Non-life insurance services
UN STATISTICS DIVISION
Economic Statistics Branch
National Accounts Section
UNSD/ECA National accounts workshop November 2005
1
Background
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Catastrophic events generate massive claims
on non-life insurance companies.
Mechanical use of the current SNA formula for
non life insurance services may lead to absurd
movements in production and consumption of
insurance services in current prices in the
national accounts.
Some NA compilers neutralize these effects.
The task force on the measurement of non life
insurance
Proposed changes that the AEG mostly has
agreed.
General principle
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The concept of insurance service is the
service of covering risk. The measurement of
insurance services should not be affected by
the volatility of the occurrence of risk.
Neither the volume nor the price of insurance
services should be directly affected by the
volatility of the claims.
Main recommendation
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Continue to use the same formula for output but
with adjusted premium earned and adjusted claims
incurred to correct for the volatility of observed
flows or negative output.
Output = Adjusted premium earned - Adjusted
claims incurred
Capital transfer must be introduced to maintain the
same saving of every sector in the economy.
3 practical ways of implementation
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Expectation approach
Accounting approach
Sum of costs plus ‘normal’ profit approach
The AEG recommends reference to these
three solutions in the updated SNA.
Expectation approach
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Replicating ex-ante models used by the
insurers to price premiums, based on
expectations for claims and income.
Use of micro data or smoothing past data
for claims and premium supplements.
Formula for output
Actual premiums earned
+ Expected (adjusted) premium supplements
– expected (adjusted) claims incurred
Expectation approach
U.S. method:
For each type of insurance, premium supplements will be calculated
as geometric-weighted moving average of past investment gain/loss
multiplied by the premiums earned during the current period.
PSt = NIRt * Pt
NIRt = IRt + (1- ) * IRt-1 + (1 –)2 * IRt-2 + …..
PSt = Premium supplement in period t
Pt = Premium earned
NIRt = Normal Investment Ratio
IRt = Investment Ratio – that is It / Pt
parameter  = 0.3 (based on the evidence that it provides best
prediction of future values)
Accounting approach
Consists of
(1) Extending the scope of technical reserves
(provisions)
(2) Applying an extended formula including,
when necessary, changes in own funds
Formula for output
Premiums earned
+ premium supplements
- (claims incurred + addition to, less
withdrawal from equalization provisions +
additions to, less withdrawal from own funds)
Sum of costs and “normal” profit
approach
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“Normal” profit can be estimated based
on smoothed past actual profits.
The approach is in practice similar to the
expectation approach.
Adjustment in the insurance
company accounts
Traditional method
Claims incurred 27 Premiums earned
Output
22
2 Premium supplements 7
Adjusted method
Adjusted claims 19
Premiums earned
22
Output
Adjusted Premium
supplements
7
10
Adjustment in the SNA account of
insurance company
Traditional method
Production cost
Claims incurred
2
27
Saving
Output
2
Net premium earned 27
0
Adjusted method
Production cost
Claims incurred
2
19
Capital transfer
8
Saving
0
Output
10
Net premium earned 19
Other changes
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Treating reinsurance gross (same formula as for
direct insurance) → insurance service as
intermediate consumption (now consolidated)
Excluding income from own funds from premium
supplements and income to policy holders
Include equalization provisions and other special
provisions in SNA’s definition of provisions for
unearned premiums and claims outstanding.
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Commission and rebates as negative premiums
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Profit sharing and bonuses as other income transfers
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Change in terminology:
Technical reserves → Technical provisions,
Claims due → Claims incurred
Thank You