Value of new business (VNB)
Economic value created by contracts written during a period, a key indicator of a life insurer's commercial performance.
The value of new business is what a period's sales will earn: the present value of expected future profits from the life contracts written in that period, net of the cost of capital. It is the reference indicator of the commercial performance and profitability of a life insurer's new production, complementary to embedded value which covers the in-force stock. A positive and rising value signals that the insurer writes value-creating business, while a low or negative value reveals value-destroying production, for example due to overly generous guarantees or an unfavorable rate environment. The ratio of this value to premiums or margin gives a measure of marginal profitability. For the analyst, it is a leading signal of the insurer's ability to rebuild its stock of future profit, and its evolution reflects underwriting discipline and the attractiveness of the offering.
Textbook case: a rising value of new business indicates that a life insurer writes profitable production, rebuilding the future profit of its portfolio.
VNB, value of new business, new business value
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