14.276. Because catastrophic losses occur much less frequently than regularly occurring losses, they are assumed to affect loss expectations over a much longer period. To account for this, catastrophic losses are removed from current period losses, and spread over the 20 years following their occurrence in equal increments. Similar to regularly occurring losses, expected catastrophic losses are estimated by applying to current period premiums a six-year arithmetic moving average of the ratio of each prior period’s share of catastrophic losses to premiums. Thus, only a small fraction of catastrophic losses is factored into each year’s calculation of expected claims.
14.134277. Normal losses are the sum of expected regularly occurring and catastrophic losses. Separate estimates of normal losses are calculated for primary insurance, reinsurance and credits and debits. For the United States, the ratio of losses to premiums is lower for primary insurance than for reinsurance because administrative and financial intermediation services differ for those two types of insurance. Primary insurance is more retail-oriented, with a large number of individual policies sold and written, and, thus, may have higher administrative and other costs than reinsurance, which involves fewer, larger transactions between insurance enterprises.
14.277278. BEA does not directly collect information on the technical reserves of insurance enterprises on its surveys because such collection is deemed too burdensome for enterprises. Due to the lack of data on technical reserves, it is not possible for BEA to use a relationship between investment returns and technical reserves to estimate premium supplements. As a result, BEA developed a ratio of expected investment gains to premiums, and multiplies that ratio by current premiums to estimate premium supplements. The ratio of investment income to premiums is from Best’s Aggregates and Averages: Property-Casualty by A.M. Best Company. A.M. Best provides data on investment gains that are attributable to insurance transactions, as opposed to investment gains attributable to the insurers’ own funds. The ratio is a weighted moving average of the previous ratios of actual investment gains to premiums. In the cross-border trade data, the expected investment gains-to-premiums ratio is estimated separately for primary insurance and reinsurance, in recognition of the fact that reinsurers may have different ratios of net gains to premiums than primary insurers. The different ratios may arise because reinsurers hold larger reserves than primary insurers, or because reinsurers hold reserves for a longer period of time.
14.278279. Once those ratios have been calculated, they are applied to the estimates of premium receipts for direct insurance and reinsurance obtained from BEA surveys to derive premium supplement receipts. Because similar data on the investment income of foreign insurance enterprises are not available for payments, the ratio used for receipts is applied to the estimates of premium payments in order to estimate premium supplement payments.
14.279280. Auxiliary insurance services cover items such as agents’ commissions, actuarial services, insurance brokering and agency services and salvage administration services. Data are collected on BEA surveys. Auxiliary insurance is a component of primary insurance; there are no auxiliary services associated with reinsurance.