The Study Of Embedded Value Of Life Insurance Companies

This paper discusses the embedded value of life insurance companies. Embedded Value (EV) is a measure of the consolidated value of shareholders' interests in the covered business after carefully considering the risk factors. It is composed by in-force business value and Net Adjusted Value. The international insurance industry has long used this kind of method into every aspect of corporation management and decision making. The Chinese insurance industry has just imported this method into insurance industry and mainly used in IPO of insurance companies. It is hard to get any paper or thesis that discusses embedded value together with corporate value-based management. At this very stage that Chinese insurance market has already opened to the world completely, we Chinese insurance companies have to compete with international giant insurance companies, to improve the ability of daily management, to switch from market-share running principle to value-based management and improvement. In this very aspect, embedded value can help a lot! So, this paper reviews the developing history of international and national research results, disclosures the actuarial principles that lies behind embedded value, explains the specific steps in the calculation of embedded value and discusses the shortcomings of traditional embedded value evaluation method. Then, further comment is given out on the application of embedded value in the management process of marketing based on analyzing the shortcomings of rules that are set by CIRC and the calculation of a traditional participating endowment insurance. I hope that this paper will deepen the understanding of embedded value theory and provide some clues when pushing EV into management of value improvement.