## Covering hybrid insurance and pension products

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### Background
- BPM6 and the 2008 SNA discuss two primary insurance types: life insurance (and annuities) and nonlife insurance (BPM6, paragraph A6c.7; 2008 SNA, paragraph 17.6).
- Life insurance involves a stream of payments by the policyholder in return for a lump sum at the end of the policy and includes a large saving component (BPM6, paragraph A6c.29; 2008 SNA, paragraphs 6.177 and 6.192).
- Nonlife insurance pays benefits only if an insured event occurs and its objective is largely to pool risk (BPM6, paragraph A6c.11; 2008 SNA, paragraph 6.177).
- Recording implications in BPM6 and 2008 SNA:
  - Life insurance cash flows are recorded as transactions in financial assets in the financial account (policyholders’ saving component managed by insurance corporations).
  - Nonlife insurance claims and net premiums (excluding reserves against outstanding claims) are recorded as transfers in the secondary income account under current transfers.
- Term life insurance is included in nonlife insurance because benefits are payable only on death or incapacity during the term (BPM6, paragraph A6c.11; 2008 SNA, paragraph 17.6).
- Hybrid insurance products mix saving elements and event-contingent payouts and lack clear treatment in BPM6 and the 2008 SNA.
- Autonomous, employer-independent pension schemes exist in several countries (e.g., Germany and Spain) and raise classification issues because social insurance pension schemes are described as employment-related in detailed text (2008 SNA, paragraphs 8.74, 8.76, 11.107; BPM6, paragraph 5.66).

### Issue 1 — Hybrid Life/Non-Life Insurance Products: findings and classification considerations
- Examples of hybrid products difficult to classify:
  - Funded insurance: long-term policies with maturity payouts; may combine nonlife elements (fire, accident).
  - Education endowment insurance: saves for children’s education; may include riders (medical, death benefits).
  - Health insurance with a “no claim” bonus: bonus paid if no claim made; bonus may be relatively small.
  - “Hybrid” long-term care insurance: combines long-term care payouts with decreasing death benefits or minimum benefits payable even if care does not occur.
- Classification considerations and practical guidance:
  - Hybrid products can be classified by predominant characteristics (how premiums are mainly used).
  - Funded insurance, education endowment, and hybrid long-term care often classified as life insurance because premiums are mainly used for maturity payouts.
  - Health insurance with “no claim” bonus often classified as nonlife insurance because the majority of premiums fund claims and the bonus is relatively small, effectively a premium discount.
  - A hypothetical policy splitting premiums equally between claims and maturity payouts would produce unattractive small maturity payouts (example: maturity payout much smaller than total premiums paid, e.g., 60 percent), and such products were not found in practice.
- Options for statistical treatment of hybrid products:
  - Option 1: Introduce a new category for hybrid insurance products (life; nonlife; other insurance products difficult to classify).
  - Option 2: Keep current categories (life insurance/nonlife insurance) and allocate hybrid products to the category whose features are predominant.
  - Option 3: Revise terminology to “insurance with a ‘saving component’” and “insurance where premiums are ‘lost’ if events do not occur,” and allocate hybrid products by predominant feature.

### Issue 2 — Employer-Independent Pensions: findings and classification considerations
- Existing definitions and concerns:
  - 2008 SNA defines social insurance schemes as those where employer or government may oblige or encourage members to insure against certain eventualities; detailed text treats social insurance schemes as employment-related (2008 SNA, paragraphs 8.74, 8.76; paragraph 11.107; BPM6, paragraph 5.66).
  - Pension entitlements are described as claims against employers or funds designated by employers (2008 SNA, paragraph 11.107; BPM6, paragraph 5.66).
- Characteristics of autonomous employer-independent schemes:
  - In some countries (e.g., Germany, Spain) autonomous pension schemes cover self-employed persons and aim to provide retirement income similarly to employer-related pension schemes; some contributions to autonomous funds may be mandatory for specific professional groups.
  - Typical government support includes fiscal incentives and similar regulation to employer-related schemes to ensure accumulated funds are used for post-retirement income.
  - Key operational feature: regulations preventing early withdrawal and requiring funds to be set aside until retirement.
- Accounting implications if treated as social insurance pensions:
  - Affects financial accounts (households’ pension entitlements AF.63) and non-financial accounts:
    - Households’ pension contributions (D.613) treated as uses in the secondary distribution of income account and deducted from primary income in disposable income calculation.
    - Adjustment for change in pension entitlement (D.8) in the use of disposable income account.
    - Impacts household disposable income and saving measures.
- Considerations on criteria:
  - Protection of accumulated funds from early withdrawal may be more critical than employer involvement for special pension treatment.
  - Individual personal “pension” products offered by insurance corporations and other financial institutions without creating an autonomous pension fund should be excluded from social insurance.
  - Mandatory participation for certain groups is emphasized by FITT and CATT members, but governments may also encourage voluntary regulated schemes with withdrawal limits (example: pan-European personal pension product).
  - Redistribution is not adopted as a necessary criterion because defined contribution schemes may lack redistribution.
- Options for statistical treatment of employer-independent pensions:
  - Option 1: Keep the narrow definition (employer-related only) and explore alignment with international accounting standards (e.g., IPSAS 39). 2008 SNA Pension Table 17.10 may be extended with a column for non-social insurance pension entitlements. Advantage: non-financial accounts unaffected.
  - Option 2: Amend definition to include autonomous, employer-independent schemes or funds if:
    - participation is mandatory for certain groups, and
    - accumulated contributions are set aside for retirement income and subject to regulation or supervision similar to employer-related pension schemes/funds.
  - Option 3: Amend definition to include autonomous, employer-independent schemes or funds if:
    - accumulated contributions are set aside for retirement income and subject to regulation or supervision similar to employer-related pension schemes/funds.

### Outcomes — Recommendation for Issue 1 (Hybrid insurance)
- Authors’ recommendation:
  - The Guidance Note authors recommend Option 2: retain life insurance/nonlife insurance categories and classify hybrid products by applying existing criteria based on whether benefits are payable only if an insured event occurs or not.
- Supporting points:
  - BPM6 and the 2008 SNA classification hinge on whether benefits arise only if an event occurs.
  - Service elements (portion of premiums representing insurance services) should be recorded consistently for products classified as life or nonlife (BPM6, paragraphs A6c.15, A6c.16, A6c.31).
  - Little practical change expected since most insurance products currently classified as life have a saving component; cases combining saving with other insurances are likely negligible.
- Rejected alternatives:
  - Option 1 (new category) rejected due to difficulty in establishing universal allocation rules, complexity in calculating service elements, and additional burden on compilers and respondents.
  - Option 3 rejected because it would lose clarity about category composition; retaining the label “life insurance” is preferable and term life insurance remains classified as nonlife insurance.

### Recommendation for Issue 2 (Employer-independent pension schemes)
- Authors’ preferred criterion: Option 3 — "the accumulated contributions that are set aside for retirement income and are subject to regulation is considered as sufficient to justify the recording of the contribution as social contributions, which, similar to (e.g.) taxes, reduce disposable income."
- Practical considerations:
  - Coverage of employer-independent schemes may require development of new data sources.
  - Restricting to autonomous schemes/funds subject to pension fund regulation and supervision should facilitate identification of relevant schemes and data providers.
- Analytical position and preferred scope:
  - It is analytically not meaningful to restrict pension schemes to specific groups and mandatory membership alone.
  - The pension scheme definition should be widened to cover autonomous schemes/funds for which similar regulation exists ensuring that accumulated savings provide retirement income, and therefore have the same economic purpose and effects as employer-related pension schemes.
  - Clarification adopted: the proposed extension of the pension concept considers only autonomous pension schemes/funds.
- Counterpoint:
  - Option 2’s advantage is simplicity and would amend the current SNA definition to explicitly state conditions for recording employer-independent schemes as social insurance pensions.
- Implementation note:
  - The proposal to restrict to autonomous schemes/funds subject to pension regulation was highlighted to assist compilers in identifying schemes and data providers.

### Consultation feedback and Committee/AEG outcomes
- Consultation response counts:
  - Consultation on the first draft of the Guidance Note generated nine comments from FITT members and four comments from CATT members.
- Feedback on Issue 1 (hybrid insurance):
  - 10 members out of 13 expressed support for Option 2.
  - One member preferred a modified Option 2 (separate a hybrid product into life and nonlife component).
  - One member supported Option 3.
  - One member did not show a clear preference.
  - Some FITT and CATT members favored adding the expression referred in paragraph 27.
  - The proposal to make the reference to pension regulations more explicit was implemented to help compilers base decisions on simpler elements.
  - Amendments aligned the common criterion of Options 2 and 3 with comments received.
  - Clarification added distinguishing annuities offered by insurance corporations; the proposed extension considers only autonomous pension schemes/funds.
- Feedback on Issue 2 (pension products):
  - Eight members supported Option 3.
  - Two members supported Option 2.
  - Three members objected to Option 3 without preferring an alternative.
- Other feedback topics:
  - Mandatory participation emphasized as important and reflected in Option 2.
  - Social redistribution considered but not decisive for pensions.
  - Suggestions to align SNA pension definition with IPSAS 39 were considered and captured in Option 1.
- Outcomes of Joint Committee and AEG meeting:
  - Most members of the IMF Committee on Balance of Payments Statistics and the Advisory Expert Group on National Accounts (AEG) expressed strong support for the recommended options (Option 2 for Hybrid Insurance Products and Option 3 for Employer-Independent Pensions).
  - Additional suggestions incorporated:
    - Highlight that hybrid insurance products usually have a predominant benefit and purpose, with other features as value-added benefits.
    - Provide additional explanations on:
      - (i) the nature of the insurance as recommended in paragraph 27: "life insurance (insurance with a saving component)" and "nonlife insurance (insurance without a saving component)"
      - (ii) term life insurance classified in nonlife insurance and those nonlife insurances recorded in life insurance.
    - For employer-independent pensions, provide clarification on coverage with clear identification of exclusions and inclusions.
  - This version of the Guidance Note incorporates those suggestions.

*Source: Guidance Note (GN) approved by the Committee and the AEG in October 2021, International Monetary Fund (IMF).*

### SECTION I: THE ISSUES

### SECTION I: THE ISSUES

### BACKGROUND
- BPM6 and the 2008 SNA discuss two primary insurance types: life insurance (and annuities) and nonlife insurance (BPM6, paragraph A6c.7; 2008 SNA, paragraph 17.6).
- Life insurance: involves a stream of payments by the policyholder in return for a lump sum at the end of the policy and includes a large saving component (BPM6, paragraph A6c.29; 2008 SNA, paragraphs 6.177 and 6.192).
- Nonlife insurance: pays benefits only if an insured event occurs and its objective is largely to pool risk (BPM6, paragraph A6c.11; 2008 SNA, paragraph 6.177).
- Recording implications in BPM6 and 2008 SNA:
  - Life insurance cash flows are recorded as transactions in financial assets in the financial account (policyholders’ saving component managed by insurance corporations).
  - Nonlife insurance claims and net premiums (excluding reserves against outstanding claims) are recorded as transfers in the secondary income account under current transfers.
- Term life insurance is currently included in nonlife insurance because benefits are payable only on death or incapacity during the term (BPM6, paragraph A6c.11; 2008 SNA, paragraph 17.6).
- Hybrid insurance products—mixing saving elements and event-contingent payouts—exist in some countries but lack clear treatment in BPM6 and the 2008 SNA.
- Autonomous, employer-independent pension schemes exist in several countries (e.g., Germany and Spain) and raise classification issues because social insurance pension schemes are described as employment-related in detailed text (2008 SNA, paragraphs 8.74, 8.76, 11.107; BPM6, paragraph 5.66).

### ISSUES FOR DISCUSSION — Issue 1: Hybrid Life/Non-Life Insurance Products
- Examples of hybrid products that are difficult to classify:
  - Funded insurance: long-term policies with maturity payouts; may combine nonlife elements (fire, accident).
  - Education endowment insurance: saves for children’s education; may include riders (medical, death benefits).
  - Health insurance with a “no claim” bonus: bonus paid if no claim made; bonus may be relatively small.
  - “Hybrid” long-term care insurance: combines long-term care payouts with decreasing death benefits or minimum benefits payable even if care does not occur.
- Classification considerations:
  - Hybrid products can be classified by predominant characteristics (how premiums are mainly used).
  - Funded insurance, education endowment, and hybrid long-term care often classified as life insurance because premiums are mainly used for maturity payouts.
  - Health insurance with “no claim” bonus often classified as nonlife insurance because the majority of premiums fund claims and the bonus is relatively small, effectively a premium discount.
- Practical observation:
  - A hypothetical policy splitting premiums equally between claims and maturity payouts would result in unattractive small maturity payouts (example: maturity payout much smaller than total premiums paid, e.g., 60 percent), and such products were not found in practice.

- Options for statistical treatment of hybrid products:
  - Option 1: Introduce a new category for hybrid insurance products (life; nonlife; other insurance products difficult to classify).
  - Option 2: Keep current categories (life insurance/nonlife insurance) and allocate hybrid products to the category whose features are predominant.
  - Option 3: Revise terminology to “insurance with a ‘saving component’” and “insurance where premiums are ‘lost’ if events do not occur,” and allocate hybrid products by predominant feature.

### ISSUES FOR DISCUSSION — Issue 2: Employer-Independent Pensions Provided by Autonomous Pension Schemes or Funds
- Existing definitions and concerns:
  - 2008 SNA defines social insurance schemes as those where employer or government may oblige or encourage members to insure against certain eventualities; detailed text treats social insurance schemes as employment-related (2008 SNA, paragraphs 8.74, 8.76; paragraph 11.107; BPM6, paragraph 5.66).
  - Pension entitlements are described as claims against employers or funds designated by employers (2008 SNA, paragraph 11.107; BPM6, paragraph 5.66).
- Characteristics of autonomous employer-independent schemes:
  - In some countries (e.g., Germany, Spain) autonomous pension schemes cover self-employed persons and aim to provide retirement income similarly to employer-related pension schemes; some contributions to autonomous funds may be mandatory for specific professional groups.
  - Typical government support: fiscal incentives; similar regulation to employer-related schemes to ensure accumulated funds are used for post-retirement income.
  - Key operational feature: regulations preventing early withdrawal and requiring funds to be set aside until retirement.
- Accounting implications if treated as social insurance pensions:
  - Affects financial accounts (households’ pension entitlements AF.63) and non-financial accounts:
    - Households’ pension contributions (D.613) treated as uses in the secondary distribution of income account and deducted from primary income in disposable income calculation.
    - Adjustment for change in pension entitlement (D.8) in the use of disposable income account.
    - Impacts household disposable income and saving measures.
- Considerations on criteria:
  - The protection of accumulated funds from early withdrawal may be more critical than employer involvement for special pension treatment.
  - Individual personal “pension” products offered by insurance corporations and other financial institutions without creating an autonomous pension fund should be excluded from social insurance.
  - Mandatory participation for certain groups is emphasized by FITT and CATT members, but governments may also encourage voluntary regulated schemes with withdrawal limits (example: pan-European personal pension product).
  - Redistribution is not adopted as a necessary criterion because defined contribution schemes may lack redistribution.

- Options for statistical treatment of employer-independent pensions:
  - Option 1: Keep the narrow definition (employer-related only) and explore alignment with international accounting standards (e.g., IPSAS 39). 2008 SNA Pension Table 17.10 may be extended with a column for non-social insurance pension entitlements. Advantage: non-financial accounts unaffected.
  - Option 2: Amend definition to include autonomous, employer-independent schemes or funds if:
    - participation is mandatory for certain groups, and
    - accumulated contributions are set aside for retirement income and subject to regulation or supervision similar to employer-related pension schemes/funds.
  - Option 3: Amend definition to include autonomous, employer-independent schemes or funds if:
    - accumulated contributions are set aside for retirement income and subject to regulation or supervision similar to employer-related pension schemes/funds.

### SECTION II: OUTCOMES — Recommendation for Issue 1: Hybrid Life/Non-Life Insurance Products
- Authors’ recommendation:
  - The Guidance Note authors recommend Option 2: retain life insurance/nonlife insurance categories and classify hybrid products by applying existing criteria based on whether benefits are payable only if an insured event occurs or not.
- Supporting points:
  - The BPM6 and 2008 SNA classification hinge on whether benefits arise only if an event occurs.
  - Service elements (portion of premiums representing insurance services) should be recorded consistently for products classified as life or nonlife (BPM6, paragraphs A6c.15, A6c.16, A6c.31).
  - Little practical change expected since most insurance products currently classified as life have a saving component; cases combining saving with other insurances are likely negligible.
- Rejected alternatives:
  - Option 1 (new category) is not desirable due to difficulty in establishing universal allocation rules, complexity in calculating service elements, and additional burden on compilers and respondents.
  - Option 3 would lose clarity about the composition of categories; retaining the label “life insurance” is preferable and term life insurance remains classified as nonlife insurance.

*Source: Guidance Note (GN) approved by the Committee and the AEG in October 2021, International Monetary Fund (IMF).*

### 27.      However, based on the considerations above, one option could be adding an explanation

### Covering hybrid insurance and pension products

### Classification of hybrid insurance products
- Proposed change to category labels to clarify classification by nature: "Life insurance (insurance whose financial claims arise regardless of an event occurrence)" and "Nonlife insurance (insurance whose financial claims arise only if an event occurs)."
- Rationale:
  - "Life insurance includes a policy holders’ saving component. In other words, for life insurance, financial claims arise regardless of an event’s occurrence."
  - "In the case of nonlife insurance, benefits are paid only if an insured event occurs."
  - Term life insurance is regarded as nonlife insurance because it "provides a benefit in the case of death within a given period but in no other circumstances."
  - Fire insurance that assures a payout by the insurer at maturity is regarded as life insurance despite its product name.
- Proposed guidance: "Revising the standards by adding a statement highlighting that hybrid insurance products are classified based on the predominant nature of the policy."
- Suggested text consistency requirement: "BPM6, paragraph A6c.11 and 2008 SNA, paragraph 17.6 would need to be made consistent."
- Note on treatments: The document denotes treatments already reflected in the BPM6 with blue boxes (visual cue described in source).

### Recommendation for Issue 2: Employer-Independent Pension Schemes
- Authors’ preferred criterion: Option 3 — "the accumulated contributions that are set aside for retirement income and are subject to regulation is considered as sufficient to justify the recording of the contribution as social contributions, which, similar to (e.g.) taxes, reduce disposable income."
- Practical considerations:
  - "The coverage of employer-independent schemes may require the development of new data sources."
  - The restriction to "autonomous schemes/funds which are subject to pension fund regulation and supervision should facilitate the identification of the relevant schemes and data providers."
- Counterpoint: Option 2 advantage — "simplicity and would amend the current SNA definition to explicitly state the conditions for the recording of employer-independent schemes as social insurance schemes pension."
- Analytical position: "It seems analytically not meaningful to restrict pension schemes in such a way (specific groups and mandatory membership)."
- Preferred scope: "The pension scheme definition should also be widened to cover autonomous schemes/funds for which similar regulation exist ensuring that the accumulated savings provide retirement income, and therefore having the same economic purpose and effects as employer-related pension schemes."
- Clarification adopted: proposed extension of the pension concept considers "only autonomous pension schemes/funds."

### Consultation feedback (FITT and CATT) and revisions
- Responses to first draft:
  - "Consultation on the first draft of this GN generated nine comments from FITT members and four comments from CATT members."
- Issue 1 (hybrid insurance products) feedback:
  - "10 members out of 13 expressed support for Option 2, which the authors have recommended."
  - "One member expressed preference for modified Option 2―separate a hybrid product into life and nonlife component—and another member supported Option 3."
  - "The other member seemed to agree with the suggestion in the GN, not showing clear preference for Issue 1."
  - "Some FITT and CATT members are in favor of adding the expression as referred in paragraph 27."
  - Implemented change: "The proposal of a FITT member to make the reference to pension regulations more explicit, was implemented following the argument that this would help compilers to base their decisions on simpler elements, rather than exploring the financial aspects of the insurance supply."
  - Amendments: "The common criterion of Options 2 and 3 were thus amended and aligned with the general direction of comments received."
  - Clarification added following comments: distinction between annuities offered by insurance corporations clarified; "it is now clarified that the proposed extension of the pension concept considers only autonomous pension schemes/funds."
- Issue 2 (pension products) feedback:
  - "Eight members supported Option 3, which the authors have recommended."
  - "Two members supported Option 2, and the other 3 members made objection to Option 3 without preferring an alternative option."
- Other comment topics:
  - Comments emphasizing "mandatory participation as an important characteristic of pension schemes" are considered in Section 2 (paragraph 18) and reflected in Option 2.
  - "The social redistribution aspect of social insurance is considered in Section 2 (paragraph 19), but not found to be decisive in the case of pensions."
  - Comments suggesting alignment of the pension definition of the SNA with IPSAS 39 are considered in Section 2 (paragraph 20) and captured in Option 1.

### Outcomes of Joint Committee and AEG meeting
- General support: "Most members of the IMF Committee on Balance of Payments Statistics and the Advisory Expert Group on National Accounts (AEG) expressed strong support for the recommended options for both the issues discussed in the GN (i.e., Option 2 for Hybrid Insurance Products and Option 3 for Employer-Independent Pensions)."
- Additional suggestions incorporated:
  - Highlight that "in the case of hybrid insurance products, there is usually a predominant benefit and purpose for which the policy is intended, and other features are just value-added benefits to make the policy more appealing to the customers."
  - Provide additional explanations on:
    - "(i) the nature of the insurance as recommended in paragraph 27 'life insurance (insurance with a saving component)' and 'nonlife insurance (insurance without a saving component)'"
    - "(ii) term life insurance classified in nonlife insurance and those nonlife insurances recorded in life insurance."
  - For employer-independent pensions, provide "clarification be provided on the coverage with clear identification of exclusions and inclusions."
- Incorporation: "This version of the GN incorporates all those suggestions."

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_Source: https://www.imf.org/-/media/files/data/statistics/bpm6/approved-guidance-notes/f12-covering-hybrid-insurance-and-pension-products.pdf_