The EV is the present value of shareholders’ interests in the earnings distributable from assets allocated to the covered business after sufficient allowance for the aggregate risks in the covered business.

• ANW = FS + RC, where
  • ANW := Adjusted net worth
  • FS := free surplus allocated to the covered business
  • RC := required capital
• VIF = PVFP - CoC, where
  • VIF := Value of in-force covered business
  • PVFP := Present value of future after tax profits on the local statutory basis for all in-force business
  • CoC := The cost of holding the EV required capital

The change in the EV, and the components of the EV, is a key analysis tool that:

• Assists to explain the economic and operating factors that affected the value of the business over the reporting period. This can be used to measure performance over the reporting period; and
• Represents a key control on the EV process by explicitly identifying the “unexplained” change in EV over the period (i.e. the difference between the projected EV and actual end period EV).

The purpose of the analysis of movement is to identify and check the change in EV over the valuation period by “rolling-forward” the EV over the reporting period from one valuation to the next and quantifying the impact on the EV of each change in conditions over the period.

• Opening Embedded Value – This is the start date embedded value and is the starting point for the analysis of movement.
• Opening adjustments / Modelling changes – This item is the impact on the opening EV of post-valuation date adjustments and modelling changes. Model enhancements impact on VIF should be quantified separately from opening adjustments.
• Existing business transfer to ANW – This item is the expected transfer of existing business from VIF to ANW over the period. This should have no impact to EV.
• Expected return on the EV – This represents the expected return (or “unwind of the EV”) on the EV from the start date to the end date of the valuation period.
• Operating experience variances – This represents the impact on the end period EV of variations in operating experience such as persistency and expenses over the inter-valuation period. This generally includes items triggered by management actions.
• Operating assumption changes – This item is the impact on the end of period EV of the operating assumption changes (e.g. change in lapse rate assumptions)
• Finance costs – This item is the interest costs on medium term notes and acquisition credit facility. This is included only on the Group consolidation level.
• Economic experience variances – This represents the impact on the end period EV of variations between the actual and expected economic experience over the period.
• Economic assumption changes – This represents the impact on the end period EV due to changes in the economic assumptions used in the projections (e.g. investment returns, RDRs).
• Other non-operating variances – This should include impact due to change in tax legislation.
• Value of New Business – This is the VONB, at the point of sale, for business written during the reporting period. VONB should be calculated based on model after model enhancemernts in each quarter.
• Model enhancements for VONB – This item is the impact on the reported VONB due to model enhancements.
• Expected return on VONB – This represents the expected return (or “unwind”) on the VONB from the point of sale to the end of the valuation period.
• Operating experience variances on VONB – This represents the impact on the end period EV due to variations in the actual versus expected operating experience for the VONB from the point of sale to the end of the valuation period. This operating experience variance is further split into expense variance, mortality / morbidity variance, surrender variance, with the remaining variances quantified as “others”.
• Operating assumption changes on VONB – This item is the impact on the VONB from the point of sale of the operating assumption changes to the VIF assumptions at the end of the valuation period (e.g. change in lapse rate assumptions).
• Economic experience variances on VONB – This represents the impact on the end period EV due to variations in the actual versus expected economic experience for the VONB from the point of sale to the end of the valuation period. (Note – If this is expected to be immaterial, it may be ignored or combined with the expected return on the VONB.)
• Economic assumption changes on VONB – This item is the impact on the VONB from the point of sale of changes in the economic assumptions to the VIF assumptions at the end of the valuation period (e.g. investment returns, RDRs).
• Capital injections / Dividends – This represent the impact on the end period EV due to capital raising or injections from the group and/or dividends paid by the BU.
• Exchange rate movements – This represents the impact on the end period EV due to changes in the exchange rates between the prior period and the current period.
• Unexplained movement in embedded value – This represents the difference between the “rolled forward” (or projected) starting EV and the end-period EV. This is calculated as the opening EV plus the analysis of movement items, and the end period EV. This provides an aggregate check on the overall robustness and quality of the analysis of movement, and both the opening and closing EV results.
• Ending Embedded Value – This is the EV as at the ending valuation date.