In which situation should a capitalization contribution to a public-entity risk pool be treated as a deposit?

A capitalization contribution to a public-entity risk pool should be treated as a deposit when there is no transfer or pooling of risk. In this context, capitalization contributions are typically intended to establish a financial baseline for the risk pool, enhancing its creditworthiness or providing a buffer for future claims. When there is no effective pooling of risk, it indicates that the entity is not participating in a true insurance mechanism where risks and losses are shared among members. Instead, the contribution effectively remains the property of the contributing entity, akin to a deposit that may be returned under certain circumstances.

This situation arises when the entity contributing to the risk pool retains substantial control over its funds, and there are no definitive agreements indicating a risk-sharing arrangement. It highlights the lack of transfer of risk, which is a fundamental characteristic of insurance arrangements. Therefore, treating such contributions as deposits rather than assets committed to an insurance fund is justified in this scenario.

The concept of refundability is relevant but not the determining factor in this situation. If the contribution could ultimately be refunded, it reinforces the idea that the funds do not represent a full commitment to risk pooling, further solidifying that treating the contribution as a deposit is appropriate under these conditions.