The Research On Ipo Pricing Method Of Life Insurance Company Based On Embedded Value

The study object of this paper is embedded value and its applications in the IPO pricing of life insurance companies. A company's Embedded Value (EV) is a measurement of the present value of expected future distributable cash flows brought by covered business after carefully considering the company's risk at valuation date. EV is composed by Adjusted Net Worth (ANW) and Value of Business In-Force (VBIF). Adding EV to the Value of New Business (VNB) at valuation date we get the Appraisal Value (AV) of the company. A company's AV can be considered as a reasonable estimate of its economic value.EV is a new thing to China insurance industry. Until now academic researchers focus mainly on theories of its concept, and the study of its use in IPO pricing of life insurance company is very few. This paper firstly introduces all feasible methods of valuing life insurance companies and appraises them separately, from which it is deduced that actuarial appraisal method based on EV is the most scientific one. Secondly the paper reviews the developing history of both international and domestic research results, analyses actuarial principles lying under EV and specifies the process of EV valuation. Thirdly, the paper reviews the reform of IPO system in china. Combined with the research reports on life insurance companies, it qualitatively analyzes the the use of embedded value in IPO pricing in life insurance company and the main factors affecting IPO pricing from both inside and outside. Lastly author attempts to construct a suitable method in IPO pricing of life insurance company based on embedded value and brings forth suggestions to improve IPO pricing of life insurance company from the IPO system and life insurance industry.In conclude, EV can be helpful in the course of issuing stocks, increasing capital, enhancing solvency margin in which evaluating EV is a crucial step. EV technique covers the whole profit period policies are in force when valuing VBIF and fully considers the long-term operation characteristic of life insurance companies, also it releases in advance part of its business profit, therefore it is a special tool of life insurance companies in terms of financial reporting and value measuring. So it is very useful in life insurance company's IPO pricing.I hope that this paper could deepen people's understanding of EV theory and its use in IPO pricing of life insurance company, and hope that it could help improve IPO pricing of life insurance company in China.