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Current Developments in Embedded Value Reporting

Published online by Cambridge University Press:  10 June 2011

P. J. L. O'Keeffe ,
A. J. Desai ,
K. Foroughi ,
G. J. Hibbett ,
A. F. Maxwell ,
A. C. Sharp ,
N. H. Taverner ,
M. B. Ward  and
F. J. P. Willis
P. J. L. O'Keeffe
Affiliation:
c/o U.K. Actuarial Profession, Staple Inn Hall, High Holborn, London WC1V 7QJ, U.K.
A. J. Desai
Affiliation:
Deloitte, Horizon House, 28 Upper High Street, Epsom, Surrey KT17 4RS, U.K., Tel: +44(0)17372 824 129, Email: [email protected]
K. Foroughi
Affiliation:
Tillinghast-Towers Perrin, 71 High Holborn, London WC1V 6TH, U.K., Tel: +44(0)20 7170 2743, Email: [email protected]
G. J. Hibbett
Affiliation:
Yield Services Limited, 363 Avenue de Tervuren, 1150 Brussels, Belgium., Tel: +32 2771 6997, Email: [email protected]
A. F. Maxwell
Affiliation:
c/o U.K. Actuarial Profession, Maclaurin House, 18 Dublin Street, Edinburgh EH1 3PP, U.K.
A. C. Sharp
Affiliation:
Scottish Widows, 69 Morrison Street, Edinburgh EH3 8YF, U.K., Tel: +44(0)131 655 7365, Email: [email protected]
N. H. Taverner
Affiliation:
Watson Wyatt, Watson House, London Road, Reigate, Surrey RH2 9PQ, U.K., Tel: +44(0)1737 274639, Email: [email protected]
M. B. Ward
Affiliation:
Eureko Achmea Holding, 2-8 Molenwerf, 1014 AG Amsterdam, Netherlands., Tel: +31 20 607 2921, Email: [email protected]
F. J. P. Willis
Affiliation:
Ernst & Young, 1 More London Place, London SE1 2AF, U.K., Tel: +44(0)20 7951 9738, Email: [email protected]
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Abstract

This paper reviews the developments in reporting of traditional embedded value and summarises some of the reasons why this is now undergoing change. It considers the purpose of an embedded value calculation and the effect of differing attitudes to risk. It comments on the recently developed European Embedded Value Principles and sets out the main areas where scope remains to apply judgement.

The paper proposes the market-consistent embedded value framework as a way forward to help provide guidance in some of these areas, in particular on the choice of discount rate and on calibration of stochastic techniques used to value embedded options and guarantees. The paper recognises that market-consistent embedded values are in relative infancy and sets out areas for possible future development.

Keywords

Life AssuranceEmbedded ValueProfit ReportingCategories of RiskDiscount RateOptions and GuaranteesEuropean Embedded ValueCFO ForumMarket Consistent Embedded ValueMarket Consistent Valuation
Type
Sessional meetings: papers and abstracts of discussions
Information
British Actuarial Journal , Volume 11 , Issue 3 , 01 August 2005 , pp. 407 - 479
Copyright
Copyright © Institute and Faculty of Actuaries 2005

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