Government Finance Statistics Manual 2014

200 Government Finance Statistics Manual 2014

yet earned (called unearned premiums) and claims

incurred but not yet settled.

7.184 Prepayments of net nonlife insurance premi-

ums arise because premiums are usually payable at the

beginning of the period covered by the policy. How-

ever, on an accrual basis, the premiums are earned

through the policy period, so that the initial payment

involves a prepayment or advance. At any given time,

part of the insurance premiums already paid has not

yet been earned by the insurance enterprise because

these prepaid premiums provide coverage against

risks in the future. Th e value of the prepaid or un-

earned premiums should be determined proportion-

ally. For example, if an annual policy with a premium

of 120 currency units comes into force on April 1 and

accounts are being prepared for a calendar year, the

premium earned in the calendar year is 90. Th e pre-

paid or unearned premium is the amount of the actual

premium received that relates to the period past the

reporting point. In the example just given, there will

be an unearned premium of 30 at the end of Decem-

ber. Th is unearned premium is intended to provide

coverage for the fi rst three months of the next year.

7.185 Reserves to meet outstanding nonlife insur-

ance claims are amounts arising from events that have

occurred but for which the claims are still pending.

Th ey also include reserves for unexpired risks. Th e

liability incurred by the insurer to meet outstanding

claims represents the present value of the amounts ex-

pected to be paid out in settlement of claims, includ-

ing disputed claims, as well as allowances for claims

for incidents that have taken place but have not yet

been reported.

7.186 Other reserves, such as equalization reserves,

may be identifi ed by insurers. However, these are recog-

nized as liabilities (and corresponding assets) only when

there is an event that gives rise to a liability. Otherwise,

equalization reserves are internal accounting entries by

the insurer that represent saving to cover irregularly

occurring catastrophes, and thus do not represent any

existing corresponding claims for policyholders.

Life insurance and annuities entitlements (62062, 62162, 62262, 63062, 63162, 63262)

7.187 Life insurance and annuities entitlements

are fi nancial claims policyholders have against an

enterprise off ering life insurance or providing annui-

ties. Th is category consists of liabilities of life insur-

ance companies and annuity providers for prepaid

premiums and accrued liabilities to life insurance

policyholders and benefi ciaries of annuities. Life in-

surance and annuity entitlements are the obligation

to provide benefi ts to policyholders, or to compensate

benefi ciaries upon the death of policyholders,^52 and

thus are kept separate from shareholders’ funds. Th ese

entitlements are regarded as liabilities of the insur-

ance companies and assets of the policyholders and

benefi ciaries. Annuities entitlements are the actuarial

calculation of the present value of the obligations to

pay future income until the death of the benefi ciaries.

7.188 Th e amount to be recorded as the stock posi-

tions for life insurance and annuities entitlements is

similar to that for nonlife insurance technical reserves

in that it represents obligations to meet future claims

already accrued. However, in the case of life insurance,

the level of the entitlements is considerable and repre-

sents the present value of all expected future benefi ts.^53

Pension entitlements [GFS]^54 (62063, 62163,

62263, 63063, 63163, 63263)

7.189 As explained in paragraphs A2.5–A2.7, en-

titlements to social insurance benefi ts are divided

between those relating to pensions and those relat-

ing to all other forms of benefi ts (i.e., nonpensions).

Th e distinction between the two is important because

the GFS recognizes liabilities for employment-related

pensions, regardless of whether there are actually

assets set aside to meet the entitlements, but recog-

nizes reserves for employment-related nonpension

benefi ts only when these reserves actually exist (see

paragraph 7.195). Furthermore, a distinction is made

between social security schemes and employment-

related schemes. Th is section deals with entitlements

to employment-related pension schemes.

7.190 Pension entitlements are fi nancial claims

that existing and future pensioners^55 hold against

(^52) Th is is distinct from term insurance, which is regarded as non-
life insurance (see footnote 51).
(^53) In the commercial accounts of insurance corporations, some of
these obligations will be described as provisions for bonuses and
rebates. Th is is the result of the insurance industry’s practice of
smoothing benefi ts over time and retaining some benefi ts until
the policy matures.
(^54) [GFS] indicates that an item has the same name but diff erent
coverage in the 2008 SNA.
(^55) Existing and future pensioners include past and current employ-
ees, as well as existing pensioners, but exclude future employees.