Transcript SNA 2008

Measurement of the Output of
Non-Life Insurance
Brent R. Moulton
Working Party on National Accounts, OECD
Paris
October 25–28, 2011
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SNA 2008 measure of non-life insurance
▪ Only a portion of insurance premium is a
payment for services rendered by the
insurance carrier.
 The other portion is needed for paying claims.
▪ Formula in SNA 1993 (premiums plus premium
supplements minus claims) very volatile when
a catastrophe occurs
 Volatility doesn’t reflect change in services
provided
▪ SNA 2008 recommends adjusted claims and
adjusted premium supplements
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Example
▪ Immediately after September 11, 2001 terrorist
attacks on World Trade Center and Pentagon,
BEA’s SNA 1993-based treatment showed (not
at annual rate):
 Imports of services reduced by $11 billion
 Household final consumption expenditures
reduced by $5.5 billion
 GDP (current prices) raised by $5.5 billion
 Treated as changes in price, not volume
 Household final consumption price index: –0.3
percentage point
 GDP price index: +0.2 percentage point
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Why adjusted claims?
▪ Because insurance premiums provide for both
the production of services and the payment of
claims, the production of insurance services
must be measured indirectly
▪ While insurance carriers must charge
premiums that on average cover the cost of
claims and the production of services, there is
no requirement that they cover these costs
period by period
▪ Ex ante, insurance carriers set premiums on
the basis of expectations
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Example
▪ SNA 1993 measure: Value of insurance services
for years 1, 2, 3, and 4 = 45, 65, 55, 25.
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Expectation approach
▪ SNA 2008 treatment:
 In calculating insurance services, expected
(adjusted) claims will be deducted instead
of actual losses.
▪ In the example:
 In year 4, if expected claims = 60, then value
of insurance services = 100 – 60 + 15 = 55.
▪ Approach was developed by the
Australian Bureau of Statistics
 Presented at OECD meeting in 1999
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Formulas used in U.S. national accounts
▪ Loss ratio is ratio of actual losses (claims) to
premiums
 LRt = Lt/Pt
▪ Normal loss ratio calculated as a geometric
weighted moving average of past loss ratios
 NLRt = aLRt + a(1-a)LRt–1 + a(1-a)2LRt–2 …,
 The weight, a, is assigned a value of 0.3, based on
correlation with future values
▪ Normal losses (adjusted claims) calculated as
normal loss ratio times premiums
 NLt = NLRt  Pt
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U.S. national accounts (continued)
▪ For major catastrophes, the losses were spread
equally over a 20-year period.
▪ Geometric-weighted moving averages were
also used for premium supplements.
▪ Calculations were applied to each of 22 lines of
non-life insurance.
▪ BEA implemented the new output measure in
2003.
 See Moulton and Seskin, Survey of Current
Business, June 2003, and Chen and Fixler, SCB,
October 2003, available at www.bea.gov.
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Household insurance – SNA 1993 method
PCE Household Insurance - Published
Billions of dollars, SAAR
20
15
Premiums
10
Claims
5
Sept 11
0
PCE = Premiums - Claims
-5
Hurricane Andrew
-10
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
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Household insurance – SNA 2008 method
PCE Household Insurance - Revised
Billions of Dollars, SAAR
20
15
Premiums
10
Normal Claims
5
0
PCE = Premiums - Normal Claims
-5
-10
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
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Current vs. capital transfers
▪ SNA 1993 treated all non-life insurance claims
as current transfers (D72) in the secondary
distribution of income account
▪ For major catastrophes:
 Damages to assets are recorded as other changes in
volume of assets.
 Recording a large value for claims (without an
offset for the assets lost) could distort measures
such as disposable income and saving.
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Example – Hurricanes Katrina & Rita (2005 Q3)
Claims (billions)
Percent of quarterly GDP
Private insurance
$27.9
0.9
Public insurance
17.7
0.6
Rest of world
15.4
0.5
Financial corporations
$0.9
0.03
Nonfinancial corp’s
13.6
0.4
Noncorporate business
11.6
0.4
Government
2.1
0.1
Households
32.8
1.0
Sector
Paid by:
Received by:
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SNA 2008 treatment
▪ SNA 2008 recommends that claims
resulting from a major catastrophe
should be recorded capital transfers
(17.40)
▪ In the United States, insurance industry
sources are able to provide source data
on claims related to major catastrophes
▪ BEA implemented the capital transfers
treatment in 2009
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Challenges
▪ Estimates are more robust for sectors paying
insurance claims than for recipient sectors
 Lack of counterparty data – claims must be
allocated by insurance line
▪ For estimating catastrophic losses of fixed
assets, assumptions are needed (e.g.,
uninsured losses, relationship between claims
and losses)
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