ASC

ASC 944-50

Policyholder Dividends

944 Financial Services—Insurance

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In brief

IntermediateIndustry-specificRecognitionPresentationDisclosure

ASC 944-50 governs how insurance entities account for and report policyholder dividends on participating insurance contracts. For participating contracts other than the long-duration participating life contracts described in 944-20-15-3, dividends are accrued (measured at an estimate of the amount to be paid, or recognized over the premium-paying period using anticipated/illustrated dividend scales), and any policyholders' share of net income that cannot be distributed to stockholders is charged to operations and credited to a participating policyholders' funds liability. For long-duration participating life contracts meeting 944-20-15-3, annual policyholder dividends are expensed based on amounts incurred for policies in force and reported separately in the statement of earnings.

Key points (7)
  • Policyholder dividends on participating contracts other than the long-duration participating life contracts identified in 944-20-15-3 shall be accrued (944-50-25-1), measured using an estimate of the amount to be paid (944-50-30-1).
  • When limitations exist on the net income from participating contracts distributable to stockholders, the nondistributable policyholders' share is excluded from stockholders' equity by a charge to operations and credited to a liability for participating policyholders' funds; dividends declared or paid reduce that liability, and any excess is charged to operations (944-50-25-2).
  • For life insurance entities with no net income restrictions that use dividend scales unrelated to actual net income, dividends are accrued over the premium-paying periods (944-50-25-3), based on dividends anticipated or intended in setting gross premiums or shown in published dividend illustrations at contract inception (944-50-30-3).
  • Income-based dividend provisions must be based on net income that includes GAAP-to-statutory adjustments that will reverse and enter into future dividend calculations (944-50-30-2).
  • For long-duration participating life insurance contracts meeting the criteria in 944-20-15-3, annual policyholder dividends are expensed based on estimates of amounts incurred for policies in effect during the period (944-50-25-4; 944-50-30-4), with pro rata accrual between anniversary dates (944-50-30-5).
  • That annual policyholder dividend expense must be reported separately in the statement of earnings (944-50-45-1).
  • Required disclosures are the relative percentage of participating insurance, the method of accounting for policyholder dividends, the amount of dividends, and the amount of any additional income allocated to participating policyholders (944-50-50-1).

For students. The whole subtopic turns on one fork: whether the contract is a long-duration participating life contract meeting 944-20-15-3 (dividends expensed as incurred and shown separately) or any other participating contract (dividends accrued, sometimes over the premium-paying period, with a policyholders' funds liability when distributions to stockholders are restricted). Students commonly forget that terminal dividends are not covered here — they are handled in the liability for future policyholder benefits under 944-40-25-30 and 944-40-35-22 through 35-23.

policyholder dividendsparticipating insurance contractslong-duration contractsparticipating policyholders' funds liabilitydividend scalesterminal dividendspremium-paying period accrual

Machine-generated study aid for ASC 944-50. Check the source paragraphs below.

944-50-00Status

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944-50-00-1
The following table identifies the changes made to this Subtopic.
ParagraphActionAccounting Standards UpdateDate
Participating Insurance ContractsSupersededAccounting Standards Update No. 2016-1912/14/2016
944-50-25-2AmendedAccounting Standards Update No. 2016-1912/14/2016
944-50-25-5AmendedAccounting Standards Update No. 2018-1208/15/2018

944-50-05Overview and Background

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944-50-05-1
This Subtopic provides insurance entities guidance on the accounting for and financial reporting of policyholder dividends. The guidance in this Subtopic is presented in the following two Subsections:
  1. a
    General
  2. b
    Long-Duration Contracts.

Long-Duration Contracts

944-50-05-2
The Long-Duration Contracts Subsections of this Subtopic provide insurance entities guidance on the accounting for and financial reporting of policyholder dividends on long-duration contracts.

944-50-15Scope and Scope Exceptions

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Overall Guidance

944-50-15-1
This Subtopic follows the same Scope and Scope Exceptions as outlined in the Overall Subtopic, see Section 944-10-15. The guidance in this Subtopic distinguishes between participating contracts that meet the criteria in paragraph 944-20-15-3 and those that do not.

Long-Duration Contracts

944-50-15-2
The Long-Duration Contracts Subsections of this Subtopic follow the same Scope and Scope Exceptions as outlined in the General Subsection of this Section, with specific instrument qualifications noted below.

Instruments

944-50-15-3
The guidance in the Long-Duration Contracts Subsections of this Subtopic applies only to long-duration insurance contracts. For guidance on identifying a long-duration insurance contract, see the Long-Duration Contracts Subsection of Section 944-20-15.

944-50-25Recognition

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Participating Contracts

944-50-25-1
For participating contracts other than those long-duration participating life insurance contracts identified in paragraph 944-20-15-3, policyholder dividends shall be accrued.
944-50-25-2
This guidance applies to participating contracts other than those long-duration participating life insurance contracts identified in paragraph 944-20-15-3. Limitations may exist on the amount of net income from participating insurance contracts of a life insurance entity that may be distributed to stockholders. In that circumstance, the policyholders' share of net income on those contracts that cannot be distributed to stockholders shall be recognized by both:
  1. a
    Excluding that share from stockholders' equity by a charge to operations
  2. b
    Recognizing that share as a credit to a liability relating to participating policyholders' funds.
Dividends declared or paid to participating policyholders shall reduce the liability recognized in (b); dividends declared or paid in excess of the liability shall be charged to operations.
944-50-25-3
This guidance applies to participating contracts other than those long-duration participating life insurance contracts identified in paragraph 944-20-15-3. For life insurance entities for which there are no net income restrictions and that use life insurance dividend scales unrelated to actual net income, policyholder dividends shall be accrued over the premium-paying periods of the contracts. Paragraph 944-740-25-1 states that, although payment is not required, a dividend recognized under this paragraph is considered a planned contractual benefit in computing generally accepted accounting principle (GAAP) liabilities, it may be necessary to identify the amount of this dividend to calculate deferred income taxes in those cases in which there is a question as to whether the dividend provision in the liabilities, together with the dividends paid or declared, may exceed the amount of dividends otherwise deductible for federal income tax purposes.

Long-Duration Contracts

Certain Long-Duration Participating Life Insurance Contracts

944-50-25-4
For long-duration participating life insurance contracts that meet the criteria in paragraph 944-20-15-3, annual policyholder dividends shall be expensed.
944-50-25-5
See paragraphs 944-40-25-30 and
944-40-35-22 through 35-23
for guidance on accounting for terminal dividends as part of the liability for future policyholder benefits.

944-50-30Initial Measurement

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Participating Contracts

944-50-30-1
Policyholder dividends accrued under paragraph 944-50-25-1 shall be measured using an estimate of the amount to be paid.
944-50-30-2
Income-based dividend provisions for participating contracts other than those long-duration participating life insurance contracts that meet the criteria in paragraph 944-20-15-3, shall be based on net income that includes adjustments between general-purpose and statutory financial statements that will reverse and enter into future calculations of the dividend provision.
944-50-30-3
Policyholder dividends shall be recognized over the premium-paying periods under paragraph 944-50-25-3 based on dividends anticipated or intended in determining gross premiums or as shown in published dividend illustrations at the date insurance contracts are made.

Long-Duration Contracts

Certain Long-Duration Participating Life Insurance Contracts

944-50-30-4
The expense recognized under paragraph 944-50-25-4 for annual policyholder dividends shall be based on estimates of amounts incurred for the policies in effect during the period.
944-50-30-5
For example, if a policy has an anniversary date of June 30, at which time annual dividends are paid, at December 31, 19X1, dividends should be accrued for the period July 1, 19X1, through December 31, 19X1.

944-50-45Other Presentation Matters

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Long-Duration Contracts

Certain Long-Duration Participating Life Insurance Contracts

944-50-45-1
The expense recognized under paragraph 944-50-25-4 for annual policyholder dividends shall be reported separately in the statement of earnings.

944-50-50Disclosure

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Participating Contracts

944-50-50-1
Insurance entities shall disclose all of the following in their financial statements:
  1. a
    The relative percentage of participating insurance
  2. b
    The method of accounting for policyholder dividends
  3. c
    The amount of dividends
  4. d
    The amount of any additional income allocated to participating policyholders.

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