Embedded Value

As an embedded value is the given by a special method value of a personal insurance portfolio. It is composed of the present value of the expected future net income from the insurance portfolio including investment income, equity and valuation reserves ( hidden reserves ) minus the cost of capital ( cost of capital ). Discounting is a deviation of the risk taken into account in the expected return rate.

Since the calculation of many assumptions depends and there are no general standards for the calculation methods used, published values ​​are difficult to compare. Lately win two related variables in importance, the European Embedded Value (EEV ) and the Market Consistent Embedded Value ( MCEV ). These take into account other relevant variables or have specific requirements on the calculation methods, in particular, require assumptions that are based on the current conditions in the financial markets.

All variants of the embedded values ​​can serve the company's control and are closely linked to shareholder value. However, Future new business is in the different variants not taken into account, so that the value of the company is to be set higher.

The long-term nature and the implicit risk of the casualty insurance business, the orientation of the capital market and the specific capital requirements by the regulatory law complicate the calculation of the current stock value. This requires assumptions about future developments in the various markets, interest rates and income and is usually due to either mean values ​​or using stochastic modeling.

The embedded value has been developed to reflect the specific features of the insurance business bill, but in particular to achieve a realistic evaluation, were not sufficiently taken into account in the conventional, usually only caution aligned in evaluating accounting. In particular, in the United Kingdom, the earlier conventional methods of accounting for internal management purposes were insufficient and were therefore supplemented by originally intended for internal use only in-house developments of the individual insurers. Therefore, also stated that the methods were never unified to determine the embedded value. More modern methods of accounting, especially market-based prospective assessments (eg fair value ) are, however, now in competition with the embedded value, which is suitable because of its design, not least because of its lack of codification, not for accounting purposes.