2
1. INTRODUCTION..................................................................................................... 3
2. DEFINITION OF EMBEDDED VALUE............................................................... 4
3. FORMULAS.............................................................................................................. 5
3.1 AFTER-TAX PROFITS ON IN-FORCE........................................................................ 6
3.2 RELEASE OF MARGINS.......................................................................................... 7
3.3 ASSETS ................................................................................................................ 8
3.4 COST OF LOCKED-IN CAPITAL............................................................................... 9
3.5 E
MBEDDED VALUE CALCULATION...................................................................... 10
3.5.1 Profits to shareholders method................................................................. 10
3.5.2 Cost of capital method.............................................................................. 11
3.5.3 Profits to shareholders method equals cost of capital method................. 12
4. ASSUMPTIONS...................................................................................................... 14
4.1 E
CONOMIC ASSUMPTIONS .................................................................................. 15
4.2 NON-ECONOMIC ASSUMPTIONS.......................................................................... 16
4.3 REFLECTING THE RISK IN THE EMBEDDED VALUE CALCULATION ....................... 17
5. EMBEDDED VALUE RECONCILIATION FROM ONE PERIOD TO
ANOTHER ...................................................................................................................... 18
5.1 NORMAL INCREASE IN EMBEDDED VALUE.......................................................... 19
5.2 VALUE ADDED BY NEW SALES............................................................................ 20
5.3 DIVIDEND PAID .................................................................................................. 21
5.4 UNEXPECTED CHANGE IN EMBEDDED VALUE ..................................................... 21
6. EMBEDDED VALUE VS STOCK PRICE.......................................................... 22
7. OTHER USE OF THE EMBEDDED VALUE AND ITS METHODOLOGY. 23
7.1 C
OMPENSATION TIED TO EMBEDDED VALUE ...................................................... 23
7.2 ACTUARIAL APPRAISAL...................................................................................... 24
7.3 G
OODWILL......................................................................................................... 24
8. CONCLUSION ....................................................................................................... 25
9. BIBLIOGRAPHY.......................................................................................................