Embedded value

The value of a life insurer's existing book: the net worth plus the present value of future profits from policies already sold, less the cost of holding the required capital.

An insurer with ₹8,400 crore of adjusted net worth and ₹2,100 crore of in-force value reports an embedded value of ₹10,500 crore.

Embedded value exists because accounting profit describes a life insurer badly. Selling a profitable long-dated policy costs money upfront and earns it back over decades, so a company writing more good business reports lower accounting profit while creating more value. That's the reverse of what you'd expect.

Embedded value is computed on assumptions about mortality, persistency, expenses and investment returns. All of them are disclosed, and the part worth reading is the sensitivity table showing how the value moves with each.

Value in this business is created at the point of sale and recognised over thirty years.