Addressing Selected Issues in Estimates of U.S.

International Services: Improved Measures of

Insurance, Wholesale and Retail Trade, and Financial

ServicesMaria Borga

U.S. Bureau of Economic AnalysisOECD-Eurostat Expert Meeting on

Trade-in-services Statistics

September 13, 2006

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Introduction In June 2002, BEA identified issues

affecting the measurement of Insurance services Distributive services of wholesalers and

retailers Financial services

Data gap FATS statistics cover nonbank affiliates only

Measure with limited usefulness Insurance services supplied through

affiliates reflect gross premiums

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Addressing the Measurement Issues

To address the issues identified, BEA Initiated new data collections Developed new methodologies Identified and used data from outside

sources Estimates presented are not yet

official

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Output of Insurers

Components of output Financial protection against specified risks Financial intermediation services Auxiliary insurance services

Assume insurers set premiums to maximize profits given expectations of Future claims Investment income

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Insurance Services Sold through Affiliates

One of the larger services sold through affiliates

Currently, measured as services-related operating revenues Mainly premiums Fees for auxiliary insurance services

Missing important aspects No deduction for losses paid Premium supplements

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Premiums less Normal Losses

“Normal” losses: proxy for insurers’ expectations

Consist of: Regularly occurring losses A share of catastrophic losses

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Premiums less Normal Losses

To construct, BEA collected Premiums earned Losses paid

Collected on 2002 benchmark survey of foreign

direct investment in the United States (FDIUS) and follow-on annual surveys

2004 benchmark survey of U.S. direct investment abroad (USDIA) and follow-on annual surveys

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Regularly Occurring Losses

6 year, arithmetic moving average of ratio of actual losses to premiums

Excludes current year To avoid waiting until 6 years of

data have been collected Used data on the U.S. domestic

insurance industry

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Catastrophic Losses

If a catastrophe affects the insurance sold through affiliates

Then, Develop estimate of catastrophic

losses Remove it from actual losses in

calculating the normal losses in that year

Spread over next 20 years

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Preliminary Estimate for 2002: Premiums less Normal Losses

Estimated premiums earned: $63.3B

Multiplied by 6-year moving average of losses/premiums:

76.1%

Normal losses= $48.2B

Premiums less normal losses= $15.1B

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Premium Supplements

Applies to non-life insurers Collect data on investment

income Combine with data on

domestic insurance industry to estimate investment income on technical reserves

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Preliminary Estimate for 2002: Premium Supplements

Estimated investment income earned by non-life insurers:

$11.8B

Estimate of share of investment income earned on technical reserves

48.3%

Premiums supplements $5.7B

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Changes in the Estimates of Sales of Insurance Services by U.S. Affiliates of

Foreign MNCs2002

Worldwide sales of services

Sales to U.S.

residents

Current estimates 92.7 88.2

LESS Premiums earned 63.3 60.2

EQUAL

Auxiliary insurance services or services from other industries

29.3 27.9

PLUS New measure of insurance services

20.8 19.8

EQUAL

New estimate of sales of services

50.2 47.7

Difference from current measure

-42.5 -40.4

(Billions of dollars)

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Wholesale and Retail Trade

Distributive services SNA measures as trade margins

Sales of goods less cost of goods resold

Important service industries in U.S. economy In 2004, accounted for almost 13% of

GDP

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Wholesale and Retail Trade in Estimates of Sales Through Affiliates

Sales of services through wholesale and retail trade affiliates are insignificant

Because BEA treats the total value of sales associated with wholesale and retail trade as sales of goods

Sales of services of these affiliates are Sales from secondary, service activities Not the distributive services provided

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Data Collection for Wholesale and Retail Trade Services

To construct estimates, BEA collected Goods for resale Beginning- and end-of-year inventories

of goods for resale Collected on:

2002 benchmark survey of FDIUS and follow-on annual surveys

2004 benchmark survey of USDIA and follow-on annual surveys

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Preliminary Estimates for 2002: Wholesale and Retail Trade

New data collected indicate $134.9B in distributive services sold to U.S. residents

Offsetting reduction in the sales of goods in broader FATS statistics Sales of goods were $1,561.6B Would fall by 8.6%

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Financial Services

Sales through affiliates exclude bank affiliates

Services supplied by banks can be charged for Explicitly—fees and services

charges Implicitly—financial intermediation

services indirectly measured (FISIM)

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Data Collection for Bank Affiliates

To construct estimates, BEA collected Explicit fees and service charges Total interest received Total interest paid

Collected on: 2002 benchmark survey of FDIUS 2004 benchmark survey of USDIA

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Preliminary Estimates for 2002: Bank Affiliates

Data collected indicate sales to U.S. residents of:

For explicitly charged services: $14.1B

For implicitly charged services: $16.4B

Total sales of services: $30.5B

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Impact on the Estimates of Sales of Services by U.S. Affiliates of Foreign

MNCs, 2002

0

100

200

300

400

500

600

Current measure Incorporating changes

Bill

ion

s o

f d

olla

rs

Sales of services unaffected by changes

Premium supplements

Wholesale & retail trade services

Services through bank affiliates

Sales of services unaffected by changes

Premiums devoted to settlement of normal losses

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Conclusions

More meaningful measure of insurance services

Measure distributive services provided by wholesale and retail trade affiliates

Closed data gap by including bank affiliates