Abstract

Valuation Methods of a Life Insurance Company

Darbellay, P.A.

Partnerre

An insurance company has a value just as its contracts do. The efficiency of a company or of a Profit Centre is measurable and the profitability of an insurance product can be quantified. By using precise criteria it is possible to assess both the company and its products, and to take appropriate decisions. Methods exist that satisfy this classic need to evaluate. In the first part of this paper we will examine the methods like Profit Testing, Embedded Value, Value Added and Total Rate of Return in the context of an endowment insurance product. Then, continuing with the same example, we will present a critical approach of these methods. We will see that these methods are not always easy to understand and that sometimes the Value Added and the Total Rate of Return are not able to show directly the profitability. Finally, in the last part of this article, we will do a sensitivity analysis in order to determine the most influential parameters. This study is done with the examples of an endowment, a term insurance and an annuity.