This report deals with the embedded value of Nedgroup Life Assurance Company Limited and the value of new business written during the financial year.
The embedded value of the life business is the discounted present value of the projected stream of future after-tax shareholder profits from business in-force at the valuation date, as well as the shareholders’ net assets. Shareholders’ net assets are the excess of the assets of the life business, less current liabilities, over the actuarial value of policy liabilities, as determined using the statutory valuation method adjusted to add back inadmissible assets.1
|1||A life insurance company can only take into account a specified maximum amount of certain assets for the purpose of demonstrating statutory solvency. The maximum amount is in terms of percentages of the value of non-linked liabilities. The assets to which a value can be allocated are defined as admissible assets. Assets that are not admissible are called inadmissible.|
The development of the embedded value can be analysed as follows:
|Shareholders net assets||205|
|Cost of solvency capital||(45)|
|Value of business in-force||635|
|Total embedded value||795|
This is a measure of the value added to a company as a result of writing new business. This is calculated as the discounted value, at the date of sale, of projected after-tax shareholder profit from new business written during the 12-month period – net of the opportunity cost of the solvency capital requirements for new business.
|Value of new business||187|
|New business sales (APE)2||562|
|2||Annualised premium equivalent (APE) is a method that life insurance companies use to quantify sales.|
The shareholders’ net assets of R205 million represent the excess of assets over liabilities, with assets at market value and liabilities on the statutory-soundness valuation method adjusted to add back the inadmissible assets. The company did not have any inadmissible assets at the reporting date.
The embedded value of new business acquired in 2009 was R187 million. The biggest driver of this value was the strong credit life sales that came through in the latter part of 2009, when the economy displayed a positive shift and interest rates were substantially reduced.
The embedded value and value of new business were determined using the same ‘best estimate’ assumptions regarding future mortality, discontinuance rate and expenses used in the financial-soundness valuation.
The embedded value of Nedgroup Life Assurance Company Limited and the value of new business written during the year have been reviewed and agreed by the independent consulting actuaries, QED Consulting Actuaries.