Embedded Value

Massimiliano Maggioni and Giuseppe Turchetti
Additional contact information
Massimiliano Maggioni: University of Milano
Giuseppe Turchetti: Sant’Anna School of Advanced Studies

Chapter 32 in Fundamentals of the Insurance Business, 2024, pp 689-717 from Springer

Abstract: Abstract The aim of this chapter is to explain the Embedded Value (EV) method. The related components: Appraisal Value (AV) and Net Asset Value (NAV) are described. The transition versus a new method, European Embedded Value (EEV), is illustrated. The essential difference as compared to the traditional calculation of Embedded Value lies in the calculation of the VIF, which is adjusted through the value of the options and guarantees that are implicit in the portfolio. Then, the more sophisticated method, Market Consistent Embedded Value (MCEV) is represented. In the paragraphs following, to make easier the comprehension, a numerical example is provided. Starting from three hypothetical insurance undertakings, A comparison between TEV, EV and MCEV is performed. The example shows three different impacts on the capital requirement. In the following paragraphs, the chapter introduces the concept of New Business Value (NBV) and of Annual Premium Equivalents (APE). An indicator for Embedded Value (ROEV) is illustrated. At the end of the chapter, the model for determining Goodwill is explained.

Keywords: Embedded Value; Goodwill; Appraisal Value (AV); Net Asset Value (NAV); Adjusted Net Asset Value (ANAV); Deferred Acquisition Cost (DAC); Deferred Income Reserve (DIR); Value in Force (VIF); Future industrial profits; Present Value of Future Profits (PVFP); Operating expenses; Expenses overrun; Risk Appetite Framework (RAF); EV Movement; Embedded Value Earnings (EVE); Traditional Embedded Value (TEV); Cost of Capital (CoC); Risk Discount Rate (RDR); European Embedded Value (EEV); Time Values of the Options and Guarantees (TVOG); Market Consistent; Real world; Best Estimate (BE); Cost of Residual Non-Hedgeable Risks (CRNHR); Frictional Cost of required capital (FCoC); Last Liquid Point (LLP); Implied Discount Rate (IDR); Own Funds (OF); New Business Value (NBV or VNB); Best Estimates Liabilities (BEL); Return On Embedded Value (ROEV); Annual Premium Equivalents (APE) (search for similar items in EconPapers)
Date: 2024
References: Add references at CitEc
Citations:

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:spr:sptchp:978-3-319-52851-9_32

Ordering information: This item can be ordered from
http://www.springer.com/9783319528519

DOI: 10.1007/978-3-319-52851-9_32

Access Statistics for this chapter

More chapters in Springer Texts in Business and Economics from Springer
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().