10T02:16:51.609Z

Record version: sha256:741fd5a501833898bfb5cfc291225d27e156b55eac37a0c7225d0b2de79cdc80

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


As defined in this Subtopic, in an [immediate bonus](https://asc.understandingaccounting.org/glossary/i/#immediate-bonus "A sales inducement that the insurance entity is obligated to credit to the contract holder's account as a result of signing the contract, thus increasing the account value at inception."), the insurance entity is obligated to credit to the contract holder's account the sales inducement as a result of signing the contract. If the criteria in paragraphs

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

are met, an asset should be established for the same amount. Even if an entity were to impose a prepayment penalty designed to recover the sales inducement, paragraphs

[944-40-30-16 through 30-19](https://asc.understandingaccounting.org/asc/944/40/#944-40-30-16)

specify that amounts assessed against policyholders in future periods cannot be considered in determining the liability for policy benefits. The prepayment penalty for the sales inducement would be treated no differently than any other surrender charge.

##### [944-40-55-12](https://asc.understandingaccounting.org/asc/944/40/#944-40-55-12)

Pending content: no

Source downloaded (UTC): 2026-09-10T02:16:51.609Z to 2026-09-10T02:16:51.609Z

Record version: sha256:68fd077d52dd985de251d3c59625a0c5a04ce5d0fa41b72fdcd6c32d661d9338

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


As defined in this Subtopic, a [persistency bonus](https://asc.understandingaccounting.org/glossary/p/#persistency-bonus "A sales inducement credited to the contract holder account balance at the end of a specified period if the contract remains in force at that date, thus increasing the account value at the end of the specified period.") is credited to the contract holder account balance at the end of a specified period if the contract 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.") at that date. The amount that will be credited in accordance with the terms of the contract should be accrued as a component of the contract holder account balance ratably over the vesting period. If the criteria in paragraphs

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

are met, an asset should be established. While it may not become payable by the insurance entity until some future vesting or crediting date, the insurance entity is prohibited from anticipating surrenders and must assume the contract holder will persist to earn the bonus.

##### [944-40-55-13](https://asc.understandingaccounting.org/asc/944/40/#944-40-55-13)

Pending content: no

Source downloaded (UTC): 2026-09-10T02:16:51.609Z to 2026-09-10T02:16:51.609Z

Record version: sha256:b9e49757a38b5e0063945d1a8fe5795f8ec361211b45226d970fa23b221117e4

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


As defined in this Subtopic, in an [enhanced-crediting-rate bonus](https://asc.understandingaccounting.org/glossary/e/#enhanced-crediting-rate-bonus "A sales inducement in which the insurance entity offers customers a crediting rate for a stated period in excess of that currently being offered for other similar contracts."), the insurance entity offers customers a crediting rate for a stated period in excess of that currently being offered by the entity for other similar contracts. The liability for an enhanced-crediting-rate bonus should be accrued ratably over the bonus crediting period. If the criteria in paragraphs

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

are met, an asset should be established for the same amount.

##### [944-40-55-13A](https://asc.understandingaccounting.org/asc/944/40/#944-40-55-13A)

Pending content: no

Source downloaded (UTC): 2026-09-10T02:16:51.609Z to 2026-09-10T02:16:51.609Z

Record version: sha256:0a404f54d3d7d90c2676b965ee966aa08856216f5d52df39237157546825114a

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


Paragraphs [944-40-35-5 through 35-6A](https://asc.understandingaccounting.org/asc/944/40/#944-40-35-5) and

[944-40-35-7A through 35-7B](https://asc.understandingaccounting.org/asc/944/40/#944-40-35-7A)

require an insurance entity to review—and if there is a change, update—cash flow assumptions 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.") at the level of aggregation at which reserves are calculated. Example 6 (beginning in paragraph [944-40-55-29H](https://asc.understandingaccounting.org/asc/944/40/#944-40-55-29H)) illustrates the calculation of the liability, including subsequent changes in the estimate of the liability.

##### [944-40-55-13B](https://asc.understandingaccounting.org/asc/944/40/#944-40-55-13B)

Pending content: no

Source downloaded (UTC): 2026-09-10T02:16:51.609Z to 2026-09-10T02:16:51.609Z

Record version: sha256:6997db70218e387f16d56c75a7caa604c57bb0d02a6eed4f2fa29aa4a6b58596

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


If the adjustment related to updating cash flow assumptions is an unfavorable adjustment because of expected [net premiums](https://asc.understandingaccounting.org/glossary/n/#net-premiums "For traditional and limited-payment long-duration insurance contracts, the net premium is that portion of the gross premium required to provide for all benefits and expenses, excluding acquisition costs or any costs that are required to be charged to expense as incurred. For long-duration participating life insurance contracts that meet the criteria in paragraph 944-20-15-3, the net premium is a constant ratio of guaranteed maximum gross premiums. The ratio is calculated at issue, so that the present value of all guaranteed death and endowment benefits is equal to the present value of all net premiums.") exceeding expected [gross premiums](https://asc.understandingaccounting.org/glossary/g/#gross-premium "The premium charged to a policyholder for an insurance contract. See also Net Premiums.") (that is, expected benefits and related expenses exceed expected gross premiums), the insurance entity should:

1.  a
    
    Set net premiums equal to gross premiums
    
2.  b
    
    Increase the estimate of the liability for future policy benefits as of the beginning of the current reporting period
    
3.  c
    
    Recognize a corresponding adjustment to net income for the current reporting period (see paragraph [944-40-45-4](https://asc.understandingaccounting.org/asc/944/40/#944-40-45-4))
    
4.  d
    
    Disclose qualitative and quantitative information related to adverse development (see paragraph [944-40-50-6(d)](https://asc.understandingaccounting.org/asc/944/40/#944-40-50-6))
    
5.  e
    
    Accrue the liability for future policy benefits with net premiums being set equal to gross premiums (that is, a ratio of net premiums to gross premiums equal to 100 percent) until assumptions are subsequently updated.

##### [944-40-55-13C](https://asc.understandingaccounting.org/asc/944/40/#944-40-55-13C)

Pending content: no

Source downloaded (UTC): 2026-09-10T02:16:51.609Z to 2026-09-10T02:16:51.609Z

Record version: sha256:00c1454ebac2c4831d811f873d37b46a12ffb43ba7bdd138ca17beaf783e179f

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


If the adjustment related to updating cash flow assumptions is an unfavorable adjustment but does not result in net premiums exceeding gross premiums, then the insurance entity should:

1.  a
    
    Increase the estimate of the liability for future policy benefits as of the beginning of the current reporting period
    
2.  b
    
    Recognize a corresponding change in estimate adjustment to net income for the current reporting period (see paragraph [944-40-45-4](https://asc.understandingaccounting.org/asc/944/40/#944-40-45-4))
    
3.  c
    
    Accrue the liability for future policy benefits with the revised ratio of net premiums to gross premiums until assumptions are subsequently updated.

##### [944-40-55-13D](https://asc.understandingaccounting.org/asc/944/40/#944-40-55-13D)

Pending content: no

Source downloaded (UTC): 2026-09-10T02:16:51.609Z to 2026-09-10T02:16:51.609Z

Record version: sha256:260dc976c3ee7e928fef642d0f52c34ba8755364d0b9463b0d91fe17a7cf7b07

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


If the adjustment related to updating cash flow assumptions is a favorable adjustment—including the reversal of previously recognized unfavorable adjustment described in paragraph [944-40-55-13B](https://asc.understandingaccounting.org/asc/944/40/#944-40-55-13B) or [944-40-55-13C](https://asc.understandingaccounting.org/asc/944/40/#944-40-55-13C)—the insurance entity should:

1.  a
    
    Decrease the estimate of the liability for future policy benefits as of the beginning of the current reporting period
    
2.  b
    
    Recognize a corresponding change in estimate adjustment to net income for the current reporting period (see paragraph [944-40-45-4](https://asc.understandingaccounting.org/asc/944/40/#944-40-45-4))
    
3.  c
    
    Accrue the liability for future policy benefits with the revised ratio of net premiums to gross premiums until assumptions are subsequently updated.

##### [944-40-55-13E](https://asc.understandingaccounting.org/asc/944/40/#944-40-55-13E)

Pending content: no

Source downloaded (UTC): 2026-09-10T02:16:51.609Z to 2026-09-10T02:16:51.609Z

Record version: sha256:857bdec38b01f87530c79bd91f40f175d337a4c62c0bfbb5c0cb7611532ff676

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


An insurance entity should maximize the use of current observable market prices of upper-medium-grade (low-credit-risk) fixed-income instruments with durations similar to the liability for future policy benefits.

1.  a
    
    An insurance entity should not substitute its own estimates for observable market data unless the market data reflect transactions that are not orderly (see paragraphs
    
    [820-10-35-54I through 35-54J](https://asc.understandingaccounting.org/asc/820/10/#820-10-35-54I)
    
    for additional guidance on determining whether transactions are not orderly).
    
2.  b
    
    In determining points on the yield curve for which there are limited or no observable market data for upper-medium-grade (low-credit-risk) fixed-income instruments, an insurance entity should use an estimate that is consistent with existing guidance on [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.") measurement in Topic 820, particularly for Level 3 fair value measurement.

##### [944-40-55-13F](https://asc.understandingaccounting.org/asc/944/40/#944-40-55-13F)

Pending content: no

Source downloaded (UTC): 2026-09-10T02:16:51.609Z to 2026-09-10T02:16:51.609Z

Record version: sha256:2b6f7f4dd68500d3a7aa43c6650367ac485de12d758704ba84e8660f994ff42c

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


To allow financial statement users to understand the amount, timing, and uncertainty of cash flows arising from contracts issued by insurance entities, paragraph [944-40-50-5A](https://asc.understandingaccounting.org/asc/944/40/#944-40-50-5A) requires that an insurance entity aggregate or disaggregate certain disclosures so that useful information is not obscured by the inclusion of a large amount of insignificant detail or by the aggregation of items that have significantly different characteristics. Consequently, the extent to which an insurance entity's information is aggregated or disaggregated for the purpose of those disclosures depends on the facts and circumstances that pertain to the characteristics of the liability for future policy benefits, the additional liability, the liability for policyholders' account balances, [separate account](https://asc.understandingaccounting.org/glossary/s/#separate-account "A separate investment account established and maintained by an insurance entity under relevant state insurance law to which funds have been allocated for certain contracts of the insurance entity or similar accounts used for foreign originated products. The term separate accounts includes separate accounts and subaccounts or investment divisions of separate accounts.") liabilities, [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."), or 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.") (and balances amortized on a basis consistent with deferred acquisition costs).

##### [944-40-55-13G](https://asc.understandingaccounting.org/asc/944/40/#944-40-55-13G)

Pending content: no

Source downloaded (UTC): 2026-09-10T02:16:51.609Z to 2026-09-10T02:16:51.609Z

Record version: sha256:d1e5c84963d24fce4f979883c9361f9973f758ccef8df7dcf6affe19df45b1d5

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


In addition, when selecting the type of category to use to aggregate or disaggregate disclosures, an insurance entity should consider how information about the disclosed items has been presented for other purposes, including the following:

1.  a
    
    Disclosures presented outside the financial statements (for example, in statutory filings)
    
2.  b
    
    Information regularly viewed by the chief operating decision maker for evaluating financial performance
    
3.  c
    
    Other information that is similar to the types of information identified in (a) and (b) and that is used by the insurance entity or users of the insurance entity's financial statements to evaluate the insurance entity's financial performance or make resource allocation decisions.

##### [944-40-55-13H](https://asc.understandingaccounting.org/asc/944/40/#944-40-55-13H)

Pending content: no

Source downloaded (UTC): 2026-09-10T02:16:51.609Z to 2026-09-10T02:16:51.609Z

Record version: sha256:eca084a29519f1f0ab6836d55327167bfb2ae9fd58c7b8a7c0014bb47f6773cd

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


Examples of categories that might be appropriate to consider to aggregate or disaggregate disclosures include the following:

1.  a
    
    Type of coverage (for example, major product line)
    
2.  b
    
    Geography (for example, country or region)
    
3.  c
    
    Market or type of customer (for example, individual or group lines of business).
    

When applying the guidance in paragraphs

[944-30-50-2A through 50-2B](https://asc.understandingaccounting.org/asc/944/30/#944-30-50-2A)

, [944-40-50-6 through 50-7C](https://asc.understandingaccounting.org/asc/944/40/#944-40-50-6), and

[944-80-50-1 through 50-2](https://asc.understandingaccounting.org/asc/944/80/#944-80-50-1)

, an insurance entity should not aggregate amounts from different reportable segments according to Topic 280, if applicable.

##### [944-40-55-13I](https://asc.understandingaccounting.org/asc/944/40/#944-40-55-13I)

Pending content: no

Source downloaded (UTC): 2026-09-10T02:16:51.609Z to 2026-09-10T02:16:51.609Z

Record version: sha256:ce6de63d0898a26f235f2f84d0572bbcd5615d5e46c0d8785ee1749975a74598

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


The tabular rollforward of the beginning to the ending balance related to the liability for future policy benefits or the additional liability as required in paragraph [944-40-50-6](https://asc.understandingaccounting.org/asc/944/40/#944-40-50-6) could include the following line items:

1.  a
    
    Issuances
    
2.  b
    
    Interest accrual
    
3.  c
    
    Net premiums or assessments collected
    
4.  d
    
    Benefit payments
    
5.  e
    
    Derecognition (lapses or withdrawals)
    
6.  f
    
    Effect of actual variances from expected experience
    
7.  g
    
    Effect of changes in cash flow assumptions
    
8.  h
    
    Effect of changes in discount rate assumptions.

##### [944-40-55-13J](https://asc.understandingaccounting.org/asc/944/40/#944-40-55-13J)

Pending content: no

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Record version: sha256:9d7142e4e951a81ca0df2edc9b1e0459106c44c4316c1736199b6cfa0a882a03

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


The tabular rollforward of the beginning to the ending balance related to the liability for policyholders' account balances as required in paragraph [944-40-50-7A](https://asc.understandingaccounting.org/asc/944/40/#944-40-50-7A) could include the following line items:

1.  a
    
    Issuances
    
2.  b
    
    Premiums received
    
3.  c
    
    Policy charges
    
4.  d
    
    Surrenders and withdrawals
    
5.  e
    
    Benefit payments
    
6.  f
    
    Transfers from or to separate accounts
    
7.  g
    
    Interest credited.

##### [944-40-55-13K](https://asc.understandingaccounting.org/asc/944/40/#944-40-55-13K)

Pending content: no

Source downloaded (UTC): 2026-09-10T02:16:51.609Z to 2026-09-10T02:16:51.609Z

Record version: sha256:cbb30dec1429e46e1fdc17463d0025a78af0682bf664ee6c9da9e5eace6c79ac

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


The tabular rollforward of the beginning to the ending balance related to market risk benefits as required in paragraph [944-40-50-7B](https://asc.understandingaccounting.org/asc/944/40/#944-40-50-7B) could include the following line items:

1.  a
    
    Issuances
    
2.  b
    
    Interest accrual
    
3.  c
    
    Attributed fees collected
    
4.  d
    
    Benefit payments
    
5.  e
    
    Effect of changes in interest rates
    
6.  f
    
    Effect of changes in equity markets
    
7.  g
    
    Effect of changes in equity index volatility
    
8.  h
    
    Actual policyholder behavior different from expected behavior
    
9.  i
    
    Effect of changes in future expected policyholder behavior
    
10.  j
     
     Effect of changes in other future expected assumptions
     
11.  k
     
     Effect of changes in the instrument-specific credit risk.
     

To the extent that the tabular rollforward of the beginning to the ending balance related to market risk benefits achieves the fair value disclosure requirements described in Section 820-10-50, an insurance entity need not duplicate the related fair value disclosure.

#### Illustrations

##### [944-40-55-14](https://asc.understandingaccounting.org/asc/944/40/#944-40-55-14)

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Source downloaded (UTC): 2026-09-10T02:16:51.609Z to 2026-09-10T02:16:51.609Z

Record version: sha256:70e9beb7b5400c1b0cdd8a873ae0d7ef470b2d2e9b9dc02503e1ad3116c9b856

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


This Example illustrates how to calculate an additional liability for universal life-type contracts as discussed in paragraph [944-40-25-27A](https://asc.understandingaccounting.org/asc/944/40/#944-40-25-27A)(for example, a variable universal life insurance contract no-lapse guarantee that would meet the condition in paragraph [944-40-25-25D(b)](https://asc.understandingaccounting.org/asc/944/40/#944-40-25-25D) and not be accounted for as a market risk benefit). This Example assumes that the guidance in paragraphs

[944-20-15-20 through 15-25](https://asc.understandingaccounting.org/asc/944/20/#944-20-15-20)

has been followed, with the conclusion that the [mortality](https://asc.understandingaccounting.org/glossary/m/#mortality "The relative incidence of death in a given time or place.") and [morbidity](https://asc.understandingaccounting.org/glossary/m/#morbidity "The relative incidence of disability due to disease or physical impairment.") risk associated with insurance benefit features is other than nominal.

##### [944-40-55-15](https://asc.understandingaccounting.org/asc/944/40/#944-40-55-15)

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Source downloaded (UTC): 2026-09-10T02:16:51.609Z to 2026-09-10T02:16:51.609Z

Record version: sha256:cba03c0f5516ad210855d2ae0600585be8467382bacd6486dfc053cb1e5da89b

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


This Example assumes the following for the contracts discussed:

1.  a
    
    The contracts have no front-end loads.
    
2.  b
    
    The mortality assessments include any explicit assessments for enhanced death benefit feature.
    
3.  c
    
    The [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.") are calculated based on a percentage of premiums.
    
4.  d
    
    The expense assessments are a fixed annual charge.
    
5.  e
    
    The discount rate is 8 percent
    
6.  f
    
    The contracts do not include market risk benefits.

##### [944-40-55-16](https://asc.understandingaccounting.org/asc/944/40/#944-40-55-16)

Pending content: no

Source downloaded (UTC): 2026-09-10T02:16:51.609Z to 2026-09-10T02:16:51.609Z

Record version: sha256:c2b1eb09c964867eb4854fd8dffdc7d172d4e5b3ea0d31406b1c8695dae541ad

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


Paragraphs

[944-40-55-25 through 55-28](https://asc.understandingaccounting.org/asc/944/40/#944-40-55-25)

contain the same basic assumptions as paragraph [944-40-55-20](https://asc.understandingaccounting.org/asc/944/40/#944-40-55-20), but with the effect on the components of the additional liability of a 10 percent increase in account balances (not shown in schedules) in Year 2.

##### [944-40-55-17](https://asc.understandingaccounting.org/asc/944/40/#944-40-55-17)

Pending content: no

Source downloaded (UTC): 2026-09-10T02:16:51.609Z to 2026-09-10T02:16:51.609Z

Record version: sha256:be15b7cfee75f07ac17efd1345495b6857ea844482f1ece044449771b3cb8689

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


This Example illustrates computations involved in the following:

1.  a
    
    [Subparagraph superseded by Accounting Standards Update No. 2018-12](https://asc.understandingaccounting.org/updates/asu-2018-12/).
    
2.  b
    
    Benefit ratio
    
3.  c
    
    Additional liability
    
4.  d
    
    [Subparagraph superseded by Accounting Standards Update No. 2018-12](https://asc.understandingaccounting.org/updates/asu-2018-12/).

##### [944-40-55-18](https://asc.understandingaccounting.org/asc/944/40/#944-40-55-18)

Pending content: no

Source downloaded (UTC): 2026-09-10T02:16:51.609Z to 2026-09-10T02:16:51.609Z

Record version: sha256:592424e71daed5ab4736b5eeaad407a3f273ab764d9a70a00dce2ed9e6d9dcfd

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/).

##### [944-40-55-19](https://asc.understandingaccounting.org/asc/944/40/#944-40-55-19)

Pending content: no

Source downloaded (UTC): 2026-09-10T02:16:51.609Z to 2026-09-10T02:16:51.609Z

Record version: sha256:b7ca654da5aa176ae421324627262685aa3fa35c58baaf2c95175afcdb26b446

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


Columns in the computations that follow do not cross-foot due to rounding.

##### [944-40-55-20](https://asc.understandingaccounting.org/asc/944/40/#944-40-55-20)

Pending content: no

Source downloaded (UTC): 2026-09-10T02:16:51.609Z to 2026-09-10T02:16:51.609Z

Record version: sha256:de03a98340208f271fbc10fd7c498f708906db9153e059fba81f14a32794b742

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


Computation of components of the additional liability follows.

-   ![](https://asc.understandingaccounting.org/asc-img/GUID-A787453F-39C8-456A-962E-A819C303B78F-low.gif)
    
    Year Expense Assessments + Mortality Assessments + "Surrender Charges" = Total Assessments (a) Excess Payments 1 $30.00 $820.50 $17.50 $868.00 $- 2 29.75 871.65 44.62 946.02 12.20 3 29.48 919.29 61.42 " 1,010.19 " 20.61 4 29.20 969.80 68.12 " 1,067.12 " 25.94 5 28.89 " 1,034.77 " 64.99 " 1,128.65 " 31.58 6 28.55 " 1,086.61 " 95.16 " 1,210.32 " 44.05 7 28.18 " 1,143.53 " 58.71 " 1,230.42 " 49.53 8 27.78 " 1,086.61 " - " 1,114.39 " 52.00 9 27.34 " 1,268.91 " - " 1,296.25 " 65.93 10 26.87 " 1,333.10 " - " 1,359.97 " 76.78 11 26.35 " 1,382.93 " - " 1,409.28 " 93.75 12 25.79 " 1,433.09 " - " 1,458.88 " 104.76 13 25.18 " 1,487.10 " - " 1,512.28 " 120.67 14 24.52 " 1,539.66 " - " 1,564.18 " 142.22 15 23.81 " 1,597.88 " - " 1,621.69 " 151.25 16 23.06 " 1,662.23 " - " 1,685.29 " 153.64 17 22.25 " 1,691.70 " - " 1,713.95 " 210.92 18 21.39 " 1,723.70 " - " 1,745.09 " 236.72 19 20.48 " 1,751.22 " - " 1,771.70 " 270.72 20 19.52 " 1,788.11 " - " 1,807.63 " 270.82 Present Value " $12,304.07 " $724.88 (a) "If the product had investment margins, they would be included in the schedule in an additional column."

##### [944-40-55-21](https://asc.understandingaccounting.org/asc/944/40/#944-40-55-21)

Pending content: no

Source downloaded (UTC): 2026-09-10T02:16:51.609Z to 2026-09-10T02:16:51.609Z

Record version: sha256:2974902b8cd6870144743fe1420e63c58523f2de83369c0f0ff81a846b638a7e

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


Computation of the benefit ratio follows.

-   ![](https://asc.understandingaccounting.org/asc-img/GUID-5E9A5664-F3FF-44F0-A5F7-9F854682136C-low.gif)
    
    Present value of total expected excess payments over the life of the contract $724.88 Divided by present value of total expected assessments over the life of the contract " 12,304.07 " Equals benefit ratio 5.8914%

##### [944-40-55-22](https://asc.understandingaccounting.org/asc/944/40/#944-40-55-22)

Pending content: no

Source downloaded (UTC): 2026-09-10T02:16:51.609Z to 2026-09-10T02:16:51.609Z

Record version: sha256:37a4da1a5f375702b50b51779024f58a8d8ce958152eb52b91aa6f5232d14491

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


Computation of the Year 1 additional liability follows.

-   ![](https://asc.understandingaccounting.org/asc-img/GUID-A4CC9438-89D9-44DD-935E-8F09E6B8986B-low.gif)
    
    Cumulative assessments $868.00 Multiplied by benefit ratio 5.8914% Equals Year 1 additional liability ($) 51.14

##### [944-40-55-23](https://asc.understandingaccounting.org/asc/944/40/#944-40-55-23)

Pending content: no

Source downloaded (UTC): 2026-09-10T02:16:51.609Z to 2026-09-10T02:16:51.609Z

Record version: sha256:1134028e6dfb20d6c5b9e2497a9b498a6c832b6933a8e9538d1c8465e1bb8cba

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


The additional liability schedule follows.

-   ![](https://asc.understandingaccounting.org/asc-img/GUID-0DF86CAD-B47E-460E-BB78-6F10C9BC3F2F-low.gif)
    
    Year "(A) Beginning Additional Liability" Interest "Total Assessments × Benefit Ratio" "(B) Benefit Expense Incurred" "(C) Excess Payments" "(A) + (B) - (C) Ending Additional Liability" Change in Additional Liability 1 $- $- $51.14 $51.14 $- $51.14 $51.14 2 51.14 4.09 55.73 59.82 12.20 98.76 47.62 3 98.76 7.90 59.51 67.42 20.61 145.57 46.81 4 145.57 11.65 62.87 74.51 25.94 194.15 48.57 5 194.15 15.53 66.49 82.02 31.58 244.59 50.45 6 244.59 19.57 71.30 90.87 44.05 291.41 46.82 7 291.41 23.31 72.49 95.80 49.53 337.69 46.28 8 337.69 27.02 65.65 92.67 52.00 378.35 40.66 9 378.35 30.27 76.37 106.63 65.93 419.06 40.70 10 419.06 33.52 80.12 113.65 76.78 455.92 36.86 11 455.92 36.47 83.03 119.50 93.75 481.67 25.75 12 481.67 38.53 85.95 124.48 104.76 501.39 19.72 13 501.39 40.11 89.09 129.21 120.67 509.93 8.54 14 509.93 40.79 92.15 132.95 142.22 500.65 (9.27) 15 500.65 40.05 95.54 135.59 151.25 484.99 (15.66) 16 484.99 38.80 99.29 138.09 153.64 469.44 (15.55) 17 469.44 37.56 100.98 138.53 210.92 397.05 (72.39) 18 397.05 31.76 102.81 134.57 236.72 294.91 (102.14) 19 294.91 23.59 104.38 127.97 270.72 152.16 (142.75) 20 152.16 12.17 106.49 118.67 270.82 - (152.16)

##### [944-40-55-24](https://asc.understandingaccounting.org/asc/944/40/#944-40-55-24)

Pending content: no

Source downloaded (UTC): 2026-09-10T02:16:51.609Z to 2026-09-10T02:16:51.609Z

Record version: sha256:61eb3d17f4de211472185e53e9afb83fb442e67874b90721b9ad3e518b5b7191

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/).

##### [944-40-55-25](https://asc.understandingaccounting.org/asc/944/40/#944-40-55-25)

Pending content: no

Source downloaded (UTC): 2026-09-10T02:16:51.609Z to 2026-09-10T02:16:51.609Z

Record version: sha256:41a93953557ec7c1940de671f1bc719294c3524b56ffad5cdbc49e664bbe3f5d

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


Computation of components of the additional liability with a 10 percent increase in the account balance in Year 2 follows.

-   ![](https://asc.understandingaccounting.org/asc-img/GUID-D0DC7801-34D6-4A9E-8D1D-502EBC0A1E6B-low.gif)
    
    Year Expense Assessments + Mortality Assessments + Surrender Charges = Total Assessments Excess Payments 1 $30.00 $820.50 $17.50 $868.00 $- 2 29.75 952.20 44.62 " 1,026.58 " - 3 29.48 " 1,004.82 " 61.42 " 1,095.72 " 14.70 4 29.20 " 1,060.59 " 68.12 " 1,157.91 " 23.32 5 28.89 " 1,131.90 " 64.99 " 1,225.78 " 30.43 6 28.55 " 1,189.01 " 95.16 " 1,312.72 " 44.65 7 28.18 " 1,251.32 " 58.71 " 1,338.21 " 51.02 8 27.78 " 1,189.01 " - " 1,216.79 " 54.23 9 27.34 " 1,389.04 " - " 1,416.38 " 68.42 10 26.87 " 1,456.89 " - " 1,483.76 " 82.24 11 26.35 " 1,511.61 " - " 1,537.96 " 101.42 12 25.79 " 1,568.05 " - " 1,593.83 " 112.70 13 25.18 " 1,626.63 " - " 1,651.81 " 131.08 14 24.52 " 1,683.48 " - " 1,708.00 " 154.93 15 23.81 " 1,747.40 " - " 1,771.22 " 163.02 16 23.06 " 1,814.73 " - " 1,837.79 " 167.79 17 22.25 " 1,845.71 " - " 1,867.96 " 232.38 18 21.39 " 1,878.58 " - " 1,899.97 " 261.62 19 20.48 " 1,909.07 " - " 1,929.54 " 296.86 20 19.52 " 1,950.07 " - " 1,969.58 " 296.31 Present value " $13,326.45 " $759.24

##### [944-40-55-26](https://asc.understandingaccounting.org/asc/944/40/#944-40-55-26)

Pending content: no

Source downloaded (UTC): 2026-09-10T02:16:51.609Z to 2026-09-10T02:16:51.609Z

Record version: sha256:71bc98e1d70f510c5bbad99f27f4f81b362d990a15d80499263f1f7d5ba00792

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


Computation of the benefit ratio at Year 2 follows.

-   ![](https://asc.understandingaccounting.org/asc-img/GUID-C9ED0F5B-6EEA-4FA3-8CD0-F4FBEFDCC93C-low.gif)
    
    Present value of total expected excess payments over the life of the contract $759.24 Divided by present value of total expected assessments over the life of the contract " 13,326.45 " Equals benefit ratio 5.6972%

##### [944-40-55-27](https://asc.understandingaccounting.org/asc/944/40/#944-40-55-27)

Pending content: no

Source downloaded (UTC): 2026-09-10T02:16:51.609Z to 2026-09-10T02:16:51.609Z

Record version: sha256:e70bf1e08606e90af6fa448f7fa76ddf94da3727f8e7b4c20a77cad5b8cc8ba9

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


Computation of the Year 2 additional liability follows.

-   ![](https://asc.understandingaccounting.org/asc-img/GUID-E5FB9FFE-CC81-45EF-9645-0959645D8DDE-low.gif)
    
    Cumulative assessments Year 1 $868.00 Year 2 " 1,026.58 " Total " 1,894.58 " Multiplied by benefit ratio 5.6972% Equals Year 2 additional liability (a) ($) 107.94 (a) "Excludes interest, any deduction for actual claim expenses, and accrued interest related to cumulative adjustment to benefits expense (which amounts to $.13)."

##### [944-40-55-28](https://asc.understandingaccounting.org/asc/944/40/#944-40-55-28)

Pending content: no

Source downloaded (UTC): 2026-09-10T02:16:51.609Z to 2026-09-10T02:16:51.609Z

Record version: sha256:39a8718803a5e9aae61da776d610a578a8cdcd9d77967fb7a4e3acefe19f3f05

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


The updated additional liability schedule follows.

-   ![](https://asc.understandingaccounting.org/asc-img/GUID-4C5E3298-1218-4AA0-9629-0923A8368520-low.gif)
    
    Year "(A) Beginning Additional Liability" Interest "Total Assessments × Benefit Ratio" Cumulative Adjustments to Benefit Expense "(B) Benefit Expense Incurred" "(C) Excess Payments" "(A) + (B) - (C) Ending Additional Liability" Change in Additional Liability 1 $- $- $51.14 $- $51.14 $- $51.14 (a) $51.14 2 51.14 4.09 58.49 (1.82) (b) 60.76 - 111.89 (c) 60.76 3 111.89 8.95 62.43 - 71.38 14.70 168.57 56.68 4 168.57 13.49 65.97 - 79.45 23.32 224.71 56.13 5 224.71 17.98 69.84 - 87.81 30.43 282.09 57.38 6 282.09 22.57 74.79 - 97.36 44.65 334.79 52.71 7 334.79 26.78 76.24 - 103.02 51.02 386.80 52.00 8 386.80 30.94 69.32 - 100.27 54.23 432.83 46.04 9 432.83 34.63 80.69 - 115.32 68.42 479.73 46.90 10 479.73 38.38 84.53 - 122.91 82.24 520.40 40.67 11 520.40 41.63 87.62 - 129.25 101.42 548.24 27.83 12 548.24 43.86 90.80 - 134.66 112.70 570.20 21.96 13 570.20 45.62 94.11 - 139.72 131.08 578.84 8.64 14 578.84 46.31 97.31 - 143.62 154.93 567.53 (11.31) 15 567.53 45.40 100.91 - 146.31 163.02 550.82 (16.71) 16 550.82 44.07 104.70 - 148.77 167.79 531.80 (19.02) 17 531.80 42.54 106.42 - 148.97 232.38 448.38 (83.41) 18 448.38 35.87 108.25 - 144.12 261.62 330.88 (117.50) 19 330.88 26.47 109.93 - 136.40 296.86 170.42 (160.46) 20 170.42 13.63 112.21 - 125.84 296.31 - (170.42) (a) This represents the end-of-year liability using the original expense in Year 1. (b) The difference of 1.82 between the actual Year 1 liability (51.14) and the recomputed amount (49.32) will be the true-up adjustment included in the Year 2 benefit expense. (c) "Year 1 (51.14) plus Year 2 (58.49) plus interest (4.09), less Year 2 cumulative adjustment to benefit expense (1.82), equals an ending additional liability balance of 111.89. Rounding results in a .01 difference."

##### [944-40-55-29](https://asc.understandingaccounting.org/asc/944/40/#944-40-55-29)

Pending content: no

Source downloaded (UTC): 2026-09-10T02:16:51.609Z to 2026-09-10T02:16:51.609Z

Record version: sha256:8d80eaa369881d4d706d223f986e2a91137e9da3d187c378460e37844340419b

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/).

##### [944-40-55-29A](https://asc.understandingaccounting.org/asc/944/40/#944-40-55-29A)

Pending content: no

Source downloaded (UTC): 2026-09-10T02:16:51.609Z to 2026-09-10T02:16:51.609Z

Record version: sha256:9455dc1ac09cfe8a83f9ff435f5a961734a71d0b5956d03900afb043bb700797

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


A contract holder deposits $100,000 in a deferred annuity (either fixed or variable) that provides for a [guaranteed minimum accumulation benefit](https://asc.understandingaccounting.org/glossary/g/#guaranteed-minimum-accumulation-benefit "A minimum accumulation benefit or a guaranteed account value floor that is available to a deferred annuity contract holder in cash.") that guarantees that at a specified anniversary date (for example, 5 years) the contract holder's account balance will be the greater of the following:

1.  a
    
    The account value
    
2.  b
    
    Deposits less partial withdrawals accumulated at 3 percent interest compounded annually.

##### [944-40-55-29B](https://asc.understandingaccounting.org/asc/944/40/#944-40-55-29B)

Pending content: no

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Record version: sha256:b0f3b60da2ff56bbf37c7ab6ff0276c236d6ccb98f231cec0a00ca26b3f8535a

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


The contract holder's account balance is exposed to stock market performance. At the specified anniversary date the contract holder's account balance has declined to $80,000 due to stock market declines. The guaranteed minimum value of the $100,000 deposit compounded annually at 3 percent interest is $115,930. The contract holder's account balance will be increased to the greater amount, resulting in an account balance of $115,930. In this Example, the guaranteed minimum accumulation benefit meets the criteria for a market risk benefit in accordance with paragraph [944-40-25-25C](https://asc.understandingaccounting.org/asc/944/40/#944-40-25-25C) because the guaranteed minimum accumulation benefit protects the contract holder from other-than-nominal capital market risk and exposes the insurance entity to other-than-nominal capital market risk. Specifically, the insurance entity compensates the contract holder for the shortfall (due to stock market declines) between the account balance amount of $80,000 and the guaranteed amount of $115,930. The guaranteed minimum accumulation benefit should be measured at fair value in accordance with paragraph [944-40-30-19C](https://asc.understandingaccounting.org/asc/944/40/#944-40-30-19C). Similarly, if on the date of the death of the contract holder the deferred annuity provides a guaranteed minimum death benefit amount of $115,930 while the account balance is $80,000, the guaranteed minimum death benefit meets the criteria for a market risk benefit in accordance with paragraph [944-40-25-25C](https://asc.understandingaccounting.org/asc/944/40/#944-40-25-25C) because the insurance entity provides compensation for the shortfall (due to stock market declines) between the account balance amount of $80,000 and the guaranteed amount of $115,930.

##### [944-40-55-29C](https://asc.understandingaccounting.org/asc/944/40/#944-40-55-29C)

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Source downloaded (UTC): 2026-09-10T02:16:51.609Z to 2026-09-10T02:16:51.609Z

Record version: sha256:24a3a712b66111e9497e5658bd6624e3c4d82c1ef98ae13fce18c390cce30fb0

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


A contract holder deposits $100,000 in a deferred annuity (either fixed or variable) that provides a [guaranteed minimum income benefit](https://asc.understandingaccounting.org/glossary/g/#guaranteed-minimum-income-benefit "A guarantee that, regardless of account balance performance, the contract holder will be able to annuitize after a specified date and receive a defined minimum periodic benefit. These benefits are available only if the contract holder elects to annuitize."). The contract specifies that if the contract holder elects to annuitize, the amount available to annuitize will be the higher of the then account balance or the sum of deposits less withdrawals. The contract holder's account balance is exposed to stock market performance. At the date that the contract holder chooses to annuitize, the account balance has declined to $80,000 due to stock market declines.

##### [944-40-55-29D](https://asc.understandingaccounting.org/asc/944/40/#944-40-55-29D)

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Source downloaded (UTC): 2026-09-10T02:16:51.609Z to 2026-09-10T02:16:51.609Z

Record version: sha256:3c16d2c38e731e8ecce1fb3d93bbd8e74df10f3b8881699b4b2ed656aab8dcad

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


In this Example, the guaranteed minimum income benefit meets the criteria for a market risk benefit in accordance with paragraph [944-40-25-25C](https://asc.understandingaccounting.org/asc/944/40/#944-40-25-25C) because the guaranteed minimum income benefit protects the contract holder from other-than-nominal capital market risk and exposes the insurance entity to other-than-nominal capital market risk. Specifically, the insurance entity compensates the contract holder for the shortfall (due to stock market declines) between the account balance amount of $80,000 and the $100,000 guaranteed amount at the [annuitization](https://asc.understandingaccounting.org/glossary/a/#annuitization "Annuitization refers to the policyholder receiving periodic payments under various payment options, including their remaining life or for a term-certain period.") date. During 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."), the guaranteed minimum income benefit feature should be measured at fair value in accordance with paragraph [944-40-30-19C](https://asc.understandingaccounting.org/asc/944/40/#944-40-30-19C). Similarly, if the deferred annuity provides a [guaranteed minimum withdrawal benefit](https://asc.understandingaccounting.org/glossary/g/#guaranteed-minimum-withdrawal-benefit "A benefit that provides a contract holder a guarantee that a minimum amount (usually stated as a percentage of premiums) will be available for withdrawal over a specific period. Regardless of the contract value, the contract holder is guaranteed the right to periodic withdrawals from the contract until the amount of premiums deposited into the contract is withdrawn.") or a guaranteed minimum lifetime withdrawal benefit that protects the contract holder from other-than-nominal capital market risk and exposes the insurance entity to other-than-nominal capital market risk, the guaranteed minimum withdrawal benefit or the guaranteed minimum lifetime withdrawal benefit meets the criteria for a market risk benefit.

##### [944-40-55-29E](https://asc.understandingaccounting.org/asc/944/40/#944-40-55-29E)

Pending content: no

Source downloaded (UTC): 2026-09-10T02:16:51.609Z to 2026-09-10T02:16:51.609Z

Record version: sha256:a2fa38389a5476690d3f4935dee4e675409d85dfc42e545332082f5cec1a9531

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


This Example illustrates the information that an insurance entity with two major long-duration product lines (term life and whole life) should disclose in its 20X2 financial statements to meet certain requirements of paragraph [944-40-50-6](https://asc.understandingaccounting.org/asc/944/40/#944-40-50-6).

-   Note X: Liability for Future Policy Benefits
    
-   The balances of and changes in the liability for future policy benefits follow.
    
    -   ![](https://asc.understandingaccounting.org/asc-img/GUID-35F0EF5A-D89C-4DEE-B2D0-D1033BAC4932-low.gif)
        
        "December 31, " 20X2 20X1 Term Life Whole Life Term Life Whole Life Present Value of Expected Net Premiums "Balance, beginning of year" $VVV $VVV $XXX $XXX Beginning balance at original discount rate WWW WWW XXX XXX Effect of changes in cash flow assumptions XXX XXX XXX XXX Effect of actual variances from expected experience XXX XXX XXX XXX Adjusted beginning of year balance XXX XXX XXX XXX Issuances XXX XXX XXX XXX Interest accrual XXX XXX XXX XXX Net premiums collected (a) (XXX) (XXX) (XXX) (XXX) Derecognition (lapses) (XXX) (XXX) (XXX) (XXX) Ending balance at original discount rate YYY YYY WWW WWW Effect of changes in discount rate assumptions XXX XXX XXX XXX "Balance, end of year" $ZZZ $ZZZ $VVV $VVV Present Value of Expected Future Policy Benefits "Balance, beginning of year" $VVV $VVV $XXX $XXX Beginning balance at original discount rate WWW WWW XXX XXX Effect of changes in cash flow assumptions XXX XXX XXX XXX Effect of actual variances from expected experience XXX XXX XXX XXX Adjusted beginning of year balance XXX XXX XXX XXX Issuances XXX XXX XXX XXX Interest accrual XXX XXX XXX XXX Benefit payments (XXX) (XXX) (XXX) (XXX) Derecognition (lapses) (XXX) (XXX) (XXX) (XXX) Ending balance at original discount rate YYY YYY WWW WWW Effect of changes in discount rate assumptions XXX XXX XXX XXX "Balance, end of year" $ZZZ $ZZZ $VVV $VVV Net liability for future policy benefits $CCC $DDD $AAA $BBB Less: Reinsurance recoverable XXX XXX XXX XXX "Net liability for future policy benefits, after reinsurance recoverable " $XXX $XXX $XXX $XXX (a) Net premiums collected represent the portion of gross premiums collected from policyholders that is used to fund expected benefit payments.
        
-   The reconciliation of the net liability for future policy benefits to the liability for future policy benefits in the consolidated statement of financial position follows.
    
    -   ![](https://asc.understandingaccounting.org/asc-img/GUID-419FE406-D36C-4F39-9FCB-2653B8C1CB7F-low.gif)
        
        "December 31, "20X2 20X1 Term life $CCC $AAA Whole life DDD BBB Other XXX XXX Total $XXX $XXX
        
-   The amount of undiscounted expected gross premiums and expected future benefit payments follows.
    
    -   ![](https://asc.understandingaccounting.org/asc-img/GUID-7F44E33A-9E11-45BA-8F8A-578941C856A4-low.gif)
        
        "December 31, " 20X2 20X1 Term life Expected future benefit payments $XXX $XXX Expected future gross premiums $XXX $XXX Whole life Expected future benefit payments $XXX $XXX Expected future gross premiums $XXX $XXX
        
-   The amount of revenue and interest recognized in the statement of operations follows.
    
    -   ![](https://asc.understandingaccounting.org/asc-img/GUID-2A8DD6B5-5D7C-4765-9909-CB3D2395946F-low.gif)
        
        Gross Premiums or Assessments Interest Expense " December 31, " " December 31, " 20X2 20X1 20X2 20X1 Term life $XXX $XXX $XXX $XXX Whole life XXX XXX XXX XXX Other XXX XXX XXX XXX Total $XXX $XXX $XXX $XXX
        
-   The weighted-average interest rate follows.
    
    -   ![](https://asc.understandingaccounting.org/asc-img/GUID-F41707A9-2B58-41A1-8AA4-86F2CBB30322-low.gif)
        
        "December 31, " 20X2 20X1 Term life Interest accretion rate XXX% XXX% Current discount rate XXX% XXX% Whole life Interest accretion rate XXX% XXX% Current discount rate XXX% XXX%

##### [944-40-55-29F](https://asc.understandingaccounting.org/asc/944/40/#944-40-55-29F)

Pending content: no

Source downloaded (UTC): 2026-09-10T02:16:51.609Z to 2026-09-10T02:16:51.609Z

Record version: sha256:346fbaca95a7c0906e4d1098bb4023f310db4bd998ec43c8321599bae1512ccb

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


This Example illustrates the information that an insurance entity with two major long-duration products with policyholders' account balances (universal life and fixed annuities) should disclose in its 20X2 financial statements to meet certain requirements of paragraph [944-40-50-7A](https://asc.understandingaccounting.org/asc/944/40/#944-40-50-7A).

-   Note X: Policyholders' Account Balances
    
-   The balance of account values by range of guaranteed minimum crediting rates and the related range of difference, in basis points, between rates being credited to policyholders and the respective guaranteed minimums follow.
    
    -   ![](https://asc.understandingaccounting.org/asc-img/GUID-B89788F2-16F3-40FA-BE32-362071666512-low.gif)
        
        "December 31, 20X2" Range of Guaranteed Minimum Crediting Rate At Guaranteed Minimum "1 Basis Point- 50 Basis Points Above " "51 Basis Points- 150 Basis Points Above " Greater Than 150 Basis Points Above Total Universal Life X.XX%-X.XX% $XXX $XXX $XXX $XXX $XXX X.XX%-X.XX% XXX XXX XXX XXX XXX Greater than X.XX% XXX XXX XXX XXX XXX Total $XXX $XXX $XXX $XXX $CCC Fixed Annuity X.XX%-X.XX% $XXX $XXX $XXX $XXX $XXX X.XX%-X.XX% XXX XXX XXX XXX XXX Greater than X.XX% XXX XXX XXX XXX XXX Total $XXX $XXX $XXX $XXX $DDD "December 31, 20X1" Range of Guaranteed Minimum Crediting Rate At Guaranteed Minimum "1 Basis Point- 50 Basis Points Above " "51 Basis Points- 150 Basis Points Above " Greater Than 150 Basis Points Above Total Universal Life X.XX%-X.XX% $XXX $XXX $XXX $XXX $XXX X.XX%-X.XX% XXX XXX XXX XXX XXX Greater than X.XX% XXX XXX XXX XXX XXX Total $XXX $XXX $XXX $XXX $AAA Fixed Annuity X.XX%-X.XX% $XXX $XXX $XXX $XXX $XXX X.XX%-X.XX% XXX XXX XXX XXX XXX Greater than X.XX% XXX XXX XXX XXX XXX Total $XXX $XXX $XXX $XXX $BBB
        

-   The balances of and changes in policyholders' account balances follow.
    
    -   ![](https://asc.understandingaccounting.org/asc-img/GUID-AB546096-3440-4C2D-8444-1A29A474E52D-low.gif)
        
        "December 31," 20X2 20X1 Universal Life Fixed Annuity Universal Life Fixed Annuity "Balance, beginning of year" $AAA $BBB $XXX $XXX Issuances XXX XXX XXX XXX Premiums received XXX XXX XXX XXX Policy charges (a) (XXX) (XXX) (XXX) (XXX) Surrenders and withdrawals (XXX) (XXX) (XXX) (XXX) Benefit payments (XXX) (XXX) (XXX) (XXX) Net transfers from (to) separate account XXX XXX XXX XXX Interest credited XXX XXX XXX XXX Other XXX XXX XXX XXX "Balance, end of year" $CCC $DDD $AAA $BBB Weighted-average crediting rate X.XX% X.XX% X.XX% X.XX% Net amount at risk (b) $XXX $XXX $XXX $XXX Cash surrender value $XXX $XXX $XXX $XXX (a) Contracts included in the policyholder account balances are generally charged a premium and/or monthly assessments on the basis of the account balance. (b) "For those guarantees of benefits that are payable in the event of death, the net amount at risk is generally defined as the current guaranteed minimum death benefit in excess of the current account balance at the balance sheet date. "
        

-   The reconciliation of policyholders' account balances to the policyholders' account balances' liability in the consolidated statement of financial position follows.
    
    -   ![](https://asc.understandingaccounting.org/asc-img/GUID-5CDC5934-0512-4078-9F6B-663A3956DB7C-low.gif)
        
        "December 31, " 20X2 20X1 Universal life $CCC $AAA Fixed annuity DDD BBB Other XXX XXX Total $XXX $XXX

##### [944-40-55-29G](https://asc.understandingaccounting.org/asc/944/40/#944-40-55-29G)

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Source downloaded (UTC): 2026-09-10T02:16:51.609Z to 2026-09-10T02:16:51.609Z

Record version: sha256:e626fbbe43c522e409a338a055878c08bc2468ea49d7bef757c48eeeb9fcd4a5

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


This Example illustrates the information that an insurance entity with market risk benefits should disclose in its 20X2 financial statements to meet certain requirements of paragraph [944-40-50-7B](https://asc.understandingaccounting.org/asc/944/40/#944-40-50-7B).

-   Note X: Market Risk Benefits
    
-   The balances of and changes in guaranteed minimum withdrawal benefits associated with variable annuities and indexed annuities follow.
    
    -   ![](https://asc.understandingaccounting.org/asc-img/GUID-960CA14B-325D-461B-81C7-B73DFA7B6C63-low.gif)
        
        "December 31, 20X2" "December 31, 20X1" Variable Indexed Variable Indexed Annuities Annuities Annuities Annuities "Balance, beginning of year" $AAA $FFF $XXX $XXX "Balance, beginning of year, before effect of changes in the instrument-specific credit risk" XXX XXX XXX XXX Issuances XXX XXX XXX XXX Interest accrual XXX XXX XXX XXX Attributed fees collected XXX XXX XXX XXX Benefit payments (XXX) (XXX) (XXX) (XXX) Effect of changes in interest rates XXX XXX XXX XXX Effect of changes in equity markets XXX XXX XXX XXX Effect of changes in equity index volatility XXX XXX XXX XXX Actual policyholder behavior different from expected behavior XXX XXX XXX XXX Effect of changes in future expected policyholder behavior XXX XXX XXX XXX Effect of changes in other future expected assumptions XXX XXX XXX XXX "Balance, end of year, before effect of changes in the instrument-specific credit risk" XXX XXX XXX XXX Effect of changes in the instrument-specific credit risk XXX XXX XXX XXX "Balance, end of year" $GGG $LLL $AAA $FFF "Reinsurance recoverable, end of year" $XXX $XXX $XXX $XXX "Balance, end of year, net of reinsurance" $XXX $XXX $XXX $XXX
        

-   The reconciliation of market risk benefits by amounts in an asset position and in a liability position to the market risk benefits amount in the consolidated statement of financial position follows.
    
    -   ![](https://asc.understandingaccounting.org/asc-img/GUID-88177750-577C-4ED4-97E5-A1294EF53D91-low.gif)
        
        "December 31, " 20X2 20X1 Asset Liability Net Asset Liability Net Variable annuities $XXX $XXX $GGG $XXX $XXX $AAA Indexed annuities XXX XXX LLL XXX XXX FFF $XXX $XXX $NNN $XXX $XXX $MMM

##### [944-40-55-29H](https://asc.understandingaccounting.org/asc/944/40/#944-40-55-29H)

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Source downloaded (UTC): 2026-09-10T02:16:51.609Z to 2026-09-10T02:16:51.609Z

Record version: sha256:76c26264e210cef877781a6c2d2c1151892af6871c1a91d6dcf0bec96a695e03

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


This Example illustrates an approach to updating assumptions used to measure the liability for future policy benefits related to traditional life insurance contracts.

##### [944-40-55-29I](https://asc.understandingaccounting.org/asc/944/40/#944-40-55-29I)

Pending content: no

Source downloaded (UTC): 2026-09-10T02:16:51.609Z to 2026-09-10T02:16:51.609Z

Record version: sha256:70f6329282a157911d7f248fd1ea6625f54c4cd91f8c7454551a66715731adb3

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


This Example assumes the following for the contracts discussed:

1.  a
    
    At contract inception:
    
    1.  1
        
        The insurance entity issues 1,000 guaranteed-renewable 20-year term life insurance contracts that are grouped into a single cohort for purposes of measuring the liability for future policy benefits.
        
    2.  2
        
        Face amount per contract: $200,000.
        
    3.  3
        
        Annual premium per contract: $500.
        
    4.  4
        
        Discount rate: 0 percent.
        
    5.  5
        
        [Lapse rate](https://asc.understandingaccounting.org/glossary/l/#lapse-rate "The rate at which insurance contracts terminate through failure of the insureds to continue required premium payments. The lapse rate may also be considered a rate of nonpersistence. It is usually expressed as a ratio of the number of contracts that terminated by reason of failure of insureds to make premium payments during a given period, to the total number of contracts at the beginning of the period from which those lapses occurred."): 5 percent for all years.
        
    6.  6
        
        Mortality rate: 0.1 percent in Year 1, increasing linearly to 0.29 percent in Year 20.
        
    7.  7
        
        For ease of illustration, no expenses are assumed, benefit payments and premium receipts occur at the end of the year, and annual periods are presented.
        
2.  b
    
    During Year 6: The insurance entity experiences unfavorable mortality that is 20 percent higher than expected. The insurance entity determines that it does not need to change its future mortality or lapse assumptions.
    
3.  c
    
    During Year 9: After experiencing continued unfavorable mortality (20 percent higher than expected in Years 7 through 9), the insurance entity increases its mortality assumption by 20 percent for Years 10 through 20.
    
4.  d
    
    During Year 10: The current upper-medium grade (low-credit-risk) fixed-income instrument yield increases from 0 percent to 2 percent. The insurance entity does not change its future mortality or lapse assumptions.

##### [944-40-55-29J](https://asc.understandingaccounting.org/asc/944/40/#944-40-55-29J)

Pending content: no

Source downloaded (UTC): 2026-09-10T02:16:51.609Z to 2026-09-10T02:16:51.609Z

Record version: sha256:dcf4680b1d027dc2c6b5b1963b9f39578342b86fc5a92cf57b688776760c45f1

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


This Example illustrates computations involved in the following:

1.  a
    
    Net premiums
    
2.  b
    
    Liability remeasurement adjustments.

##### [944-40-55-29K](https://asc.understandingaccounting.org/asc/944/40/#944-40-55-29K)

Pending content: no

Source downloaded (UTC): 2026-09-10T02:16:51.609Z to 2026-09-10T02:16:51.609Z

Record version: sha256:fefcf6cf1ad1ea5b80efa0ffa71e2d82c2c870e024d67a440a89d3042603a928

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


The computation of the original net premium ratio at the issue date of the portfolio of contracts follows.

-   ![](https://asc.understandingaccounting.org/asc-img/GUID-A24731B4-D6B0-42EF-BE1B-9194A640B5FC-low.gif)
    
    Original Cash Flow Estimate Year Benefits Gross Premiums 1 $200.0 $500.0 2 208.8 474.5 3 216.1 450.3 4 222.2 427.3 5 227.0 405.4 6 230.7 384.6 7 233.5 364.8 8 235.3 346.0 9 236.3 328.1 10 236.5 311.2 11 236.0 295.1 12 235.0 279.7 13 233.4 265.2 14 231.3 251.4 15 228.7 238.3 16 225.8 225.8 17 222.5 214.0 18 219.0 202.8 19 215.1 192.1 20 211.1 182.0 Total " $4,504.4 " " $6,338.4 " Present value (a) " $4,504.4 " " $6,338.4 " Net premium ratio (b) 71.1% (a) 0% discount rate. (b) Present value of benefits/present value of gross premiums (for Years 1-20).

##### [944-40-55-29L](https://asc.understandingaccounting.org/asc/944/40/#944-40-55-29L)

Pending content: no

Source downloaded (UTC): 2026-09-10T02:16:51.609Z to 2026-09-10T02:16:51.609Z

Record version: sha256:fb1face0487d2ff12f376d05f1f38151f784c1d95da13d1b65c8cd9654f37884

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


The computation of the liability for future policy benefits at the end of Year 1 follows.

-   ![](https://asc.understandingaccounting.org/asc-img/GUID-D481E37D-3983-40B0-AE88-A1D71C88CE8F-low.gif)
    
    Liability for Future Policy Benefits (End of Year 1) Year Benefits Gross Premiums Net Premiums (a) 2 $208.8 $474.5 $337.2 3 216.1 450.3 320.0 4 222.2 427.3 303.6 5 227.0 405.4 288.1 6 230.7 384.6 273.3 7 233.5 364.8 259.2 8 235.3 346.0 245.9 9 236.3 328.1 233.2 10 236.5 311.2 221.1 11 236.0 295.1 209.7 12 235.0 279.7 198.8 13 233.4 265.2 188.5 14 231.3 251.4 178.6 15 228.7 238.3 169.3 16 225.8 225.8 160.5 17 222.5 214.0 152.1 18 219.0 202.8 144.1 19 215.1 192.1 136.5 20 211.1 182.0 129.3 Total " $4,304.4 " " $5,838.4 " " $4,149.0 " Present value (b) " $4,304.4 " " $5,838.4 " " $4,149.0 " (a) Gross premiums × 71.1% net premium ratio. (b) 0% discount rate. Present value of future benefits (for Years 2-20) " $4,304.4 " Less: Present value of future net premiums (for Years 2-20) " 4,149.0 " Liability for future policy benefits $155.4
    

-   ![](https://asc.understandingaccounting.org/asc-img/GUID-31339085-BC43-4019-917E-D3A4BCEAD7A7-low.gif)
    
    Accounting Entries (Year 1) Cash (a) $300.0 Benefits expense (b) 355.4 Premium income $500.0 Liability for future policy benefits 155.4 (a) "Premiums collected of $500.0, less benefits paid of $200.0." (b) "Benefits paid of $200.0, plus change in reserve of $155.4."

##### [944-40-55-29M](https://asc.understandingaccounting.org/asc/944/40/#944-40-55-29M)

Pending content: no

Source downloaded (UTC): 2026-09-10T02:16:51.609Z to 2026-09-10T02:16:51.609Z

Record version: sha256:33e4c69f6aed8ad924157f1a154fa26fd48f48085d230abac8a84f1349c218f6

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


-   At the end of Year 6, the Entity updates its mortality assumption to reflect the unfavorable experience in that year (that is, the true-up from expected experience to actual experience) and its effect on estimated cash flows. However, as specified in paragraph [944-40-35-5(a)](https://asc.understandingaccounting.org/asc/944/40/#944-40-35-5), the Entity reviewed its future cash flow assumptions and determined that its future mortality and lapse assumptions did not need to be adjusted.
    
-   The following table provides information about the estimated cash flow effects of updating cash flow assumptions and the corresponding adjustment to the liability for future policy benefits and current-period benefit expense.
    
    -   ![](https://asc.understandingaccounting.org/asc-img/GUID-4A1B682F-73F3-475E-AC8E-B6D5BD30844F-low.gif)
        
        Original Cash Flow Estimate Updated Cash Flow Estimate (a) Change Year Benefits Gross Premiums Benefits Gross Premiums Benefits Gross Premiums 1 $200.0 $500.0 $200.0 $500.0 $- $- 2 208.8 474.5 208.8 474.5 - - 3 216.1 450.3 216.1 450.3 - - 4 222.2 427.3 222.2 427.3 - - 5 227.0 405.4 227.0 405.4 - - 6 230.7 384.6 276.9 384.6 46.1 - 7 233.5 364.8 233.4 364.7 (0.1) (0.1) 8 235.3 346.0 235.2 345.9 (0.1) (0.1) 9 236.3 328.1 236.2 328.0 (0.1) (0.1) 10 236.5 311.2 236.4 311.1 (0.1) (0.1) 11 236.0 295.1 236.0 295.0 (0.1) (0.1) 12 235.0 279.7 234.9 279.7 (0.1) (0.1) 13 233.4 265.2 233.3 265.1 (0.1) (0.1) 14 231.3 251.4 231.2 251.3 (0.1) (0.1) 15 228.7 238.3 228.7 238.2 (0.1) (0.1) 16 225.8 225.8 225.7 225.7 (0.1) (0.1) 17 222.5 214.0 222.5 213.9 (0.1) (0.1) 18 219.0 202.8 218.9 202.7 (0.1) (0.1) 19 215.1 192.1 215.1 192.0 (0.1) (0.1) 20 211.1 182.0 211.0 181.9 (0.1) (0.1) Total " $4,504.4 " " $6,338.4 " " $4,549.6 " " $6,337.3 " $45.2 $(1.1) Present value (b) " $4,504.4 " " $6,338.4 " " $4,549.6 " " $6,337.3 " $45.2 $(1.1) Net premium ratio (c) 71.1% 71.8% (a) Benefits and gross premiums for Years 1-6 represent actual (historical) cash flows. Years 7-20 represent expected (future) cash flows. (b) 0% discount rate. (c) Present value of benefits/present value of gross premiums (for Years 1-20).
        
    
    -   ![](https://asc.understandingaccounting.org/asc-img/GUID-98896B0C-27E2-4865-9367-AB829667789C-low.gif)
        
        Remeasurement of Liability for Future Policy Benefits (Beginning of Year 6) Original Estimate Updated Estimate Year Benefits Gross Premiums Net Premiums (a) Benefits Gross Premiums Net Premiums (b) 6 $230.7 $384.6 $273.3 $276.9 $384.6 $276.1 7 233.5 364.8 259.2 233.4 364.7 261.8 8 235.3 346.0 245.9 235.2 345.9 248.3 9 236.3 328.1 233.2 236.2 328.0 235.5 10 236.5 311.2 221.1 236.4 311.1 223.3 11 236.0 295.1 209.7 236.0 295.0 211.8 12 235.0 279.7 198.8 234.9 279.7 200.8 13 233.4 265.2 188.5 233.3 265.1 190.3 14 231.3 251.4 178.6 231.2 251.3 180.4 15 228.7 238.3 169.3 228.7 238.2 171.0 16 225.8 225.8 160.5 225.7 225.7 162.1 17 222.5 214.0 152.1 222.5 213.9 153.6 18 219.0 202.8 144.1 218.9 202.7 145.5 19 215.1 192.1 136.5 215.1 192.0 137.9 20 211.1 182.0 129.3 211.0 181.9 130.6 Total " $3,430.2 " " $4,081.0 " " $2,900.1 " " $3,475.4 " " $4,079.8 " " $2,928.9 " Present value (c) " $3,430.2 " " $4,081.0 " " $2,900.1 " " $3,475.4 " " $4,079.8 " " $2,928.9 " (a) Gross premiums × 71.1% net premium ratio. (b) Gross premiums × 71.8% net premium ratio. (c) 0% discount rate. Original Estimate Updated Estimate Change Present value of future benefits (for Years 6-20) " $3,430.2 " " $3,475.4 " $45.2 Less: Present value of future net premiums (for Years 6-20) " 2,900.1 " " 2,928.9 " 28.8 Liability for future policy benefits $530.1 $546.5 $16.4
        
    
    -   ![](https://asc.understandingaccounting.org/asc-img/GUID-AC2EC29D-83C9-4420-9938-1328A733F4F6-low.gif)
        
        Liability for Future Policy Benefits (End of Year 6) Year Benefits Gross Premiums Net Premiums (a) 7 $233.4 $364.7 $261.8 8 235.2 345.9 248.3 9 236.2 328.0 235.5 10 236.4 311.1 223.3 11 236.0 295.0 211.8 12 234.9 279.7 200.8 13 233.3 265.1 190.3 14 231.2 251.3 180.4 15 228.7 238.2 171.0 16 225.7 225.7 162.1 17 222.5 213.9 153.6 18 218.9 202.7 145.5 19 215.1 192.0 137.9 20 211.0 181.9 130.6 Total " $3,198.5 " " $3,695.3 " " $2,652.8 " Present value (b) " $3,198.5 " " $3,695.3 " " $2,652.8 " (a) Gross premiums × 71.8% net premium ratio. (b) 0% discount rate. Present value of future benefits (for Years 7-20) " $3,198.5 " Less: Present value of future net premiums (for Years 7-20) " 2,652.8 " Liability for future policy benefits $545.7
        
    
    -   ![](https://asc.understandingaccounting.org/asc-img/GUID-F648E0D0-1A4C-4FCB-BC44-3B7CDCB69A39-low.gif)
        
        Accounting Entries (Year 6) Cash (a) $107.7 Benefits expense (b) 276.1 Liability remeasurement loss (c) 16.4 Premium income $384.6 Liability for future policy benefits (d) 15.6 (a) "Premiums collected of $384.6, less benefits paid of $276.9." (b) "Benefits paid of $276.9, less change in reserve of $0.8 using current net premium ratio of 71.8%." (c) Separately presented in the statement of operations. (d) "Liability remeasurement of $16.4, less current period change in reserve of $0.8."

##### [944-40-55-29N](https://asc.understandingaccounting.org/asc/944/40/#944-40-55-29N)

Pending content: no

Source downloaded (UTC): 2026-09-10T02:16:51.609Z to 2026-09-10T02:16:51.609Z

Record version: sha256:225435fd5cbc3182bab1b98986689010d7035769f88494d81563519208293074

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


-   At the end of Year 9, the Entity reviews and updates its mortality assumption to reflect the unfavorable experience in that year and an increase in expected mortality in Years 10 through 20.
    
-   The following tables provide information about the estimated cash flow effects of updating the mortality assumption and the corresponding adjustment to the liability for future policy benefits and current-period benefit expense.
    
    -   ![](https://asc.understandingaccounting.org/asc-img/GUID-B39BD239-97F5-49C8-A49E-138C80E147FD-low.gif)
        
        Prior Cash Flow Estimate Updated Cash Flow Estimate (a) Change Year Benefits Gross Premiums Benefits Gross Premiums Benefits Gross Premiums 1 $200.0 $500.0 $200.0 $500.0 $- $- 2 208.8 474.5 208.8 474.5 - - 3 216.1 450.3 216.1 450.3 - - 4 222.2 427.3 222.2 427.3 - - 5 227.0 405.4 227.0 405.4 - - 6 276.9 384.6 276.9 384.6 - - 7 280.1 364.7 280.1 364.7 - - 8 282.2 345.8 282.2 345.8 - - 9 236.0 327.8 283.2 327.8 47.2 - 10 236.3 310.9 283.4 310.8 47.2 (0.1) 11 235.8 294.8 282.8 294.6 47.0 (0.2) 12 234.8 279.5 281.4 279.2 46.6 (0.3) 13 233.1 264.9 279.3 264.5 46.2 (0.4) 14 231.1 251.1 276.7 250.6 45.7 (0.5) 15 228.5 238.0 273.5 237.4 45.0 (0.6) 16 225.6 225.6 269.9 224.9 44.3 (0.7) 17 222.3 213.8 265.9 213.0 43.5 (0.7) 18 218.8 202.6 261.5 201.8 42.7 (0.8) 19 214.9 191.9 256.8 191.0 41.8 (0.9) 20 210.9 181.8 251.8 180.9 40.9 (0.9) Total " $4,641.4 " " $6,335.3 " " $5,179.5 " " $6,329.1 " $538.1 $(6.1) Present value (b) " $4,641.4 " " $6,335.3 " " $5,179.5 " " $6,329.1 " $538.1 $(6.1) Net premium ratio (c) 73.3% 81.8% (a) Benefits and gross premiums for Years 1-9 represent actual (historical) cash flows. Years 10-20 represent expected (future) cash flows. (b) 0% discount rate. (c) Present value of benefits/present value of gross premiums (for Years 1-20).
        
    
    -   ![](https://asc.understandingaccounting.org/asc-img/GUID-03780749-7B6C-4F4F-8E32-4F02BA50AC47-low.gif)
        
        Remeasurement of Liability for Future Policy Benefits (Beginning of Year 9) Prior Estimate Updated Estimate Year Benefits Gross Premiums Net Premiums (a) Benefits Gross Premiums Net Premiums (b) 9 $236.0 $327.8 $240.2 $283.2 $327.8 $268.3 10 236.3 310.9 227.8 283.4 310.8 254.3 11 235.8 294.8 216.0 282.8 294.6 241.1 12 234.8 279.5 204.7 281.4 279.2 228.4 13 233.1 264.9 194.1 279.3 264.5 216.5 14 231.1 251.1 184.0 276.7 250.6 205.1 15 228.5 238.0 174.4 273.5 237.4 194.3 16 225.6 225.6 165.3 269.9 224.9 184.1 17 222.3 213.8 156.6 265.9 213.0 174.3 18 218.8 202.6 148.4 261.5 201.8 165.1 19 214.9 191.9 140.6 256.8 191.0 156.3 20 210.9 181.8 133.2 251.8 180.9 148.0 Total " $2,728.1 " " $2,982.7 " " $2,185.2 " " $3,266.2 " " $2,976.6 " " $2,435.9 " Present value (c) " $2,728.1 " " $2,982.7 " " $2,185.2 " " $3,266.2 " " $2,976.6 " " $2,435.9 " (a) Gross premiums × 73.3% net premium ratio. (b) Gross premiums × 81.8% net premium ratio. (c) 0% discount rate. Prior Estimate Updated Estimate Change Present value of future benefits (for Years 9-20) " $2,728.1 " " $3,266.2 " $538.1 Less: Present value of future net premiums (for Years 9-20) " 2,185.2 " " 2,435.9 " 250.7 Liability for future policy benefits $542.9 $830.3 $287.4
        
    
    -   ![](https://asc.understandingaccounting.org/asc-img/GUID-E4D153FA-1D2A-4573-A1A5-3A570345EEBC-low.gif)
        
        Liability for Future Policy Benefits (End of Year 9) Year Benefits Gross Premiums Net Premiums (a) 10 $283.4 $310.8 $254.3 11 282.8 294.6 241.1 12 281.4 279.2 228.4 13 279.3 264.5 216.5 14 276.7 250.6 205.1 15 273.5 237.4 194.3 16 269.9 224.9 184.1 17 265.9 213.0 174.3 18 261.5 201.8 165.1 19 256.8 191.0 156.3 20 251.8 180.9 148.0 Total " $2,983.0 " " $2,648.7 " " $2,167.6 " Present value (b) " $2,983.0 " " $2,648.7 " " $2,167.6 " (a) Gross premiums × 81.8% net premium ratio. (b) 0% discount rate. Present value of future benefits (for Years 10-20) " $2,983.0 " Less: Present value of future net premiums (for Years 10-20) " 2,167.6 " Liability for future policy benefits $815.4
        
    
    -   ![](https://asc.understandingaccounting.org/asc-img/GUID-E8BDA3E3-7F56-4BB0-BADA-706E82AF807C-low.gif)
        
        Accounting Entries (Year 9) Cash (a) $44.6 Benefits expense (b) 268.3 Liability remeasurement loss (c) 287.4 Premium income $327.8 Liability for future policy benefits (d) 272.5 (a) "Premiums collected of $327.8, less benefits paid of $283.2." (b) "Benefits paid of $283.2, less change in reserve of $14.9 using current net premium ratio of 81.8%." (c) Separately presented in the statement of operations. (d) "Liability remeasurement of $287.4, less current period change in reserve of $14.9."

##### [944-40-55-29O](https://asc.understandingaccounting.org/asc/944/40/#944-40-55-29O)

Pending content: no

Source downloaded (UTC): 2026-09-10T02:16:51.609Z to 2026-09-10T02:16:51.609Z

Record version: sha256:b231968ef641d2fa11414fb7b7ec5ae0e97a15c30ea8470ee810d3b13035867b

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


-   At the end of Year 10, the Entity updates its discount rate assumption from 0 percent to 2 percent.
    
-   The following table provides information about the effect of updating the discount rate assumption and the adjustment to the liability for future policy benefits and other comprehensive income.
    
    -   ![](https://asc.understandingaccounting.org/asc-img/GUID-B6FA8426-F769-420C-A40D-2BFD896DA8D6-low.gif)
        
        Liability for Future Policy Benefits (End of Year 10) Original Discount Rate 0% Current Discount Rate 2% Change Present value of future benefits (for Years 11-20) " $2,699.6 " " $2,430.0 " $(269.6) Less: Present value of future net premiums (for Years 11-20) " 1,913.3 " " 1,733.8 " (179.5) Liability for future policy benefits $786.3 $696.2 $(90.1) Decrease to Liability for Future Policy Benefits (End of Year 10) Liability for future policy benefits $90.1 Other comprehensive income $90.1

##### [944-40-55-29P](https://asc.understandingaccounting.org/asc/944/40/#944-40-55-29P)

Pending content: no

Source downloaded (UTC): 2026-09-10T02:16:51.609Z to 2026-09-10T02:16:51.609Z

Record version: sha256:b79f12a65f59f0472f107d6086463a8f5ad7ba5813a874b4f24b921234326f41

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


This Example illustrates an approach to updating assumptions used to measure the liability for future policy benefits with a carryover basis.

##### [944-40-55-29Q](https://asc.understandingaccounting.org/asc/944/40/#944-40-55-29Q)

Pending content: no

Source downloaded (UTC): 2026-09-10T02:16:51.609Z to 2026-09-10T02:16:51.609Z

Record version: sha256:1115551b57d89869a21f556483d7d8999d2ea1ccf09ff28edd149b617865dd6a

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


This Example assumes the following for the contracts discussed:

1.  a
    
    The beginning of Year 4 carryover basis is $387.6, which will be used in subsequent recalculations of the net premium ratio.
    
2.  b
    
    At the beginning of Year 4, the Entity updates cash flow assumptions and recalculates net premiums.
    
3.  c
    
    A discount rate of 0 percent is used to compute the net premiums and the liability for future policy benefits.
    
4.  d
    
    For ease of illustration, no expenses are assumed, benefit payments and premium receipts are made at the end of the year, and annual periods are presented.

##### [944-40-55-29R](https://asc.understandingaccounting.org/asc/944/40/#944-40-55-29R)

Pending content: no

Source downloaded (UTC): 2026-09-10T02:16:51.609Z to 2026-09-10T02:16:51.609Z

Record version: sha256:55308b56591f8904ac79bf091d199a0b69c5fcac5b63d990ff312f933854175a

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


This Example illustrates computations that involve the following:

1.  a
    
    Net premiums
    
2.  b
    
    Updates of the net premium ratio.

##### [944-40-55-29S](https://asc.understandingaccounting.org/asc/944/40/#944-40-55-29S)

Pending content: no

Source downloaded (UTC): 2026-09-10T02:16:51.609Z to 2026-09-10T02:16:51.609Z

Record version: sha256:b3faaf60e7a830326d173c55831837bb32206ff51df1b8a8195df7814ce7aced

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


At the beginning of Year 4, the Entity recalculates the net premiums as follows.

-   ![](https://asc.understandingaccounting.org/asc-img/GUID-1C298EAB-8BB0-4E15-B2D7-DDD7C88C0866-low.gif)
    
    Net Premium Ratio Year Benefits Gross Premiums 4 $222.2 $427.3 5 227.0 405.4 6 276.9 384.6 7 233.4 364.7 8 235.2 345.9 9 236.2 328.0 10 236.4 311.1 11 236.0 295.0 12 234.9 279.7 13 233.3 265.1 14 231.2 251.3 15 228.7 238.2 16 225.7 225.7 17 222.5 213.9 18 218.9 202.7 19 215.1 192.0 20 211.0 181.9 Total " $3,924.6 " " $4,912.5 " Present value (a) " $3,924.6 " " $4,912.5 " (a) 0% discount rate. Present value of benefits (for Years 4-20) (A) " $3,924.6 " Carrying value of the liability for future policy benefits (end of Year 3) (B) 387.6 Expected remaining benefits (A) - (B) = (C) " 3,537.0 " Present value of gross premiums (for Years 4-20) (D) " $4,912.5 " Updated net premium ratio = (C)/(D) 72.0%

##### [944-40-55-29T](https://asc.understandingaccounting.org/asc/944/40/#944-40-55-29T)

Pending content: no

Source downloaded (UTC): 2026-09-10T02:16:51.609Z to 2026-09-10T02:16:51.609Z

Record version: sha256:2839ee42c5dff8bcbe476dab221d92e44bcdd288965667fe4f1c0413f5de2fc8

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


The computation of the liability for future policy benefits at the end of Year 4 using the revised net premiums follows.

-   ![](https://asc.understandingaccounting.org/asc-img/GUID-1454B1E6-AC8E-4578-81D6-1E802F50E777-low.gif)
    
    Liability for Future Policy Benefits (End of Year 4) Year Benefits Gross Premiums Net Premiums (a) 5 $227.0 $405.4 $291.9 6 276.9 384.6 276.9 7 233.4 364.7 262.6 8 235.2 345.9 249.0 9 236.2 328.0 236.2 10 236.4 311.1 224.0 11 236.0 295.0 212.4 12 234.9 279.7 201.4 13 233.3 265.1 190.9 14 231.2 251.3 180.9 15 228.7 238.2 171.5 16 225.7 225.7 162.5 17 222.5 213.9 154.0 18 218.9 202.7 145.9 19 215.1 192.0 138.3 20 211.0 181.9 131.0 Total " $3,702.4 " " $4,485.2 " " $3,229.4 " Present value (b) " $3,702.4 " " $4,485.2 " " $3,229.4 " (a) Gross premiums × 72.0% net premium ratio. (b) 0% discount rate. Present value of future benefits (for Years 5-20) " $3,702.4 " Less: Present value of future net premiums (for Years 5-20) " 3,229.4 " Liability for future policy benefits $473.0

##### [944-40-55-29U](https://asc.understandingaccounting.org/asc/944/40/#944-40-55-29U)

Pending content: no

Source downloaded (UTC): 2026-09-10T02:16:51.609Z to 2026-09-10T02:16:51.609Z

Record version: sha256:e043b8408aa6c6dcd2de28195ae9e235495663e208dc006a21254f6c82d1b782

Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f

Effective as of: not established by retrieval timestamps.


At the end of Year 6, the Entity reviews and updates its mortality assumption as specified in paragraph [944-40-35-5(a)](https://asc.understandingaccounting.org/asc/944/40/#944-40-35-5), which results in an adjustment to benefit expenses and the liability for future policy benefits.

-   ![](https://asc.understandingaccounting.org/asc-img/GUID-C9BB1FEF-FED9-48C4-B52C-C2D6FDB2FDF1-low.gif)
    
    Net Premium Ratio Year (a) Benefits Gross Premiums 4 $222.2 $427.3 5 227.0 405.4 6 276.9 384.6 7 280.1 364.7 8 282.2 345.8 9 283.2 327.8 10 283.4 310.8 11 282.8 294.6 12 281.4 279.2 13 279.3 264.5 14 276.7 250.6 15 273.5 237.4 16 269.9 224.9 17 265.9 213.0 18 261.5 201.8 19 256.8 191.0 20 251.8 180.9 Total " $4,554.6 " " $4,904.3 " Present value (b) " $4,554.6 " " $4,904.3 " (a) Benefits and gross premiums for Years 4-6 represent actual (historical) cash flows. Years 7-20 represent expected (future) cash flows. (b) 0% discount rate. Present value of benefits (for Years 4-20) (A) " $4,554.6 " Carrying value of the liability for future policy benefits (end of Year 3) (B) 387.6 Expected remaining benefits (A) - (B) = (C) " 4,167.0 " Present value of gross premiums (for Years 4-20) (D) " $4,904.3 " Updated net premium ratio = (C)/(D) 85.0%
    

-   ![](https://asc.understandingaccounting.org/asc-img/GUID-014AAE31-79BD-4E93-946E-6687683C884D-low.gif)
    
    Remeasurement of Liability for Future Policy Benefits (Beginning of Year 6) Original Estimate Updated Estimate Year Benefits Gross Premiums Net Premiums (a) Benefits Gross Premiums Net Premiums (b) 6 $276.9 $384.6 $276.9 $276.9 $384.6 $326.8 7 233.4 364.7 262.6 280.1 364.7 309.9 8 235.2 345.9 249.0 282.2 345.8 293.8 9 236.2 328.0 236.2 283.2 327.8 278.5 10 236.4 311.1 224.0 283.4 310.8 264.0 11 236.0 295.0 212.4 282.8 294.6 250.3 12 234.9 279.7 201.4 281.4 279.2 237.2 13 233.3 265.1 190.9 279.3 264.5 224.8 14 231.2 251.3 180.9 276.7 250.6 213.0 15 228.7 238.2 171.5 273.5 237.4 201.8 16 225.7 225.7 162.5 269.9 224.9 191.1 17 222.5 213.9 154.0 265.9 213.0 181.0 18 218.9 202.7 145.9 261.5 201.8 171.4 19 215.1 192.0 138.3 256.8 191.0 162.3 20 211.0 181.9 131.0 251.8 180.9 153.7 Total " $3,475.4 " " $4,079.8 " " $2,937.5 " " $4,105.4 " " $4,071.6 " " $3,459.5 " Present value (c) " $3,475.4 " " $4,079.8 " " $2,937.5 " " $4,105.4 " " $4,071.6 " " $3,459.5 " (a) Gross premiums × 72.0% net premium ratio. (b) Gross premiums × 85.0% net premium ratio. (c) 0% discount rate. Original Estimate Updated Estimate Change Present value of future benefits (for Years 6-20) " $3,475.4 " " $4,105.4 " $630.0 Less: Present value of future net premiums (for Years 6-20) " 2,937.5 " " 3,459.5 " 522.0 Liability for future policy benefits $537.9 $645.9 $108.0
    

-   ![](https://asc.understandingaccounting.org/asc-img/GUID-A3733008-F6E8-4910-95E5-D1AC95DD4867-low.gif)
    
    Liability for Future Policy Benefits (End of Year 6) Year Benefits Gross Premiums Net Premiums (a) 7 $280.1 $364.7 $309.9 8 282.2 345.8 293.8 9 283.2 327.8 278.5 10 283.4 310.8 264.0 11 282.8 294.6 250.3 12 281.4 279.2 237.2 13 279.3 264.5 224.8 14 276.7 250.6 213.0 15 273.5 237.4 201.8 16 269.9 224.9 191.1 17 265.9 213.0 181.0 18 261.5 201.8 171.4 19 256.8 191.0 162.3 20 251.8 180.9 153.7 Total " $3,828.5 " " $3,687.1 " " $3,132.7 " Present value (b) " $3,828.5 " " $3,687.1 " " $3,132.7 " (a) Gross premiums × 85.0% net premium ratio. (b) 0% discount rate. Present value of future benefits (for Years 7-20) " $3,828.5 " Less: Present value of future net premiums (for Years 7-20) " 3,132.7 " Liability for future policy benefits $695.8
    

-   ![](https://asc.understandingaccounting.org/asc-img/GUID-5C3872C9-99C6-4EC7-B2EA-25E2B5634AF4-low.gif)
    
    Accounting Entries (Year 6) Cash (a) $107.7 Benefits expense (b) 326.8 Liability remeasurement loss (c) 108.0 Premium income $384.6 Liability for future policy benefits (d) 157.9 (a) "Premiums collected of $384.6, less benefits paid of $276.9." (b) "Benefits paid of $276.9, plus change in reserve of $49.9 using current net premium ratio of 85.0%." (c) Separately presented in the statement of operations. (d) "Liability remeasurement of $108.0, plus current period change in reserve of $49.9."

### Financial Guarantee Insurance Contracts

##### [944-40-55-30](https://asc.understandingaccounting.org/asc/944/40/#944-40-55-30)

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This Example illustrates the measurement of the claim liability for a financial guarantee insurance contract as described in paragraph [944-40-30-33](https://asc.understandingaccounting.org/asc/944/40/#944-40-30-33). An insurance entity determines that there is an expectation that a claim loss on an insured financial obligation (a bond) will exceed the unearned premium revenue for that contract. The present value of expected net cash outflows used to measure the claim liability considers the amount, timing, and probability of possible net cash outflows, that is, cash outflows, net of potential recoveries, to be paid to the holder of the insured financial obligation, excluding [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."). The present value of expected net cash outflows is developed using the insurance entity's own assumptions about the likelihood of all possible outcomes based on all information available to the insurance entity (including relevant market information). A calculation of the present value of expected net cash outflows follows.

-   ![](https://asc.understandingaccounting.org/asc-img/GUID-FD23324F-5C19-4202-A56B-CF208E4BE40A-low.gif)
    
    "Discounted Possible Net Cash Outflows (a)" Probability "Probability- Weighted Net Cash Outflows" " $70,000,000 " 5% " $3,500,000 " " 50,000,000 " 15% " 7,500,000 " " 40,000,000 " 20% " 8,000,000 " " 20,000,000 " 45% " 9,000,000 " " 10,000,000 " 10% " 1,000,000 " - 5% - Present value of expected net cash outflows " $29,000,000 " (a) Discounted Possible Net Cash Outflows includes different probabilities of realization related to potential recoveries. The discount factor is the current risk-free rate.

##### [944-40-55-31](https://asc.understandingaccounting.org/asc/944/40/#944-40-55-31)

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At the date the expected net cash outflows are calculated, the remaining unearned premium revenue is $1.2 million. Accordingly, a claim liability of $27.8 million is recognized in the statement of financial position ($29.0 million less $1.2 million).

##### [944-40-55-32](https://asc.understandingaccounting.org/asc/944/40/#944-40-55-32)

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This Example illustrates the disclosure of a schedule of insured financial obligations required in paragraph [944-40-50-9(a)(5)](https://asc.understandingaccounting.org/asc/944/40/#944-40-50-9) and [944-40-50-9(b)(1) through (5)](https://asc.understandingaccounting.org/asc/944/40/#944-40-50-9). This Example assumes the insurance entity uses a surveillance list with four surveillance categories to track and monitor its insured financial obligations. The surveillance list and four surveillance categories are used for illustrative purposes only. The surveillance categories in paragraph [944-40-55-33](https://asc.understandingaccounting.org/asc/944/40/#944-40-55-33) describe the claim liability before the mitigating effects of potential recoveries.

##### [944-40-55-33](https://asc.understandingaccounting.org/asc/944/40/#944-40-55-33)

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The following are brief descriptions of each surveillance category to provide context to this Example:

1.  a
    
    Category A. This category includes insured financial obligations that are still currently performing (that is, insured contractual payments are made on time but the likelihood of an event of default has increased since the financial guarantee insurance contract was first issued), but if economic conditions persist for an extended period of time, they may not be performing in the future. The issuer of the insured financial obligation may have experienced credit deterioration as a result of a general economic downturn. As a result, the present value of expected net cash outflows may exceed the unearned premium revenue of the financial guarantee insurance contract some time in the future.
    
2.  b
    
    Category B. This category includes insured financial obligations that are currently characterized as potentially nonperforming and may require action by the insurance entity to avoid or mitigate an event of default.
    
3.  c
    
    Category C. This category includes insured financial obligations that are characterized as nonperforming and for which actions to date by the insurance entity have not been successful in avoiding or mitigating an event of default. The insurance entity continues its efforts to cure the claim, but an event of default is imminent.
    
4.  d
    
    Category D. This category includes insured financial obligations in which an event of default has occurred.

##### [944-40-55-34](https://asc.understandingaccounting.org/asc/944/40/#944-40-55-34)

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For the insured financial obligations discussed in the preceding paragraph, the financial information might be presented as follows.

-   ![ ](https://asc.understandingaccounting.org/asc-img/GUID-C81D42A0-A2E1-409B-8759-254415D26589-low.gif)
    
    Surveillance Categories A B C D Total Number of policies 37 16 5 4 62 Remaining weighted-average contract period (in years) 16 14 11 12 Insured contractual payments outstanding: Principal " $656,000,000 " " $409,000,000 " " $196,000,000 " " $111,000,000 " " $1,372,000,000 " Interest " 478,000,000 " " 298,000,000 " " 150,000,000 " " 73,000,000 " " 999,000,000 " Total " $1,134,000,000 " " $707,000,000 " " $346,000,000 " " $184,000,000 " " $2,371,000,000 " Gross claim liability " $1,045,000,000 " " $690,000,000 " " $330,000,000 " " $184,000,000 " " $2,249,000,000 " Less: Gross potential recoveries " 752,000,000 " " 381,000,000 " " 29,000,000 " " 7,000,000 " " 1,169,000,000 " "Discount, net" " 159,000,000 " " 153,000,000 " " 125,000,000 " " 78,000,000 " " 515,000,000 " Net claim liability " $134,000,000 " " $156,000,000 " " $176,000,000 " " $99,000,000 " " $565,000,000 " Unearned premium revenue " $7,000,000 " " $4,000,000 " " $2,000,000 " $- (b) " $13,000,000 " Claim liability reported in the balance sheet (a) " $120,000,000 " " $148,000,000 " " $170,000,000 " " $99,000,000 " " $537,000,000 " Reinsurance recoverables " $10,000,000 " " $19,000,000 " " $25,000,000 " " $27,000,000 " " $81,000,000 " (a) "The claim liability is determined on a contract-by-contract basis. As such, instances may arise where the unearned premium revenue exceeds the present value of the expected net cash outflows (and therefore, the net claim liability less the unearned premium revenue may not equal the claim liability reported in the balance sheet)." (b) "In this instance, it is assumed that once an insured financial obligation is in Category D, the only remaining obligation of the insurance enterprise is making claim payments. As such, all related balances of the insured financial obligation are written off, including the unearned premium revenue."