328 Government Finance Statistics Manual 2014
between all policy holders and a few claimants. While
public corpora tions may be involved in various types
of insurance schemes, general government units are
usually not in volved in nonlife insurance other than
social insur ance, as discussed in Appendix 2.
A4.71 Standardized guarantees are those kinds of
guarantees that are issued in large numbers, usually
for fairly small amounts, along identical lines. Th ere
are three parties involved in these arrangements,
the borrower (debtor), the lender (creditor), and the
guar antor. Either the borrower or lender may contract
with the guarantor to repay the creditor if the debtor
de faults. Similar to nonlife insurance, it is not possible
to determine the likelihood of any particular debtor
de faulting. Nevertheless, because the guarantees are
very similar and numerous, it is possible to estimate
the general likelihood of defaults the guarantor will
have to cover. It is standard practice to estimate how
many out of a batch of similar debts will default.^19
Th ere fore, standardized guarantees are based on the
same para digm as that for nonlife insurance, and a
similar treat ment is adopted for these guarantees.
Stand ardized guarantees are distinguished from one-
off guarantees based on two criteria:- Th ey are characterized by oft en repeated trans ac-
tions with similar features and pooling of risks. - Guarantors are able to estimate the average loss
based on available statistics by using probability-
weighted concepts.
A4.72 Standardized guarantees may be provided
by a fi nancial institution, including, but not limited
to, insurance corporations. It is possible (but unlikely)
that nonfi nancial corporations provide these kinds
of guarantees. However, govern ment units are oft en
involved as the guarantor in standardized guarantee
schemes. Th e most common examples are export credit
guarantees, deposit insur ance schemes,^20 and student
loan guarantees. Specifi cally, when a govern ment unit
provides standardized guarantees without fees or at
such low rates that the fees are signifi cantly less than
(^19) Th is default risk establishes the liability arising from standard-
ized guarantees.
(^20) If participation in such a deposit insurance or other guar-
antees is compulsory—that is, if benefi ciaries cannot opt out of
the scheme and the payment is clearly out of proportion to the
service provided—it will not constitute a standardized guarantee
scheme, but should be recorded as taxes on use of goods and on
permission to use goods or perform activities (1145) as describ ed in
paragraphs 5.73–5.76.
the calls and adminis trative costs, the unit should be
treated as a nonmarket producer within the general
government. If government recognizes the probability
of having to fi nance some of the calls under the guar-
antee scheme to the extent of including a provision in
its accounts, a transfer of this size from government
to the units concerned and a liability of this amount
(under provisions for calls under standardized guar-
antee schemes) should be recorded. If a standardized
guarantee scheme is operated by a corporation or
quasi-cor por ation on behalf of government, any trans-
fers to cover recurrent losses are classifi ed as subsidies
(see para graph 6.89) and any transfers to cover large
operating defi cits accumulating over two or more years
or ex ceptional losses due to factors outside the control
of the corporation/quasi-corporation are recorded as
cap ital transfers (see paragraphs 6.91–6.124).
Defi ning Terminology Used in Insurance
A4.73 Defi ning some of the terms peculiar to the
insurance industry is helpful in clarifying the discus-
sion on the statistical treatment of insurance and stan-
dardized guarantees. Th e term “premiums” is used for
payment to the insurer, while the term “fees” is used
to describe the payment to the guarantor in the case of
standardized guarantees. Payments by the in surer are
called “claims” in the case of nonlife insur ance policies
and “benefi ts” in the case of life insur ance policies. In
the case of standardized guarantees, “calls” relate to
expected defaults on the guarantees.
A4.74 Th e actual premium (fee) is the amount pay-
able to the insurer (guarantor) to secure insurance
coverage for a specifi c event over a stated time pe-
riod. Coverage is frequently provided for one year at a
time, with the premium payable at the outset, though
coverage may be provided for shorter (or long er)
periods and the premium (fee) may be payable in
installments—for example, monthly.
A4.75 Th e premium earned is the part of the actual
premium that relates to coverage provided in the re-
porting period. For example, if a new annual policy
with a premium of 120 units comes into force on
April 1, and GFS are being prepared for a calendar
year, the premium earned in the calendar year is 90.
Th e un earned premium is the amount of the actual
pre mium received that relates to the period past the
re porting period. In the example just given, at the
end of the reporting period there will be an unearned