Contracts that are written as insurance but fail the significant insurance risk test are accounted for as deposits. ASC 340-30, Other Assets and Deferred Costs, provides guidance on deposit accounting for short-duration insurance contracts that fail risk transfer. ASC 340-30-05-2 requires the transfer of significant insurance risk to include both timing risk and underwriting risk. As a result, there are four possible categories used to classify deposit contracts.

At inception, a deposit asset or liability is recognized based on the consideration paid or received, less any explicitly identified premiums or fees to be retained by the insurer or reinsurer, irrespective of the experience of the contract.

Deposit contracts that lack underwriting risk follow a financial instrument effective yield model, with the effective yield being a function of the deposit and future projected cash flows. Those contracts that have underwriting risk, but lack timing risk, require a discounted claim estimation measurement. For contracts with indeterminate risk, the effects of the contracts are not included in the determination of net income until sufficient information becomes available to reasonably estimate and allocate premiums. See IG 8.7 for further information on the accounting for deposit insurance and reinsurance contracts.