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This scope exception applies to certain insurance contracts. Generally, insurance contracts that are within the scope of ASC 944, Financial Services—Insurance, would qualify. A contract is eligible for this scope exception for both the issuer and the holder only if the holder is compensated as a result of an identifiable insurable event (e.g., damage to insured property). ASC 815-10-15-52 provides guidance for assessing whether an insurance contract meets this scope exception.

ASC 815-10-15-52

A contract is not subject to the requirements of this Subtopic if it entitles the holder to be compensated only if, as a result of an identifiable insurable event (other than a change in price), the holder incurs a liability or there is an adverse change in the value of a specific asset or liability for which the holder is at risk. Only those contracts for which payment of a claim is triggered only by a bona fide insurable exposure (that is, contracts comprising either solely insurance or both an insurance component and a derivative instrument) may qualify for this scope exception. To qualify, the contract must provide for a legitimate transfer of risk, not simply constitute a deposit or form of self-insurance.

Traditional life insurance and traditional property and casualty contracts meet this scope exception.
Certain property and casualty contracts
A property and casualty contract that compensates the holder as a result of both an identifiable insurable event and changes in a variable is in its entirety exempt from the requirements of ASC 815, provided that all of the following conditions are met:
  • Benefits or claims are paid only if an identifiable insurable event occurs (e.g., theft or fire)
  • The amount of the payment is limited to the amount of the policyholder’s incurred insured loss
  • The contract does not involve essentially assured amounts of cash flows (regardless of the timing of those cash flows) based on insurable events highly probable of occurrence because the insured would nearly always receive the benefits (or suffer the detriment) of changes in the variable
This is illustrated in an example in ASC 815-10-55-134.

Excerpt from ASC 815-10-55-134

Insured Entity has received at least $2 million in claim payments from its insurance entity (or at least $2 million in claim payments were made by the insurance entity on the insured entity’s behalf) for each of the previous 5 years related to specific types of insured events that occur each year. That minimum level of coverage would not qualify for the insurance contract scope exclusion.

Contracts with actuarially-determined minimum amount of expected claim payments
If a contract includes an actuarially-determined minimum amount of expected claim payments from insurable events that are highly probable of occurring, that portion of the contract does not qualify for this scope exception if the following conditions are met:
  • The minimum payment cash flows are indexed to or altered by changes in a variable
  • The minimum payment amounts are expected to be paid either each policy year or on another predictable basis
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