1

Issues related to military expenditures and the definition of catastrophes in the measurement

of non-life insurance

AEG AEG New York, 23 -25 April New York, 23 -25 April 20122012

2

Consumption of fixed capital on military expenditures

3

SNA 1993 and SNA 2008

SNA 1993: Expenditure on military weapons systems to be recorded as intermediate consumption

SNA 2008: Expenditure on military weapons systems to be recorded as fixed capital formation (used continuously in the production of defence services, even if their peacetime use is simply to provide deterrence)

4

Conceptual issue

How to account for losses due to the use of weapons systems during wartime and other military operations, as other changes in the volume of assets or as part of depreciation?

5

Measurement issue

What service lives and what depreciation profiles to be used in the calculation of consumption of fixed capital and capital stock?

6

BEA depreciation rates/service lives

Asset type Geometric depreciation rate

(percent)

Service life (years)

Aircraft:

Air frames 7 to 11 15 to 25

Engines 28 6

Strategic missiles N.A. (straight line) 20

Ships 6 to 7 25 to 30

Tanks and armored personnel carriers

8 20

7

Definition of catastrophes in the measurement of non-life

insurance

8

SNA 1993 and SNA 2008

SNA 1993: – Output of non-life insurance: premiums + premium

supplements (investment income attributed to policy holders) – claims

– Claims to be recorded as current transfers SNA 2008:

– Output of non-life insurance: adjusted premiums + adjusted premium supplements – adjusted claims (three approaches may be applied: expectations approach, accounting approach, cost approach)

– Exceptionally large claims due to major catastrophes may be recorded as capital transfers

9

Conceptual issue

How to delineate claims to be recorded as capital transfers from those to be recorded as income transfers?– Should a major catastrophe be defined at the national

level?– What about international consistency in the recording of

cross-border transactions?– Alternative: ask the insurance industry to provide data

on claims related to major catastrophes