## f12-covering-hybrid-insurance-and-pension-products ## Source details **Canonical URL:** [f12-covering-hybrid-insurance-and-pension-products](https://www.imf.org/-/media/files/data/statistics/bpm6/fitt/f12-covering-hybrid-insurance-and-pension-products.pdf) ## Other formats - [Markdown version](/-/media/files/data/statistics/bpm6/fitt/f12-covering-hybrid-insurance-and-pension-products.pdf.md) - [Structured JSON version](/-/media/files/data/statistics/bpm6/fitt/f12-covering-hybrid-insurance-and-pension-products.pdf.json) --- ### Background and framing - BPM6 and the 2008 SNA distinguish life insurance (and annuities) and nonlife insurance; life insurance “includes a large saving component” (BPM6, paragraph A6c.29; 2008 SNA, paragraph 17.6), while nonlife insurance pools risk and claims/net premiums (excluding reserves against outstanding claims) are recorded as transfers in the secondary income account (BPM6, paragraph A6c.11; 2008 SNA, paragraphs 6.177 and 6.192). - Term life insurance is currently included in nonlife insurance because benefits are payable only on death or incapacity within a specified period (BPM6 paragraph A6c.11; 2008 SNA paragraph 17.6). - Hybrid products mixing saving components and event-contingent payouts exist and are not clearly covered in BPM6 and the 2008 SNA. - Autonomous, employer-independent pension schemes exist in several countries (e.g., Germany and Spain) and raise questions about whether social insurance pension definitions (which emphasize employer involvement) should be amended (2008 SNA, paragraph 17.88; paragraphs 8.74–8.76; paragraph 11.107; BPM6, paragraph 5.66). ### Issue 1 — Hybrid life/nonlife insurance products: characterization and classification - Illustrative hybrid products: - Funded insurance: long-term policies with maturity payouts that may combine fire/personal accident coverage (mix of nonlife and saving elements). - Education endowment insurance: parental savings for children’s education with continuation on policyholder death; often include riders (medical/death benefits). - Health insurance with a "no claim" bonus: classified as nonlife but provides a bonus when no claim is made, resulting in a payout even if the insured event does not occur. - "Hybrid" long-term care insurance: traditional long-term care payouts plus death benefits that decrease with long-term care payments; unpaid or minimum benefits may be paid even if long-term care did not occur. - Classification rationale: - Classify as life insurance where premiums are mainly used for payouts at maturity (saving component predominates). - Health with a "no claim" bonus may be classified as nonlife where the majority of premiums are spent on claim payouts and the bonus is relatively small (a discount on premiums). - Practical considerations: - Policies that split premiums evenly between event claims and maturity payouts are unlikely and were not found in practice. - Proposed classification options (paragraph 13): - Option 1: Introduce a new category for hybrid insurance products—distinguish life insurance, nonlife insurance, and "other insurance products" that are difficult to classify. - Option 2: Keep current categories (life insurance/nonlife insurance) and allocate hybrid products to one category or the other depending on which 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 hybrids based on predominant features. ### Issue 1 — Authors’ recommendation and implementation guidance - Recommendation (paragraph 21): Authors recommend Option 2 — classify insurance products based on whether benefits are payable only if an insured event occurs or not; apply the same criteria to main product characteristics (how products are structured and how premiums are spent) to allocate hybrids to life (financial account) or nonlife (current transfers). - Service element recording (paragraph 22): Portions of premiums representing the value of insurance services should be recorded consistently across insurance products classified as life or nonlife (BPM6, paragraphs A6c.15, A6c.16, A6c.31). - Practicality (paragraph 23): Option 2 entails little change in practice because insurance products currently classified as "life insurance" have a saving component and mixed cases are likely negligible. - Rejection of Option 1 (paragraph 25): Creating a new category is not desirable due to difficulties in establishing universal allocation rules, calculating service elements for hybrids, and increased burden on compilers and respondents. - Consideration of Option 3 (paragraph 26): Option 3 could be appropriate for recording but would lose information on product types; retaining the "life insurance" label is preferable, with term life classified as nonlife. - Suggested textual clarification (paragraph 27): Add explanatory wording, for example: - "Life insurance (insurance whose financial claims arise regardless of an event occurrence)" - "Nonlife insurance (insurance whose financial claims arise only if an event occurs)" - Draft proposal summary: - Classify hybrid insurance products based on the predominant nature of the policy. - Life insurance: Insurance providing payouts (based on financial claims) regardless of whether an event occurs (Financial account). - Nonlife insurance: Insurance providing payouts (based on financial claims) only if an insured event occurs (Current transfers). - BPM6, paragraph A6c.11 and 2008 SNA, paragraph 17.6 would need to be made consistent with the suggested wording. ### Issue 2 — Employer-independent pensions provided by autonomous pension schemes or funds - Current 2008 SNA framing (paragraphs 14–16): - Social insurance schemes are described as schemes where employer or government may oblige or encourage participation and are founded on an employment relationship even if participants are self-employed or unemployed (2008 SNA, paragraphs 8.74, 8.76, 11.107). - Pension entitlements are described as claims against employers or employer-designated funds (2008 SNA, paragraph 11.107; BPM6, paragraph 5.66). - Households are treated as owning pension entitlements (AF.63); pension contributions are recorded in the secondary distribution of income account (D.613) and affect disposable income and the D.8 adjustment in the use of disposable income account. - Features of autonomous employer-independent schemes (paragraphs 15–18): - In countries such as Germany and Spain, autonomous schemes covering self-employed persons provide retirement income similarly to employer-related schemes; schemes may be mandatory for certain professionals (Germany) or voluntary but subject to similar regulations (Spain). - Key regulatory feature: accumulated funds are shielded from early withdrawals and regulated to ensure use for post-retirement income; this feature may be more critical than employer involvement in determining pension treatment. - Mandatory participation for certain groups is an important characteristic highlighted by FITT and CATT members, though government encouragement of voluntary schemes with withdrawal limits is also common (example: pan-European personal pension product regulation). - Proposed options for classification (paragraphs 20–20 Options): - Option 1: Keep narrow definition—social insurance pension schemes as employer-related only; explore alignment with international accounting standards (e.g., IPSAS 39); extend 2008 SNA Pension Table 17.10 to include a column for non-social insurance pension entitlements. - Option 2: Amend definition to include autonomous employer-independent schemes/funds if: - participation in the schemes is mandatory for certain groups, and - accumulated contributions are set aside for retirement income and are subject to regulation or supervision similar to employer-related schemes/funds. - Option 3: Amend definition to include autonomous employer-independent schemes/funds if: - accumulated contributions are set aside for retirement income and are subject to regulation or supervision similar to employer-related schemes/funds. ### Issue 2 — Authors’ recommendation and implementation guidance - Recommendation: Authors favor Option 3 — the criterion that accumulated contributions set aside for retirement income and subject to regulation is sufficient to justify recording the contribution as social contributions (which reduce disposable income). - Coverage considerations: - Coverage of employer-independent schemes may require the development of new data sources. - Restriction to schemes/funds subject to pension fund regulation and supervision should facilitate identification of relevant schemes and data providers. - Analytical position: - It is analytically not meaningful to restrict pension schemes to specific groups and mandatory membership. - The pension scheme definition should be widened to cover autonomous schemes/funds for which similar regulation exists ensuring accumulated savings provide retirement income and therefore have the same economic purpose and effects as employer-related pension schemes. - Option 2 advantage: - Option 2 has the advantage of simplicity and would amend the current SNA definition to explicitly state the conditions for recording employer-independent schemes as social insurance pension schemes. - Clarification and scope: - Proposed extension considers only autonomous pension schemes/funds, distinguishing these from annuities offered by insurance corporations. - A FITT member’s proposal to make the reference to pension regulations more explicit was implemented to help compilers base decisions on simpler elements. ### Consultation feedback and consensus indicators - Consultation responses: - The first draft generated nine comments from FITT members and four comments from CATT members. - Issue 1 feedback (hybrid insurance products): - 10 members out of 13 expressed support for Option 2. - 1 member preferred modified Option 2 (separate a hybrid product into life and nonlife components). - 1 member supported Option 3. - 1 member did not show a clear preference for Issue 1. - Some FITT and CATT members favor adding the explanatory wording noted above; consistency adjustments to BPM6, paragraph A6c.11 and 2008 SNA, paragraph 17.6 were suggested. - Issue 2 feedback (pension products): - 8 members supported Option 3. - 2 members supported Option 2. - 3 members objected to Option 3 without preferring an alternative option. - Additional comment considerations: - Mandatory participation emphasized by some members is 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 decisive for pensions. - Comments suggesting alignment with IPSAS 39 are captured in Option 1 considerations. ### Questions for discussion posed by the authors - 1) What option do you favor for the classification of hybrid insurance products (Option 1, Option 2, or Option 3)? - 2) What option do you favor for the classification of autonomous, employer-independent pension schemes (Option 1, Option 2, or Option 3)? - 3) Do you have any other comments/suggestions on the issues discussed in the GN? *Authored by the GN and reflecting comments from FITT and CATT members.* ### SECTION I: THE ISSUES ### SECTION I: THE ISSUES ### Background - The Balance of Payments and International Investment Position Manual, sixth edition (BPM6) and the System of National Accounts 2008 (2008 SNA) distinguish two primary insurance product types: life insurance (and annuities) and nonlife insurance. - 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, paragraph 17.6). - Nonlife insurance pays benefits only if an insured event occurs and is largely intended to pool risk; claims and net premiums (excluding reserves against outstanding claims) are generally recorded as transfers in the secondary income account (BPM6, paragraph A6c.11; 2008 SNA, paragraphs 6.177 and 6.192). - Term life insurance is currently included in nonlife insurance in BPM6 and the 2008 SNA because benefits are payable only on death or incapacity within a specified period (BPM6 paragraph A6c.11; 2008 SNA paragraph 17.6). - Hybrid products that mix saving components and event-contingent payouts exist in some countries and are not clearly covered in BPM6 and the 2008 SNA. - Autonomous, employer-independent pension schemes exist in several countries (e.g., Germany and Spain) and raise questions about whether social insurance pension definitions (which emphasize employer involvement) should be amended (2008 SNA, paragraph 17.88; paragraphs 8.74–8.76; paragraph 11.107; BPM6, paragraph 5.66). ### Issue 1 — Hybrid Life/Nonlife Insurance Products: characterization and classification - Examples of difficult-to-classify products (paragraph 10): - Funded insurance: long-term policies with maturity payouts that may combine fire/personal accident coverage (mix of nonlife and saving elements). - Education endowment insurance: parental savings for children’s education with continuation on policyholder death; often include riders (medical/death benefits). - Health insurance with a "no claim" bonus: classified as nonlife but provides a bonus when no claim is made, resulting in a payout even if the insured event does not occur. - "Hybrid" long-term care insurance: traditional long-term care payouts plus death benefits that decrease with long-term care payments; unpaid or minimum benefits may be paid even if long-term care did not occur. - Classification rationale (paragraph 11): - Hybrid products can be classified as life insurance if premiums are mainly used for payouts at maturity (saving component predominates). - Health with a "no claim" bonus may be classified as nonlife where the majority of premiums are spent on claim payouts and the bonus is relatively small (a discount on premiums). - Practical considerations (paragraph 12): policies that split premiums evenly between event claims and maturity payouts are unlikely and were not found in practice. ### Issue 1 — Proposed classification options (paragraph 13) - Option 1: Introduce a new category for hybrid insurance products—distinguish life insurance, nonlife insurance, and "other insurance products" that are difficult to classify. - Option 2: Keep current categories (life insurance/nonlife insurance) and allocate hybrid products to one category or the other depending on which 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 hybrids based on predominant features. ### Issue 2 — Employer-Independent Pensions Provided by Autonomous Pension Schemes or Funds: characterization and recording - Current 2008 SNA framing (paragraphs 14–16): - Social insurance schemes are described as schemes where employer or government may oblige or encourage participation and are founded on an employment relationship even if participants are self-employed or unemployed (2008 SNA, paragraphs 8.74, 8.76, 11.107). - Pension entitlements are described as claims against employers or employer-designated funds (2008 SNA, paragraph 11.107; BPM6, paragraph 5.66). - Households are treated as owning pension entitlements (AF.63); pension contributions are recorded in the secondary distribution of income account (D.613) and affect disposable income and the D.8 adjustment in the use of disposable income account. - Features of autonomous employer-independent schemes (paragraphs 15–18): - In countries such as Germany and Spain, autonomous schemes covering self-employed persons provide retirement income similarly to employer-related schemes; schemes may be mandatory for certain professionals (Germany) or voluntary but subject to similar regulations (Spain). - Key regulatory feature: accumulated funds are shielded from early withdrawals and regulated to ensure use for post-retirement income; this feature may be more critical than employer involvement in determining pension treatment. - Mandatory participation for certain groups is an important characteristic highlighted by FITT and CATT members, though government encouragement of voluntary schemes with withdrawal limits is also common (example: pan-European personal pension product regulation). ### Issue 2 — Proposed options for classification (paragraphs 20–20 Options) - Option 1: Keep narrow definition—social insurance pension schemes as employer-related only; explore alignment with international accounting standards (e.g., IPSAS 39); extend 2008 SNA Pension Table 17.10 to include a column for non-social insurance pension entitlements. - Option 2: Amend definition to include autonomous employer-independent schemes/funds if: - participation in the schemes is mandatory for certain groups, and - accumulated contributions are set aside for retirement income and are subject to regulation or supervision similar to employer-related schemes/funds. - Option 3: Amend definition to include autonomous employer-independent schemes/funds if: - accumulated contributions are set aside for retirement income and are subject to regulation or supervision similar to employer-related schemes/funds. ### Section II — Outcomes and Recommendations (selected outcomes; paragraphs 21–27) - Recommendation for Issue 1 (paragraph 21): The authors recommend Option 2. Classify insurance products based on whether benefits are payable only if an insured event occurs or not; apply the same criteria to the main characteristics of the product (how products are structured and how premiums are spent) to allocate hybrid products to life (financial account) or nonlife (current transfers). - Service element recording (paragraph 22): In the BPM, portions of premiums representing the value of insurance services should be recorded consistently across insurance products classified as life or nonlife (BPM6, paragraphs A6c.15, A6c.16, A6c.31). - Practicality (paragraph 23): Option 2 entails little change in practice because insurance products currently classified as "life insurance" have a saving component and mixed cases are likely negligible. - Rejection of Option 1 (paragraph 25): Creating a new category is not desirable due to difficulties in establishing universal allocation rules, calculating service elements for hybrids, and increased burden on compilers and respondents. - Consideration of Option 3 (paragraph 26): While Option 3 could be appropriate for recording, it would lose information on the types of products comprising the categories; retaining the "life insurance" label is preferable, with term life classified as nonlife. - Possible textual clarification (paragraph 27): Add explanatory wording to manuals to read, for example: "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)." *Source: IMF Guidance Note — SECTION I: THE ISSUES.* ### 28. In sum, the authors of the GN propose revising the standards by adding a statement ### f12-covering-hybrid-insurance-and-pension-products ### Hybrid insurance products: classification proposal and rationale - The authors of the GN propose revising the standards by adding a statement highlighting that hybrid insurance products are classified based on the predominant nature of the policy. - Proposed categorical treatments (blue boxes denote treatments already reflected in the BPM6): - Life insurance: Insurance providing payouts (based on financial claims) regardless of whether an event occurs (Financial account) — labeled "". - Nonlife insurance: Insurance providing payouts (based on financial claims) only if an insured event occurs (Current transfers) — labeled "". - Suggested terminology changes for updated BPM6 and 2008 SNA: - "Life insurance (insurance whose financial claims arise regardless of an event occurrence)" - "Nonlife insurance (insurance whose financial claims arise only if an event occurs)" - BPM6, paragraph A6c.11 and 2008 SNA, paragraph 17.6 would need to be made consistent with the suggested wording. ### Recommendation for Issue 2: Employer-independent pension schemes - The authors of the GN favor Option 3 as the criterion that accumulated contributions that are set aside for retirement income and are subject to regulation is sufficient to justify recording the contribution as social contributions, which, similar to (e.g.) taxes, reduce disposable income. - Coverage considerations: - The coverage of employer-independent schemes may require the development of new data sources. - Restriction to schemes/funds subject to pension fund regulation and supervision should facilitate identification of relevant schemes and data providers. - Analytical position: - It is analytically not meaningful to restrict pension schemes to specific groups and mandatory membership. - The pension scheme definition should be widened to cover autonomous schemes/funds for which similar regulation exists ensuring that the accumulated savings provide retirement income, and therefore have the same economic purpose and effects as employer-related pension schemes. - Option 2 advantage: - Option 2 has the advantage of simplicity and would amend the current SNA definition to explicitly state the conditions for recording employer-independent schemes as social insurance schemes pension. ### Consultation feedback and revisions - Consultation on the first draft generated nine comments from FITT members and four comments from CATT members; reflections summarized as follows. - Issue 1 (hybrid insurance products): - 10 members out of 13 expressed support for Option 2, which the authors have recommended. - 1 member preferred modified Option 2 (separate a hybrid product into life and nonlife component). - 1 member supported Option 3. - 1 member did not show a clear preference for Issue 1. - Some FITT and CATT members favor adding the expression referred in paragraph 27. - The terms in updated BPM6 and 2008 SNA could be changed as noted above; BPM6, paragraph A6c.11 and 2008 SNA, paragraph 17.6 would need consistency adjustments. - Issue 2 (pension products): - 8 members supported Option 3, which the authors have recommended. - 2 members supported Option 2. - 3 members objected to Option 3 without preferring an alternative option. - A FITT member’s proposal to make the reference to pension regulations more explicit was implemented to help compilers base decisions on simpler elements. - Clarification: the proposed extension of the pension concept considers only autonomous pension schemes/funds, following comments regarding the distinction between annuities offered by insurance corporations. - Additional comment considerations: - 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 for 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. ### Questions for discussion (as posed by the GN authors) - 1) What option do you favor for the classification of hybrid insurance products (Option 1, Option 2, or Option 3)? - 2) What option do you favor for the classification of autonomous, employer-independent pension schemes (Option 1, Option 2, or Option 3)? - 3) Do you have any other comments/suggestions on the issues discussed in the GN? --- _Source: https://www.imf.org/-/media/files/data/statistics/bpm6/fitt/f12-covering-hybrid-insurance-and-pension-products.pdf_