14.281. Since Japan employs an ITRS as a major data source, recording insurance services on an accrual basis has been challenging. To deal with the problem, Bank of Japan (BOJ) adjusts ITRS data in implementing a method that most closely conforms to that outlined in example 3 in MSITS 2010, box III.7. The method measures insurance services by multiplying actual premiums earned by the insurance service ratio.
14.282. The ITRS captures premiums actually paid rather than actual premiums earned that accrue to the accounting period. Thus, data are adjusted under the following assumption: BOJ assumes that insurance premiums payable cover 12 months’ risks and, as insurance premiums are generally paid at the inception of a policy, actual premiums earned are calculated by equally allocating premiums in the subsequent 12 months (figure 14.3). That adjustment is made for other direct insurance and reinsurance.
14.283. The insurance service ratio for other direct insurance and reinsurance, which is the ratio of service charges to gross premiums earned, is estimated from resident non-life insurance enterprises’ financial statements and is applied to both imports and exports. Operating and administrative expenses are regarded as costs for providing insurance services, and the service ratio is estimated by dividing aggregated operating and administrative expenses by corresponding premiums. That ratio is fixed for a year and is updated when new financial statements become available. The insurance service ratio for freight insurance is captured separately and obtained from resident insurance enterprises.
14.284. Insurance services are calculated by multiplying the service ratio by monthly actual premiums earned. Premium supplements are regarded as zero, since retained incomes for non-life insurance reserves are negligible. Claims are recorded when paid, under secondary income for normal claims and under capital transfer for high claims, when catastrophic events have occurred.
14.285. That method is likely to stabilize outputs. Compared with a simple cash-based method, which calculates premiums minus claims, the volatility of the outputs is substantially reduced. More importantly, negative figures, which are due mainly to lumped claims, are avoided.
Back to B.4. Insurance, pension and financial services
 Since freight insurance policies cover a single contract, which is usually short-term, the same adjustment is not applied to freight insurance premiums. Life insurance and pension services are excluded from the estimation of services, as cross-border life insurance and annuity contracts are negligible in Japan.
 Freight insurance premiums receivable on both exported and imported goods are obtained through a direct report from resident non-life insurance companies. The corresponding values for imported goods are also used to derive a premium ratio. Freight insurance premiums paid by a resident to a non-resident on imported goods are estimated by excluding those earned by resident insurance companies from the total value. The total value is derived by multiplying the premium ratio on imported goods by the total value of imports.