The year 2015 was another one with challenging market conditions. Interest rates decreased in the first half of the year and remained low despite some recovery during the second half of 2015. This was accompanied by poor and variable growth in equity markets.
Based on our review of 23 companies, around 30% continue to use the European Embedded Value Principles rather than the Market Consistent Embedded Value Principles. But there is still a trend towards reporting on a market-consistent basis such that over 95% now use some form of market-consistent valuation in their embedded value (EV) reporting.
Three key areas in EV methodology retain their place on the podium of hot topics: the construction of the risk discount rate, the allowance for cost of capital, including the cost of residual non-hedgeable risks, and recognising the time value of options and guarantees.