1. Item 14b: Insurance and Pension Funds
ESTP course on National Accounts ESA 2010
Luxembourg, 15 May May Eurostat

2. The insurance business
Premiums
Claims

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

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 current transfers

5. National Accounts view point
Sales are not a reference for insurers output, thus their output is calculated as premiums less claims
Insurers maximise provisions by investing and getting a return
Return on investment
premiums
investment

6. National Accounts view point
However, the provisions belong to the policyholders
Thus, we need to send the money to their owners and feed it back to the insurer as a supplement to output
premiums
investment
Return on investment
premium supplements

7. National Accounts view point
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)

8. Types of insurance policies
2 types of insurance exist:
Non-life insurance
Life insurance
The uncertainty in life insurance is not whether there will be a claim, but when
Special case: term insurance
Direct (business) insurance and reinsurance

9. The output of non-life insurance services are calculated as:
[gross] premiums earned
+ [gross] premium supplements
- [gross] adjusted claims incurred *
* BUT,
If premiums < claims the this leads to negative output ! !
Why would premiums < claims ?

10. The output of non-life insurance services are calculated as:
[gross] premiums earned
+ [gross] premium supplements
- [gross] adjusted claims incurred *
* Adjusted non-life claims incurred can be calculated:
a) based on past experience (expectation approach), or ;
b) as claims due less changes in equalisation provisions less changes to own funds (accounting approach)
Catastrophic losses must be eliminated and recorded as capital transfers

11. Important: Non-life Insurance
Allocation of output is based on share paid by each customer
In case of non-life, 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) and correspond other capital transfers recording catastrophic losses (D.99)

12. Important: Non-life Insurance
Premiums + supplements = 100
Claims incurred = 150
Adjusted claims incurred = 70
Output (P.1) = Consumption = 30
Net Premiums (D.71) = premiums – P.1 = 70
Claims (D.72) = 150
Catastrophic losses (D.99) = 80

13. The output of life insurance services are calculated as:
[gross] premiums earned
+ [gross] premium supplements
- [gross] benefits due
± changes in technical reserves (provisions) *
* Holding gains (realised and not-realised) must be eliminated

14. Important: Life Insurance
Premiums earned = 100
Premium supplements = 20
Benefits due = 65
Change in technical reserves = 50
Holding gains = 10
Output ?

15. Important: Life Insurance
Premiums earned = 100
Premium supplements = 20
Benefits due = 65
Change in technical reserves = 50
Holding gains = 10
Output = 15

16. Direct insurance and reinsurance services

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)

18. 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)

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

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 0.5

21. Imputations; only db schemes
Imputed contribution by the employer = 4
Actuarial increase in pension entitlements 15
Less employers actual contribution 10
Less employees contribution 1.5
Plus costs of operating the scheme 0.5

22. 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!

23. 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

24. 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

25. 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