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Effect of Value of New Business on Life Insurance Embedded Value

Abstract

Value of New Business (VNB) represents the economic value expected to be generated from insurance policies written during a specified period after allowing for relevant costs, risks, and the time value of money. It is an important measure in life insurance because new policies can contribute significantly to the future profitability and financial value of an insurer. Changes in the value generated by new business may therefore influence the embedded value of a life insurance company. This study will examine the effect of Value of New Business on life insurance embedded value. It will assess how variations in the value generated from newly written life insurance policies influence the embedded value of insurers. The study will also examine the relationship between new business value and the components of embedded value to determine the extent to which new policy generation contributes to the overall economic value of a life insurance company. The study will focus on Value of New Business, life insurance embedded value, new policy volumes, premium income, future profits, insurance liabilities, required capital, policyholder benefits, acquisition expenses, risk adjustments, actuarial valuation, and life insurance profitability. Relevant financial and actuarial data will be examined to identify patterns in new business value and embedded value. Actuarial valuation techniques will be used to assess the contribution of new business to the economic value of life insurance operations. A quantitative research approach will be adopted for the study. Data relating to new business premiums, policy volumes, acquisition expenses, projected future profits, insurance liabilities, required capital, investment returns, policyholder benefits, mortality assumptions, expense assumptions, and discount rates will be analysed using descriptive statistics, trend analysis, embedded value calculations, Value of New Business estimation, correlation analysis, regression analysis, comparative analysis, and sensitivity analysis. Changes in new business value will be evaluated alongside changes in embedded value to determine their effect on insurer valuation. The study is expected to reveal that Value of New Business may have a significant effect on life insurance embedded value. Higher values generated from new business may increase the future profit component of embedded value and consequently raise the estimated economic value of the insurer, while lower new business values may reduce the contribution of newly written policies to embedded value. The magnitude of the effect may depend on premium volumes, product profitability, acquisition expenses, policyholder behaviour, investment returns, insurance risks, required capital, and actuarial assumptions. The study will be useful to actuaries, life insurance companies, financial analysts, investors, valuation specialists, underwriters, regulators, and researchers. It may provide useful information for evaluating new business profitability, assessing life insurance company value, supporting strategic planning, and improving embedded value analysis. The findings may also assist insurers in understanding the financial contribution of newly written policies to their overall economic value. The study concludes that Value of New Business is an important component in assessing life insurance embedded value because the economic contribution of newly written policies can influence the future profitability and overall value of an insurer. It is therefore recommended that life insurance companies regularly evaluate the value generated by new business, maintain accurate actuarial assumptions, and incorporate appropriate new business projections into embedded value assessments.

Keywords: Value of New Business, life insurance embedded value, new business premiums, policy volumes, future profits, insurance liabilities, required capital, policyholder benefits, acquisition expenses, actuarial valuation, life insurance profitability, embedded value analysis, new policy generation, insurer valuation, actuarial analysis.