Showing papers on "Embedded value published in 2006"
TL;DR: In this article, the authors investigated the valuation of participating contracts, which are characterized by embedded interest rate guarantees and some bonus distribution rules, under the specific regulatory framework in Germany; however, their analysis can be applied to any insurance market with cliquet-style guarantees.
Abstract: The valuation of life insurance contracts using concepts from financial mathematics has recently attracted considerable interest in academia as well as among practitioners. In this paper, we will investigate the valuation of participating contracts, which are characterized by embedded interest rate guarantees and some bonus distribution rules. We will model these under the specific regulatory framework in Germany; however, our analysis can be applied to any insurance market with cliquet-style guarantees. We will present a framework, in which different kinds of guarantees or options can be analyzed separately. Also, the practical implementation of such models is discussed. We use two different numerical approaches to derive fair parameter settings of such contracts and price the embedded options. The sensitivity of the contract value with respect to multiple parameters is studied. In particular, we find that life insurers offer interest rate guarantees below their risk-neutral value. Furthermore, the financial strength of an insurance company considerably affects the value of a contract.
103 citations
TL;DR: In this article, the authors present a three-step approach that enables companies to define and quantify what customers value, systematically deploy their resources to deliver greater value than the competition, and capture a greater share of the value delivered to customers.
Abstract: Purpose – The paper aims to present a three‐step approach that enables companies to define and quantify what customers value, systematically deploy their resources to deliver greater value than the competition, and capture a greater share of the value delivered to customers.Design/methodology/approach – Each of the three the three steps in the value creation cycle is examined, and the tools and approaches that leading companies use to maximize shareholder wealth are outlined.Findings – A customer‐value based approach to management can help companies instill a fact‐based decision‐making process in the enterprise. This promotes faster growth through differentiated customer investment. It ensures that the highest return initiatives are prioritized. Enterprises using this disciplined three‐step approach will be well positioned to better understand value potential, creating value, delivering value, and managing their market position to maximize the value they capture.Originality/value – Mastering the value cyc...
73 citations
TL;DR: In this article, current values are increasingly replacing historical cost measures, but an important unresolved issue is the pre-computed cost measure, which is an important current issue for financial accounting standard-setters.
Abstract: Measurement is an important current issue for financial accounting standard-setters. Current values are increasingly replacing historical cost measures, but an important unresolved issue is the pre...
54 citations
1 Jan 2006
TL;DR: In this paper, the authors investigate whether fair value information is value relevant within Australian firms in the extractive industries and provide evidence that the explanatory power of net fair value and the unrealised gain or loss beyond the book value and earnings valued at historical costs is very low.
Abstract: .We investigate whether fair value information is value relevant within Australian firms in the extractive industries. From 2005, the Australian accounting standard on financial instruments AASB 139 Financial Instruments: Recognition and Measurement requires measurement of financial instruments based on fair values. This study provides evidence that net fair value information is value relevant. However, the significance of net fair value is limited to the recognised financial instruments and some settings. Further analysis provides evidence that the explanatory power of net fair value and the unrealised gain or loss beyond the book value and earnings valued at historical costs is very low.
22 citations
Journal Article•
TL;DR: In this paper, the authors investigate whether fair value information is value relevant within Australian firms in the extractive industries and provide evidence that the explanatory power of net fair value and the unrealised gain or loss beyond the book value and earnings valued at historical costs is very low.
Abstract: We investigate whether fair value information is value relevant within Australian firms in the extractive industries. From 2005, the Australian accounting standard on financial instruments, AASB 139 Financial Instruments: Recognition and Measurement, requires measurement of financial instruments based on fair values. This study provides evidence that net fair value information is value relevant. However, the significance of net fair value is limited to the recognised financial instruments and some settings. Further analysis provides evidence that the explanatory power of net fair value and the unrealised gain or loss beyond the book value and earnings valued at historical costs is very low.
19 citations
1 Aug 2006
TL;DR: Li et al. as discussed by the authors explored the application of the financial engineering techniques in the evaluation of total value risk on a sample-listed firm of China and applied Merton structural model and an experienced relation function to evaluate the firm's value.
Abstract: This paper explores the application of the financial engineering techniques in the evaluation of total value risk on a sample-listed firm of China. Merton structural model and an experienced relation function are applied to evaluate the firm's value. GARCH model is also employed to estimate both the return series and the volatility of the equity. Under this situation, the expected distribution of the firm value and the Value at Risk (VaR) can be obtained based on Monte Carlo simulation. Since the paper may be the first one trying to value the potential risk of firm value, it is very helpful for analyzing mergers and acquisitions in the capital market as well as controlling the risk of asset for those large state-owned asset management companies in China.
3 citations
Posted Content•
TL;DR: In this article, the authors used option theory to determine the fair value of the insurance life policies with different time of maturity and showed that the effective liabilities duration of an insurance Company exposed to the default risk is different from the duration of a default free zero coupon bond with the same time of mature.
Abstract: The model, by using the option theory, determines the fair value of the insurance life policies with different time of maturity and shows that the effective liabilities duration of an Insurance Company exposed to the default risk is different from the duration of a default free zero coupon bond with the same time of maturity. Furthermore, it shows that the value of equity can be immunized in a dynamic way with respect to the movement of the spot rate by selling and purchasing the default free bonds in the firm asset. Moreover, the equity value, by the right bond allocation, can be immunized without varying continually the weight of the bonds on the firm asset. Furthermore, it considers the surrender option and the mortally issue such that it corrects some pitfalls that are commonly encountered in the insurance industry.
3 citations
Posted Content•
TL;DR: In this paper, the principal candidates for bases of measurement in financial reporting, namely historical cost, value to the business (also known as deprival value or current cost), fair value, realisable value, and value in use, are reviewed.
Abstract: This paper reviews the principal candidates for bases of measurement in financial reporting - historical cost, value to the business (also known as deprival value or current cost), fair value, realisable value, and value in use - explains how they work, and discusses their advantages and disadvantages.
2 citations
Dissertation•
14 Nov 2006
TL;DR: Nhuang et al. as discussed by the authors published a paper on statistics and actuarial science at the University of South-West Africa, South-Africa, South Africa:http://www.mib.co.za
Abstract: Faculty of Science
School of Statistics and Actuarial science
9802374m
nhuang@glenrandmib.co.za
TL;DR: In this paper, the authors test empirically the value relevance of the alternative "realistic reporting regime" of voluntary embedded value (EV) disclosures that has been generally adopted by leading UK and Continental European insurers.
Abstract: Following IFRS 4, the current accounting regime for UK life insurance companies is oriented towards delaying the recognition and distribution of profit, and is still largely rooted in requirements for statutory solvency reporting. This paper tests empirically the value relevance of the alternative 'realistic reporting regime' of voluntary embedded value (EV) disclosures that has been generally adopted by leading UK and Continental European insurers. In recent years EVs have also been used internally, but not disclosed, by many US life insurers. The results found here are consistent with value relevance and some implications for standard setters are explored.
1 Jan 2006
TL;DR: In this paper, the authors present a replication of the real-world process of arbitrage between market value and replacement value, and show that share prices do react continuously to this process.
Abstract: To weed out emotions from investment analysis, financial analysis is supposed to use a number of objective tools to approximate “the net present value of expected future free cash flows discounted to perpetuity”—the definition of the total market value of a company. Investors do know how to transform a perpetual flow into a “stock equivalent”—in other words, to calculate the net present value equivalent to receiving this flow forever. This is one of the easiest financial tricks available to them. Today, half a century after the emergence of the large-scale asset-management industry, the world is awash with “ways” to value assets and shares—shortcuts, long cuts, narrow passages, and hanging bridges. Investment in a financial sense should just be a replication of the real-world process of arbitrage between market value and replacement value. To decide whether a particular share is worth buying according to the real-world process, investors need more than just a schematic representation of assets, liabilities, or profits. Share prices do react continuously to a perpetual process of arbitrage between market value and replacement value. It is not because accounting-based ratios are unable to capture it that this economic process does not take place. Therefore, investors need to conduct their financial analysis so that they are in a position to measure market value and replacement value without having to build any new capacity.