1. ESTP course on National Accounts Insurance and pension funds
Luxembourg, 30 May - 3 June Eurostat, BECH Ampere

2. The insurance business
Claims
Premiums
Insurance and pension funds

3. Risk-assumption vs. risk-pooling
Risk-assumption model:
Premiums are revenue,
claims are insurer’s costs
Risk is transferred from policyholders to insurers.
Insurers incur in risk
Policyholders do not interact with each other
Insurance and pension funds

4. Risk-assumption vs. risk-pooling
Risk-pooling model:
Risk is shared among policyholders
Insurers do not incur in risk; mere managers
Insurance output = management fee
All premiums/claims potted for distribution as transfers
Insurance and pension funds

5. Important consequences:
The visible flows (premiums, claims) are not what counts for national accounts
For each insurer-customer relation, we split the premiums payment into
A production flow (P.1 output)
A distributive flow (D.71 net premiums)
There is a second distributive flow (D.72 claims)
Insurance and pension funds

6. Insurance and pension funds
Case A:
Premiums paid: 10
No claims
Output imputed: 3
Case B:
Premiums paid: 10
Claims: 70
Output imputed: 3
Output = consumption = 3
Output = consumption = 3
Net premiums = 7; claims = 0
Net premiums = 7; claims = 70
Insurance and pension funds

7. Searching for a measure of insurance output
Unlike other (non-financial) activities, sales are not a reference for insurance output
2-step calculation:
1) Overall output calculation:
output = premiums - claims
2) Allocation of output share paid by each customer
Insurance and pension funds

8. Problem: negative output
If premiums < claims  negative output!
Why would premiums < claims?
Competence lowers premiums. Insurers maximize provisions by investing and getting a return
premiums
investment
return
Insurance and pension funds

9. Insurance and pension funds
Premium supplements
The provisions belong to the policyholders
The investment return is theirs too
We need to send the money to its owners…and feed it back to the insurer as a supplement to output
Investment income attributable to policyholders
premiums
investment
premium supplements
Insurance and pension funds

10. Insurance Output – ESA 2010 approaches
Output = total premiums earned + premium supplements – adjusted claims incurred
Expectation approach
Adjusted claims estimated from (micro) data / past experience
Accounting approach
Adjusted claims = claims due - changes in equalisation provisions – changes to own funds
Solution for catastrophic losses; leading to negative output in ESA 95; recording as capital transfer
Insurance and pension funds

11. Insurance Output – ESA 2010 approaches
Sum of Costs approach
Intermediate costs, labour and capital cost
Plus allowance for "normal" profit
If necessary data is not available
In case of insufficient data quality
Due to "normal" profit similar to the expectations approach
Insurance and pension funds

12. Insurance and pension funds
Interim summary:
Risk pooling: the insurers incur in no risk
Payments split in productive, distributive
Insurance sales are not reference for output
 conventional def output
The provisions belong to the policyholders
other income flows need recording
Insurance and pension funds

13. Life and non-life insurance
2 types of insurance exist:
Life insurance
Non-life insurance
All until now was for non-life insurance
The uncertainty in life insurance is not whether there will be a claim, but when
Pension Funds and Life Insurance treated in similar way…
Insurance and pension funds

14. Insurance and pension funds
Life Insurance
Output = actual premiums earned
+ premium supplements
– benefits due
– increase in life insurance technical reserves
Output calculation: net of holding gains
Reinsurance output: calculated according to non-life model
Insurance and pension funds

15. Example: Life Insurance
Premiums received in
Of which: Premiums for
Property income/
premium supplements
Adjusted claims paid
Change in technical reserves 50
Holding gains
Output ?
Insurance and pension funds

16. Example: Life Insurance
Premiums received in
Of which: Premiums for
Property income/
premium supplements
Adjusted claims paid
Change in technical reserves
Holding gains
Output
Insurance and pension funds

17. Focus on pension schemes
Pensions in Social insurance
Social Security pensions
Other employment-related pension schemes
Defined contributions schemes (DC)
Defined benefit schemes (DB)
Insurance and pension funds

18. Insurance and pension funds
Social Security
Treated on payable basis, thus
Social Contributions recorded as they are payable (from households)
Social benefits recorded as they are payable (to households)
Insurance and pension funds

19. Other employment-related schemes
Treated as saving schemes
Including funded schemes for government and public corporation employees
Insurance and pension funds

20. Imputations; only db schemes
Imputed contribution by the employer = ?
Actuarial increase in pension entitlements 15
Less employers actual contribution 10
Less employees contribution 1.5
Plus costs of operating the scheme 0.6
Insurance and pension funds

21. Imputations; only db schemes
Imputed contribution by the employer = 4.1
Actuarial increase in pension entitlements 15
Less employers actual contribution 10
Less employees contribution 1.5
Plus costs of operating the scheme 0.6
Insurance and pension funds

22. Output of pension schemes
Social security: Sum of costs; if a separate unit is distinguished
Own employer schemes: Sum of costs, plus allowance for "normal" profit
Scheme operated on behalf of the employer: Fee charged by the insurance corporation
Multi-employer scheme: As for life insurance
Insurance and pension funds

23. Insurance and pension funds
What is D8?
Recall that social benefits and social contributions are entered before “disposable income”, thus if no further adjustment disposable income and saving would be fully affected by the balance
However we take the view that for occupational and funded government sponsored pension schemes the increase in the household’s net equity should be included in saving (households own pension reserves)…
and we want the non-financial and financial accounts to balance!
Insurance and pension funds

24. Future pension reporting – Table 29
Compromise at worldwide level
All private schemes recorded on actuarial basis
Treatment of unfunded government employer schemes flexible (in Europe: no liabilities in core accounts)
Social Security treatment unchanged
Transmission program: Accrued-to-date pension entitlements in social insurance
First obligatory transmission: 31/12/2017
Contact group, Technical Pension Compilation Guide, dedicated web section
Insurance and pension funds

25. Table 29: Core / Non-core allocation of pension schemes
Table 29: Accrued-to-date pension entitlements in social insurance
Row No.
Recording
Core national accounts
Not in the core national accounts (7)
Total Pension
Counter-parts:
Pension manager
Non-general government
General government
Schemes
Pension entitlements of non-resident households4)
Defined contri-
Defined benefit schemes and other1) non-defined contri-bution schemes
Total
Defined contri-bution schemes
Defined benefit schemes for general government employees2)
bution schemes
Classified in financial
Classified in general
Social security pension schemes
corporations
govt 3)
government
Code
XPC1W
XPB1W
XPCB1W
XPCG
XPBG12
XPBG13
XPBOUT13
XP1314
XPTOT
XPTOTNRH
Column number A B C D E F G H I J

26. Pensions in national accounts: Structure of Table 29
Row
Opening balance sheet 1
Pension entitlements at the beginning of the year
Changes in pension entitlements due to transactions 2
Increase in pension entitlements due to social contributions 3
Other (actuarial) change of pension entitlements in social security pension schemes 4
Reduction in pension entitlements due to payment of pension benefits 5
Changes in pension entitlements due to social contributions and pension benefits 6
Transfers of pension entitlements between schemes 7
Change in entitlements due to negotiated changes in scheme structure
Changes in pension entitlements due to other flows 8
Changes in entitlements due to revaluations 9
Changes in entitlements due to other changes in volume
Closing balance sheet 10
Pension entitlements at the end of the year

27. Thank you for your kind attention!