Addressing Selected Issues in
Estimates of U.S. International
Services: Improved Measures of
Insurance, Wholesale and Retail
Trade, and Financial Services
Maria Borga
U.S. Bureau of Economic Analysis
OECD-Eurostat Expert Meeting on
Trade-in-services Statistics
September 13, 2006
Introduction
 In June 2002, BEA identified issues affecting
the measurement of
 Insurance services
 Distributive services of wholesalers and retailers
 Financial services
 Data gap
 FATS statistics cover nonbank affiliates only
 Measure with limited usefulness
 Insurance services supplied through affiliates
reflect gross premiums
www.bea.gov
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Addressing the Measurement Issues
 To address the issues identified, BEA
 Initiated new data collections
 Developed new methodologies
 Identified and used data from outside
sources
 Estimates presented are not yet official
www.bea.gov
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Output of Insurers
 Components of output
 Financial protection against specified risks
 Financial intermediation services
 Auxiliary insurance services
 Assume insurers set premiums to maximize
profits given expectations of
 Future claims
 Investment income
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Insurance Services Sold through Affiliates
 One of the larger services sold through
affiliates
 Currently, measured as services-related
operating revenues
 Mainly premiums
 Fees for auxiliary insurance services
 Missing important aspects
 No deduction for losses paid
 Premium supplements
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Premiums less Normal Losses
 “Normal” losses: proxy for insurers’
expectations
 Consist of:
 Regularly occurring losses
 A share of catastrophic losses
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Premiums less Normal Losses
 To construct, BEA collected
 Premiums earned
 Losses paid
 Collected on
 2002 benchmark survey of foreign direct
investment in the United States (FDIUS)
and follow-on annual surveys
 2004 benchmark survey of U.S. direct
investment abroad (USDIA) and follow-on
annual surveys
www.bea.gov
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Regularly Occurring Losses
 6 year, arithmetic moving average
of ratio of actual losses to premiums
 Excludes current year
 To avoid waiting until 6 years of
data have been collected
 Used data on the U.S. domestic
insurance industry
www.bea.gov
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Catastrophic Losses
 If a catastrophe affects the insurance
sold through affiliates
 Then,
 Develop estimate of catastrophic losses
 Remove it from actual losses in
calculating the normal losses in that year
 Spread over next 20 years
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Preliminary Estimate for 2002:
Premiums less Normal Losses
Estimated premiums earned:
$63.3B
Multiplied by 6-year moving
average of losses/premiums:
Normal losses=
76.1%
$48.2B
Premiums less normal losses=
$15.1B
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Premium Supplements
 Applies to non-life insurers
 Collect data on investment income
 Combine with data on domestic
insurance industry to estimate
investment income on technical
reserves
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Preliminary Estimate for 2002:
Premium Supplements
Estimated investment income
earned by non-life insurers:
$11.8B
Estimate of share of investment
48.3%
income earned on technical reserves
Premiums supplements
www.bea.gov
$5.7B
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Changes in the Estimates of Sales of Insurance
Services by U.S. Affiliates of Foreign MNCs
(Billions of dollars)
2002
Worldwide sales Sales to U.S.
of services
residents
Current estimates
92.7
88.2
LESS
Premiums earned
63.3
60.2
EQUAL
Auxiliary insurance services or
services from other industries
29.3
27.9
PLUS
New measure of insurance
services
20.8
19.8
EQUAL
New estimate of sales of services
50.2
47.7
Difference from current measure
-42.5
-40.4
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Wholesale and Retail Trade
 Distributive services
 SNA measures as trade margins
 Sales of goods less cost of goods resold
 Important service industries in U.S.
economy
 In 2004, accounted for almost 13% of GDP
www.bea.gov
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Wholesale and Retail Trade in Estimates of
Sales Through Affiliates
 Sales of services through wholesale and
retail trade affiliates are insignificant
 Because BEA treats the total value of
sales associated with wholesale and
retail trade as sales of goods
 Sales of services of these affiliates are
 Sales from secondary, service activities
 Not the distributive services provided
www.bea.gov
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Data Collection for Wholesale and Retail Trade
Services
 To construct estimates, BEA collected
 Goods for resale
 Beginning- and end-of-year inventories of
goods for resale
 Collected on:
 2002 benchmark survey of FDIUS and followon annual surveys
 2004 benchmark survey of USDIA and followon annual surveys
www.bea.gov
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Preliminary Estimates for 2002:
Wholesale and Retail Trade
 New data collected indicate
$134.9B in distributive services
sold to U.S. residents
 Offsetting reduction in the sales of
goods in broader FATS statistics
 Sales of goods were $1,561.6B
 Would fall by 8.6%
www.bea.gov
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Financial Services
 Sales through affiliates exclude
bank affiliates
 Services supplied by banks can be
charged for
 Explicitly—fees and services charges
 Implicitly—financial intermediation
services indirectly measured (FISIM)
www.bea.gov
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Data Collection for Bank Affiliates
 To construct estimates, BEA collected
 Explicit fees and service charges
 Total interest received
 Total interest paid
 Collected on:
 2002 benchmark survey of FDIUS
 2004 benchmark survey of USDIA
www.bea.gov
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Preliminary Estimates for 2002:
Bank Affiliates
Data collected indicate sales to U.S. residents of:
For explicitly charged services:
$14.1B
For implicitly charged services:
$16.4B
Total sales of services:
www.bea.gov
$30.5B
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Impact on the Estimates of Sales of Services by
U.S. Affiliates of Foreign MNCs, 2002
600
Services
through bank
affiliates
Billions of dollars
500
Premiums
devoted to
settlement of
normal losses
400
300
Sales of
services
unaffected by
changes
200
100
Wholesale &
retail trade
services
Premium
supplements
Sales of services
unaffected by
changes
0
Current measure
Incorporating changes
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Conclusions
 More meaningful measure of
insurance services
 Measure distributive services
provided by wholesale and retail
trade affiliates
 Closed data gap by including bank
affiliates
www.bea.gov
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