EVA/RAROC vs. MCEV Earnings: A Unification Approach

Christian Kraus
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Christian Kraus: Institute of Insurance Science, University of Ulm, Helmholtzstrasse 18, Ulm 89081, Germany. Email: christian.kraus@uni-ulm.de

The Geneva Papers on Risk and Insurance - Issues and Practice, 2013, vol. 38, issue 1, 113-136

Abstract: This paper compares different performance metrics used for value-based management in life and non-life insurance business. The goal is to find a consistent basis for performance measurement at the insurance group level. This is important since management techniques used in non-life insurance, such as economic value added and risk-adjusted return on capital, are at first sight very different from those used in life insurance, that is, an analysis of market-consistent embedded value earnings, thus making management difficult at the group level. This paper aims to compare and contrast these concepts and to show that all approaches can be unified under a single consistent framework, and that all present residual cash flow concepts that can be linked under the residual income valuation theory.

Date: 2013
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