Max India Ltd on Thursday announced that the Embedded Value (EV) for its life insurance business, Max Life, stood at ₹ 5,363 crore as at September 30, 2015.
This is based on market consistent methodology, according to a statement issued by Max India.
Max Life had transitioned its EV calculation to a Market Consistent methodology from the earlier traditional approach (Traditional Embedded Value - TEV) in 2014-15.
This follows market practice in developed markets, where life insurers have moved to adopt market consistent methodologies.
Meanwhile, the return on Embedded Value (RoEV) came in at 13.8 per cent over the previously declared EV of ₹ 5,232 crore as at end March 2015.
The Value of New Business (VNB) written during H1 of 2015-16 is ₹ 163 crore with the new business margin at 20.2 per cent, before the cost overrun, and 17.0 per cent, after the cost overrun, accord.
EV and VNB are important metrics for the valuation of a life insurance business as the company is generally valued at a multiple to its EV. For instance, Mitsui Sumitomo Insurance’s investment in Max Life Insurance was at an implied EV multiple of around 3 times.
The EV of a life insurance company comprises two key elements — a) Net Asset Value or the Net Worth of the company, which represents the market value of the company’s assets attributable to the shareholders, and b) the Present Value of the company’s future expected profits from its existing business portfolio as at the date of valuation.