2011 embedded value results generating value

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By Emma McWilliam, Richard See Toh, Philip Simpson, Stuart Reynolds | 31 May 2012

This publication examines results and trends among European companies reporting Embedded Values through 2011, with a particular emphasis on issues that have emerged in the course of the financial crisis. The report compares practices followed by major European companies, and discusses embedded value reporting issues in the broader context of Solvency II and International Financial Reporting Standards. It also covers a range of current hot topics that companies may wish to consider when developing and enhancing their embedded value approaches in the future. These include:

  • Determining the risk discount rate.
  • Calculating the cost of capital.
  • Assessing the cost of residual non-hedgeable risks.
  • Evaluating the time value of options and guarantees.
  • Disclosures in embedded value reporting.
  • Other measures of value (market capitalization, International Financial Reporting Standards, and Solvency II).

This paper also provides a high-level overview of some of the key components of an embedded value calculation.