open year method

ASC 340-30 tells you how to apply the deposit method of accounting to insurance and reinsurance contracts that fail to transfer insurance risk (which requires transfer of both timing risk and underwriting risk). At inception a deposit asset or liability is recognized at consideration paid or received less explicitly identified premiums or fees retained (340-30-25-1; 340-30-30-1). Subsequent measurement depends on which of four risk categories the contract falls into: effective-yield/interest-method accretion for timing-risk-only or no-risk contracts, unexpired-coverage plus present value of expected recoveries for underwriting-risk-only contracts, and the open-year method for indeterminate-risk contracts.

ASC 944-605 governs when and how insurance entities recognize premium revenue, split into short-duration, long-duration, reinsurance, and financial guarantee subsections. Short-duration premiums are earned over the contract (or risk) period in proportion to insurance protection provided; long-duration premiums are recognized when due from policyholders; universal life-type contract revenue is limited to amounts assessed against policyholders, with front-end fees deferred as unearned revenue. Reinsurance sections address prepaid reinsurance premiums, deferral and amortization of retroactive reinsurance gains, and the open year versus periodic method for foreign reinsurance.