Some Cross-Cutting Issues 327
transactions to be constructed using assumptions
about expected asset values and interest rates.- An alternative approach is to record the change
of legal and economic ownership from the private
unit to government as a capital transfer at the end
of the contract period. At the end of the contract
period, government records revenue in the form
of a capital transfer that fi nances the acquisition
of the asset and the private unit records an ex-
pense in the form of a capital transfer payable to
govern ment, fi nanced by the disposal of the asset.
Th e capital transfer approach does not refl ect the
underlying economic reality as well as the fi rst al-
ternative, but data limitations, uncertainty about
the expected residual value of the assets, and con-
tract provisions allowing various options to be
exercised by either party make recording a capital
transfer in GFS acceptable on pragmatic grounds.
Insurance and Standardized Guarantee Schemes
Introduction
A4.66 An insurance policy is an agreement between
an insurer and another institutional unit, the policy-
holder. Under the agreement, the policyholder makes
a payment (premium) to the insurance corporation,
which makes a payment (claim) to the policyholder if or
when a specifi ed event occurs. Th e policyholder protects
itself against certain forms of risk. By pooling the risks,
the insurer aims to receive more from the receipt of pre-
miums than it has to pay out as claims to the insured.
A4.67 Th is section describes types of insurance
and standardized guarantee schemes. It fi rst defi nes
some terminology and then provides statistical guid-
ance on the recording of the relevant fl ows and stock
positions related to nonlife insurance and standard-
ized guaran tee schemes.
Types of Insurance and Standardized Guarantee Schemes
A4.68 Th e most common form of insurance is
called direct insurance, whereby the policy is issued
by an insurer to another type of institutional unit.^18
Th ere are two types of direct insurance—namely, life
and nonlife insurance. Both types of insurance in-
volve pooling risks. Insurers receive many (relatively)
(^18) Another form of insurance is provided by one insurer to an-
other insurer, which is referred to as reinsurance.
small regular payments of premiums from policy-
holders and pay much larger sums to claimants when
the contingencies covered by the policy occur. During
the interval be tween the receipt of premiums and the
payment of claims, the insurance corporation earns
income from investing the premiums received. Th is
investment income aff ects the levels of premiums and
benefi ts set by the insurer.
A4.69 Life insurance is an activity whereby a poli-
cyholder makes regular payments to an insurer, in re-
turn for which the insurer guarantees to provide the
policyholder (or in some cases another nomi nated
person) with an agreed sum, or an annuity, at a given
date or earlier if the policyholder dies before hand.
For life insurance, an important relationship exists
between premiums and benefi ts during the policy pe-
riod. For policyholders, the benefi ts receiv able are ex-
pected to be at least as great as the premi ums payable,
and this type of insurance can be seen as a form of sav-
ing. Th e insurer combines this aspect of a single pol-
icy with the actuarial calculations about the insured
population concerning life expectancy (includ ing the
risks of fatal accidents) when determining the rela-
tionship between the levels of premiums and benefi ts.
Life insurance mainly redistributes premiums payable
over a period of time as benefi ts payable later to the
policyholders or his/her benefi ciaries. Essential ly, life
insurance premiums and benefi ts are trans actions in
fi nancial assets and liabilities and not trans actions in
revenue and expense. Public sector units’ involvement
in life insurance is most oft en provided in the con-
text of social protection in the form of employ ment-
related pension schemes and other social pro tection
schemes, such as compulsory saving schemes. Th e
GFS treatment of these types of schemes is elabo rated
in Appendix 2.
A4.70 Nonlife insurance is an activity similar
to life insurance except that it covers all other risks,
acci dents, sickness, fi re, etc. For nonlife insurance,
the risks are spread over all policyholders, and the
number of claimants is typically much smaller than
the num ber of policyholders. Nonlife insurance in-
cludes poli cies that provide a benefi t in the case of
death within a given period but in no other circum-
stances, usually called term insurance. With nonlife
insurance, a claim is payable only if a specifi ed con-
tingency occurs and not otherwise. Th is type of insur-
ance consists of re distribution in the current period