1 Review of measurement of insurance services in the SNA: implications for trade in services François Lequiller OECD

2 General principles Current SNA : measurement of insurance services = premiums + premium supplements less claims But claims are very volatile, in particular when catastrophes Proposal for the new SNA: premiums + premium supplements less « adjusted » or « expected » claims. One solution in practice, adjusted claims = application of smoothed past claims/premiums ratios to actual claims

3 General principles (continued) As a result, the measure of production is smoother reflecting « normal business » The difference between « adjusted » claims and observed claims is treated as a transfer rather than in production and/or consumption An option is given: either current transfer or capital transfer

4 Reinsurance The discussion included reinsurance The proposal is to abandon the current « consolidated » treatment of reinsurance in favor of a gross treatment. Reinsurance production would be measured as the direct insurer’s production, using the same formulae Reinsurance is an intermediate consumption of direct insurers

5 Implications to international trade The measurement of imports and exports of insurance should use the same formulae as the production, based on the difference between premiums + premium supplements and « adjusted » claims It would be recommended to use smoothed past ratios of service charges to premiums earned. One would abandon the recommendation that exports of services are estimated « as the balance of all flows occuring between resident reinsurers and non resident insurers » and that imports are estimated as the « balance of all flows occuring between resident insurers and non resident insurers » The « waiver » in the SNA which authorized not to take into account premium supplements in the calculation of external flows would be abandoned

6 Reinsurance Reinsurance flows are for most countries external flows Use the same formula as for direct insurers Exports: compile the ratio of reinsurance charges of the resident reinsurance industry; apply this ratio to premiums accepted from non resident direct insurers Imports: use accounting of the resident direct insurers who use reinsurance services, to calculate their total consumption of reinsurance services. The ratio of reinsurance service charges to premiums ceded to reinsurers, for all reinsurance businesses, can be applied to the premiums ceded to non residents.

7 Detailed proposals Are available on the web site of the UN: The recommendations have been adopted by the AEG The IMF representatives of the BoP review expressed no objection related to the measurement of imports and exports. They only criticised the possibility given to countries to either use a current transfer or a capital transfer for the difference between « adjusted » claims and observed claims.