Embedded value

Embedded value is a measure of the economic value of a life insurance portfolio, designed to reflect the wealth created beyond accounting alone. It adds the revalued net assets and the present value of expected future profits from contracts already in force, net of the cost of locked-in capital. Developed before accounting harmonisation to offset the limits of then-prevailing standards, it exists in variants such as European Embedded Value and Market Consistent Embedded Value, the latter valuing flows consistently with financial markets. For the analyst and investor, embedded value offers a view of a life insurer's long-term value that annual accounting profit does not capture, in particular the stock of future profit. The advent of IFRS 17, with its contractual service margin that also represents future profit, has partly reduced the need for this measure, but it remains used for value steering and financial communication by some players.

A life insurer publishing its embedded value gives investors an estimate of the future profit of its in-force portfolio, beyond the year's accounting result alone.

embedded value, valeur intrinsèque, MCEV, EEV