Valuation Of Life Insurance Companies
1 5although there is no single universally accepted method of valuing life insurance companies techniques developed using embedded value or appraisal value methodologies are very common in european and asian countries.
Valuation of life insurance companies. Universal life variable life guaranteed no lapse universal life and level term insurance just to name a few that make it difficult to apply traditional itr valuation principles to value these policies. In addition this article will touch on ways to mitigate risk attributable to interest rate fluctuations as well as the current and expected interest rate environment as it relates to life insurance company valuations. To facilitate an informed use of insurers financial reports this manuscript reviews the accounting practices of insurance companies discusses the financial analysis and valuation of insurers summarizes relevant insights from academic research and provides related empirical evidence. You ll come out of this course understanding the valuation of life contingent claims.
Of particular importance in applying the mve bv multiple in the valuation of life insurance companies is the first component of aoci. 1 4with this background the issue of valuation of life insurance companies assumes increasing importance. As previously noted a portion of a life insurance company s economic income is realized through the gain or loss of invested premiums. A valuation example below is an example to give a clearer picture of the above valuation discussion.
While the new generation of insurance products carries a reserve value the terminal reserve value at the end of the policy year is not. Traditionally life assurance companies have reported financial results to shareholders on the basis of the statutory requirements of the insurance companies legislation. Life annuities which provide an income upon survival and life insurance. So the most common measure of a life insurance company s financial year was the statutory earnings from operation.
And this has been the case for life insurance companies in india so far. However valuation of life insurance companies using discounted cash flow is difficult as the timing of the cash flows are uncertain due to the long term nature of the contracts. The paper contains three sections. This article will discuss the relationship between interest rate risk and the valuation of life insurance companies.
This has been a convenient measure since it also.
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