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Insurance market update special edition - MCEV

Instability in the Eurozone and thinking outside the iBoxx

uk-fs-imu-july2012

Background

The continuing dislocation in financial markets posed challenges for life companies during 2011. Over the year investments were impacted by the Sovereign debt crisis, weak equity markets, and low interest rate environment and high volatilities, all of which had a generally negative impact on companies’ results. Overall, we saw 12 out of 15 companies in our sample reporting a significant decrease in embedded value.

In addition, we also saw a fall in new business volumes of 6% (as measured by the present value of future premiums for new business) across the companies in our sample. The tough economic environment and preparation for the Retail Distribution Review (RDR) has created a number of marketing challenges for life companies and hence new business volumes.

Key findings

In this article, by comparing embedded values across the industry, we draw out some of the key themes that have emerged over the last couple of years. We also analyse the disclosures and their merits, and the relationship between embedded value and share price. Finally we discuss what the future of embedded value reporting might look like.

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Download IMU special edition – Market Consistent Embedded Value (PDF)

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