Background
The 2012 Embedded Value Results Overview analyses the results of 18 major European insurers.
In this paper, we compare the Embedded Value methodologies and assumptions used by the industry to highlight differences in approaches used by the companies in our sample and to explain the impact on Embedded Value results. We draw out the key themes that have emerged over the course of 2012, including the impact of regulation, and look at the relationship between Embedded Value and the life insurance market's overall performance.
Key findings
Over the year there was an 11% increase in aggregate Embedded Value to £195bn for the companies in our sample, fully recovering the value lost in the prior year. Drivers of growth included positive movements in financial markets and, interestingly, some very significant increases from methodology changes. The value of new business rose marginally over the year compared to 2011 with volumes unchanged, reflecting improving margins in certain product lines and markets, with UK new business value posting an impressive 14% growth. It is no surprise that regulatory change played a major part in the 2012 story, and we draw out the way that some companies were able to take advantage of these changes to improve their competitive position. Our analysis of Embedded Value versus market capitalisation shows that the discount to Embedded Value fell to its lowest level for some time, perhaps reflecting improved investor sentiment.
There is still more to do to improve the usefulness of Embedded Value as a reporting metric, but with lower economic variances and better perception of the companies by investors it is still adding value.
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