Investment contracts are those contracts written by an insurer that do not subject the insurer to significant mortality or morbidity risk (e.g., a guaranteed investment contract (GIC)). Certain annuities may qualify as investment contracts (e.g., fixed annuities, fixed (equity) indexed annuities in the accumulation phase). However, the payout phase for a fixed annuity (i.e., the period during which the contract holder is receiving periodic payments) is a separate contract for accounting purposes (a limited-payment contract). See IG 2.4 for additional considerations surrounding long-duration insurance contract classification.

Long-duration insurance contracts that have been classified as investment contracts must be accounted for in a manner consistent with the accounting for interest bearing or other financial instruments in accordance with ASC 944-825-25-1 through ASC 944-825-25-2. The premiums collected are considered deposits and are not recognized as revenue. The premiums are part of the account balance of the policyholder and are recognized on the balance sheet as a liability. Any change in the accrued account balance should be reflected in net income in the period of the change.

The liability for policy benefits is the stated account balance, if applicable. If there is no stated account balance, the liability is recognized as the present value of future payments using the effective yield at inception of the contract.

In accounting for investment contracts in a manner similar to other interest bearing obligations, revenue results from the investment of funds received from the policyholder and from any surrender charges. Expenses are comprised primarily of interest credited to the policyholder's account balance. No provision for future losses (i.e., premium deficiency) is made for investment contracts. In the event that losses are estimated, the losses represent a negative investment spread that should be recognized over the remaining life of the contract, consistent with other industries' treatment of debt instruments.

Investment contracts can have various contract features, including returns based on the total return of a referenced pool of assets (e.g., indexed crediting rate tied to the S&P 500) and guaranteed minimum benefits (e.g., guaranteed minimum withdrawal benefit or GMWB). Insurers must evaluate whether those features meet the criteria of market risk benefits (MRBs), embedded derivatives, or represent additional liabilities for annuitization, death, or other insurance benefits. See IG 2.4 for additional details of the analysis to determine appropriate classification and IG 5.6, IG 5.7, and IG 5.8 for the accounting considerations for MRBs, embedded derivatives, and additional liabilities (annuitization, death, or other insurance benefits), respectively.