Take the value of insurance company's new business in one year and embedded value as examples;
Simple hypothetical model: A dividend-paying life insurance product with an annual dividend interest rate of 4%, assuming an annual return on investment of 6% and a discount rate of 10%. At the same time, the policy period is ten years.
This is the simplest model, assuming that an applicant buys this product at a price of 6,543.8+10,000 yuan, then this policy can get a spread of 654.38+ 0.02 after 654.38+00 years (6% investment income and 4% dividend of the applicant in that year). In other words, the original 1 00000 yuan premium has now become1,2 1, 899 yuan. Because there is no additional compensation (agreed compensation, such as death, etc.) ), 654.38 million yuan will be returned to the insured, and the remaining 2 1.899 yuan will be returned to the insurance company. But this is the money after 10 years, and it must be discounted until today to calculate today's value. Discounted according to the hypothetical 10% (insurance companies usually discount according to 1 1%, in order to simplify the calculation), and get 8475.7 yuan. For insurance companies, this is the value of this policy. If this policy is sold at 20 1 1, we are used to calling it new business value. If all the insurance policies in the past year on the calculation date are calculated and added up, it is the familiar new business value of that year.
Of course, we should say that the model we assume is the simplest model, because we must know that as far as an insurance policy is concerned, it also has a certain guarantee function. For example, if the insured customer dies and must pay according to the payment conditions, then this policy must be a loss sheet. However, in actuarial science, we don't need to worry about knowing the age, sex and mortality of insurance companies in the past 30 years. At the beginning of insurance product design, as long as there are enough odd products sold, it is bound to make money in general.
In the first year of sales of the above products (20 1 1), the calculated value of new business was 8475.7 yuan. However, if the return on investment of the insurance company is 20 1 1 and reaches 7%, the effective business value of the modified product will become10000000× (1.07-1.03)+(1. We will calculate the details again. What needs to be explained here is why the 4,000 yuan spread realized in the first year cannot be included in the profit, because the policy has not expired and cannot be recognized as a profit. The profit can only be calculated when the policy expires, which is also an important reason why insurance companies can't evaluate by net profit.
At the same time, it should be noted that I introduced a new term in the above paragraph, that is, effective business value. Why is this time called effective business value? Because by 20 12, this policy is no longer a new business, so there is a new term called effective business value.
Well, then we can talk about embedded value.
Embedded value = adjusted net assets+effective business value.
It can already be seen that the new commercial value has become effective commercial value year after year. Effective business = existing effective business value+new business value for one year. And why do you want to adjust the above net assets? I believe everyone must be clear. This is the shadow accounting treatment. Shadows vary with the direction of the sun, and the net assets of insurance companies fluctuate due to changes in stock and bond prices, which is the adjustment of net assets. From the first year of life insurance company's existence, year after year, there is now embedded value.
Further reading: How to buy insurance, which is good, and teach you how to avoid these "pits" of insurance.