AEG recommendations on the Measurement of
Non-life Insurance Production
F. Lequiller, OECD
1
Introduction
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The current recommendation of the SNA leads to
uninterpretable movements in the current price value
of non life insurance output and consumption, in
particular in the context of catastrophes
In general, NA compilers neutralise this unwelcome
impact on volume measures.
However, the impact is as unwelcome on price
indices of output or consumption.
2
Introduction
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In the USA, in the third quarter of 2001 (9/11 terrorist
attack), the implementation of the current SNA
recommendation led to a decrease to the price index
of household consumption of 0.3%, and an increase
of 0.2% of the price of GDP: ???
In France, the implementation of the current
recommendation on the fourth quarter on 1999
(exceptional storm) would have decreased total
household consumption by 1.3%: ????
The objective of the AEG recommandations is to
avoid such uninterpretable results
3
General principle
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In the SNA the output of insurance is to « provide financial
protection against the occurence of specified events »,
However, the SNA recognises that there is no explicit charge for
this output,
Therefore one must use an indirect estimate based on the
formula (1): actual premiums earned plus premium
supplements minus claims due.
The AEG confirmed that, conceptually, the SNA should not be
changed. In particular it rejected other conceptually based
measures of output (such as premiums).
4
General principle (continued..)
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However, the AEG rejected the mechanical
implementation of formula (1)
The measure of the concept of insurance output
should not be affected by the occurence of the risk.
The unusual difference between premium and claims
in a given period is not to be attributed to a
movement of output in this period.
The volatility of claims should not affect the measure
of production
5
The principle: same formula but..
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adjusted claims rather than observed claims
adjusted premiums supplements rather than
observed premium supplements
This principle can be obtained through three
methods:
– Using expectations
– Enhanced accounting
– Sum of costs plus « normal » profit
6
Solution 1: using expectations
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Insurers fix their premiums based on their
expectations of the occurence of risks, and of their
other revenues (of which premium supplements).
Based on these expected claims and expected
premium supplements, the insurer is capable of fixing
the level of premium that will normally cover its
administrative costs and its normal profit.
The measurement of the SNA service margin
(premiums plus supplements minus claims) should
be based on such expectations.
This is a way to obtain a measure of output and
consumption consistent with the concept aimed by
the SNA.
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The principle of using expectations
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Recommendation 3: expected claims and expected
premium supplements should replace actual claims and
actual investment income in the calculation of the output
and consumption of non-life insurance services. This
applies for all claims –regular, catastrophic and unexpected
– and for all years. This applies for all investment income.
Formula (1) should be adapted to this recommendation and
become:
Formula (3): [Actual premiums earned [i.e. premiums
receivable less changes in the reserves due to pre-payment
of premiums] + Expected premiums supplements Expected claims due.
8
Estimation of expected claims
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If insurers were willing to transmit the amount of their
(confidential) expected claims, it could be used by
national accounts compilers
However, a macro estimate is more realistic
(smoothed past claims)
Several methods were discussed to estimate
expected claims. They should be available in a new
annex for insurance or in an implementation manual.
9
Other AEG recommendations for
current price measures
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Change of terminology: use the term « insurance technical
provisions »
Extend the range of insurance provisions in the SNA
Do not include revenues from own funds in the formula
Do not include holding gains/losses in the formula
Decouple the value of net insurance premiums (D71) and non
life insurance claims incurred (D72). The difference is a transfer
from insurance companies to policy holders
This difference can be treated, in cases of catastrophes, as a
capital transfer (D99)
Treat reinsurance on a gross basis and use exactly the same
formulae as for direct insurance.
10
Prices and volumes : insurance services
Statistical offices do calculate price indices for non-life
insurance services included as a PPI or as a CPI.
These price indices, called here “premium price
indices”, measure the change in the price of insurance
policies with fixed characteristics. They are different
from the ideal index, and should not be used to deflate
the current price output unless there is evidence that
the deflator for claims moves with the premium price
indices.
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Prices and volumes : insurance services
In the absence of this ideal deflator, it is recommended to
compile a direct volume indicator using one of the
methods proposed below, and obtain the price index as the
ratio between the current price series and the volume
2.Obtain
In the
of adequate
premium
price indices,
volume the
1.
a absence
direct volume
measure
of the output
(and by aextension,
series:
indicator can
compiled
using quantity
such asthe
the
consumption)
ofbe
non-life
insurance
servicesindicators
by extrapolating
1. current
Direct
volume
measure
number
of measure
policies,
by
linebase
of product
insurance,
price
of the
year by(house-owner
the rate of change
of a
motorindex,
vehicle
insurance,
third party
liability,
etc.)
appropriately
volume
which
is obtained
deflating
gross
premiums
earned
2. by
Deflated
premium
method
weighted
preferably
by (PPI
net premiums
or, when of
not
possible,
by
a premium
price index
or CPI, depending
the
context).
gross
When
thepremiums.
premium price index covers premium supplements, it is
advisable to use the rate of change of a volume index compiled as
gross premiums plus adjusted premium supplements deflated
by
12
this extended premium price index.