1993 SNA Update Information - AEG recommendations for issue:
Non-life insurance services
|Issue description in [English] | [French] | [Russian] | [Spanish]|
|Several instances of massive insurance claims, notably those from the 11 September terrorist attack, focused attention on the measurement of non-life insurance services when catastrophic losses occur. This necessarily involves considering the treatment of reinsurance also. The output of insurance services as calculated using the 1993 SNA algorithm depends on the balance of premiums and claims (on an accrual basis). Output can therefore be extremely volatile (even negative) following major catastrophes, and this volatility impacts on GDP and balance of payments (reinsurance). The objective of the review is to propose measures that would be more consistent with the perception of production in this activity. In particular, medium- to long-term aspects of non-life insurance are to be taken into consideration. The issue will also cover the measurement of production of non-life insurance services in volume terms.|
|Number of AEG recommendations for selected issue:||3|
| Corresponding meeting||Date posted||Recommendation|
| December 2004||11/01/2005||The consultation revealed a majority in favor of: |
i. excluding income from own funds in the calculation of output of non-life insurance;
ii. treating commissions and rebates as negative premiums, and profit sharing and bonuses as other income transfers; and
iii. treating payments resulting from exceptional claims as capital transfers.
The AEG agreed this consultation represents their final position.
| consult 29/6/04||02/07/2004||The AEG was consulted through a questionnaire on the issues that remained unresolved at its first meeting. |
The consultation showed a significant majority against the inclusion of income from own funds in the calculation of the output measure of non life insurance. This proposal is therefore abandoned. Therefore the issue of which option is to be used to take into account this change in the institutional sector accounts becomes irrelevant.
In contrast, the AEG confirmed by a large majority the proposal made by the task force on commissions and rebates (treat as negative premiums) and profit sharing and bonuses (treat as other income transfers).
Finally, despite its possible impact on the discrepancies of BOPs` current balances at the international level, the AEG confirmed by a very large majority the option to treat transfers resulting from exceptional claims as a capital transfer rather than, as in normal cases, a current transfer.
| February 2004||27/04/2004||MEASUREMENT OF THE PRODUCTION OF NON-LIFE INSURANCE
The AEG reviewed the set of questions put forward by the Task Force on the measurement of non-life insurance.
There was general agreement to replace the formula currently recommended in the 1993 SNA to estimate the production of insurance services by a formula using adjusted claims and adjusted premium supplements.
The AEG supported the inclusion in the SNA of several solutions to estimate adjusted claims: the expectation approach (which uses statistical smoothing of past data), the accounting approach, and the sum of cost + normal profit approach.
The AEG also supported the extension of technical provisions to equalization provisions and other special provisions. The use of the term “provisions” was discussed at some length. The AEG agreed that it be used in future, but with qualifications to distinguish it from the common term “provisions” used in other business accounts.
There was some unease about the inclusion of income from own funds as an item additional to premium supplements in the formula to estimate the output of non-life insurance and about their inclusion in D44 distributed to policy holders. It was noted that there may be a problem in including the income from own funds in output without reflecting who consumes it. In that context, the AEG felt that a numerical example is needed to help understand the issue better, and asked the authors of the issue paper to run through a few examples. The outcome of this work should be discussed in the EDG and within the ISWGNA. The result of these discussions will be distributed to the AEG through written consultation and the results presented in the next meeting.
The AEG supported the proposal conceptually but noted in practice the possibility to use adjusted premium supplements in future rather than observed (actual) premium supplements in the calculation of output.
The members of the AEG broadly accepted the proposal of decoupling net insurance premiums (D71) and actual non-life insurance claims (D72) with the idea that in some cases, such as catastrophic events, the difference between adjusted and non-adjusted claims can be treated as a capital transfer. The AEG agreed with the proposed changes in terminology for “technical reserves” to be called “technical provisions” and for “claims due” to be called “claims incurred.”
The AEG supported the proposal for a new treatment of reinsurance, where all reinsurance flows are treated gross and the same formulae are used as for direct insurance. The AEG recommended that the proposal be forwarded to the BOP Committee for its view.
It is recommended that profit sharing and bonuses be justified and circulated to AEG members.
Members of the AEG agreed that the issue paper presented at the first AEG meeting be revised into a short, streamlined paper before distributing it for wider consultation.|