Measuring Banking and Insurance:
The U.S. Experience
Brian C. Moyer
Associate Director for Industry Accounts
12th OECD-NBS Workshop on National Accounts
Paris, France
October 27-31, 2008
Output of the financial sector
 Financial sector includes:





commercial banks
credit unions
savings and loans
regulated investment companies
insurance companies
 Output can be either priced or “implicit”
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I. Output of commercial banks
 Based on the 1993 System of National Accounts—
Financial intermediation services indirectly measured
(FISIM)
 FISIM of commercial banks recognized for both
depositors and borrowers
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Depositors’ and borrowers’ services
 Output of depositors’ services
YiD = (r – average rate paid) * average liability balance
 Output of borrowers’ services
YiB = (average rate received – r) * average asset balance
 Total implicit output
Yi = YiD + YiB
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Calculation of average rates
 Based on “book value” calculations
 average rate paid =
(interest expense / average liability balance)
 average rate received =
(interest income / average asset balance)
 Data available from commercial banks’ balance sheet
and income statements
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Calculation of the reference rate
 Pure cost of borrowing funds; does not include risk
premiums or intermediation services
 Ratio of interest income on U.S. Government
Treasury and Agency securities (excluding mortgagebacked securities) to their value on balance sheets of
commercial banks
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Average rates and the reference rate
10.4
average rate received
9.4
8.4
percent
7.4
6.4
5.4
4.4
reference rate
average rate paid
3.4
2.4
1.4
0.4
1998Q1
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1999Q1
2000Q1
2001Q1
2002Q1
2003Q1
2004Q1
2005Q1
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Sector allocations of output
 Consumption of implicit output allocated to persons,
government, rest of world, and businesses
 Allocations estimated by asset and liability
 Assets allocated based on sector distribution of loan/lease
balances
 Liabilities allocated based on sector ownership of deposit
balances
 Data available from the U.S. flow of funds accounts
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Constant-price bank output
 Steps in the calculation
Reference year total output (both priced and implicit)
extrapolated with: volume index of banking output
equals: constant-price total output
less: constant-price output of priced services
equals: constant-price implicit output
 Sector shares of constant-price implicit output same
as current-price sector shares
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II. Output of insurance companies
 Output of property and casualty (P&C) insurance
companies includes:
 transfer of risk
 financial intermediation
 administrative services, such as handling claims
 Consistent with treatment recommended in the
revised 1993 System of National Accounts
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P&C insurance output
 Output = direct premiums earned
+ premium supplements
– dividends paid to policy holders
– normal (expected) losses incurred
 Consistent with the behavior of insurance
companies
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Consumption of household insurance
20
Billions of dollars, SAAR
15
10
premiums
normal losses
5
0
consumption = premiums – normal losses
-5
-10
1989 1990 1991
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1992 1993 1994 1995
1996 1997 1998 1999 2000
2001 2002 2003
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In contrast to actual losses…
Billions of dollars, SAAR
20
15
premiums
10
actual losses
5
Sept 11
0
consumption = premiums – actual losses
-5
Hurricane Andrew
-10
1989
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1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
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P&C insurance output
 Direct premiums earned include transactions related
to reinsurance
 Premium supplements
 Expected income earned by insurance companies from
investing policyholder reserves
 Used to supplement revenue from premiums to pay claims
or purchase reinsurance services
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P&C insurance output
 Normal losses
 Represent claims that insurance companies expect to pay
in a period
 Insurance companies determine premiums for a future
period based on the claims they expect to pay; that is—
Normal lossest = direct premiums earnedt *
{0.3 * (direct losses incurredt-1 / direct premiums earnedt-1) +
0.7 * E[(direct losses incurredt-1 / direct premiums earnedt-1)]}
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Adjusting for disasters
 Effect of disasters on normal losses is “smoothed”; a
portion of the disaster is added to normal losses for a
20-year period following the disaster
 “Net insurance settlements” is the difference
between actual and expected losses; it is recorded as
a current transfer payment to policyholders from
insurance companies
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Constant-price P&C insurance output
 Based on a “single-deflation” technique using
consumer price indexes and producer price indexes
 Research underway to consider constant-price
estimates based on “double-deflation” techniques
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