Deposits associated with contracts that transfer only timing risk or transfer neither timing nor underwriting risk shall be measured using the:

Question

Options

• AAppropriate Method
• BInterest Method
• CIntermediary decisions Method
• DReassumption offset Method

• A
  9% (4)
• B
  74% (35)
• C
  2% (1)
• D
  15% (7)

Explanation

Option B is correct because contracts transferring only timing risk - or neither timing nor underwriting risk - are essentially financing arrangements rather than true insurance/reinsurance, so the Interest Method applies. Under this approach, the deposit is initially recorded at the present value of expected future cash flows, and interest is accreted over the contract's life using the effective interest rate, matching the economic substance of the arrangement.

Why the distractors are wrong:

• A. Appropriate Method - Not a defined accounting method; it's deliberately vague and functions as a trap for test-takers who reason loosely.
• C. Intermediary decisions Method - Fabricated terminology with no basis in insurance accounting standards; it does not exist.
• D. Reassumption offset Method - Also not a recognized measurement method for deposits; "reassumption" relates to recapture concepts, not deposit measurement.

Memory tip: Think of timing-only or no-risk contracts as loans in disguise - and loans are always measured using the Interest Method (effective yield accrual). If there's no real insurance risk transferred, it's just a financial instrument, and financial instruments accrete interest. The "I" in Interest Method = "I'm just lending money."

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