ASC 944-805-30-1 notes that examples of contractual assets acquired in a business combination could include reinsurance recoverables, and the liabilities assumed could include (1) the liability to pay future contract claims and expenses on the unexpired portion of the acquired contracts and (2) the liability to pay incurred contract claims and claims expenses. However, those assets and liabilities acquired would not include the seller’s DAC or unearned premium liability that do not represent future cash flows. For short-duration contracts, some entities may recognize an unearned premium liability relating to the unexpired portion of an insurance contract, a claim liability (for reported or incurred but unreported claims), and intangible assets or other liabilities corresponding to each. At the acquisition date, the total of the (1) insurance assets and liabilities recognized for each contract in accordance with the acquirer’s accounting policies and (2) the insurance contract intangible asset (or other liability) should equal the fair value of the contract acquired.

When an entity recognizes an unearned premium liability related to the unexpired portion of an insurance contract, one acceptable approach is to carry forward the unearned premium liability that represents future cash flows (essentially the gross premium) from the seller and recognize an insurance contract intangible asset (or other liability) for the difference between (1) the unearned premium liability carried forward and (2) the fair value of that obligation. An alternative approach is to establish the unearned premium liability equal to the fair value of expected future contract claims and claims expenses on the unexpired portion of the acquired contracts (i.e., a net premium rather than a gross premium approach). Such an approach would not result in the recognition of an insurance contract intangible asset (or other liability) for the unearned premium liability.