Return on embedded value

The growth in embedded value during the year, adjusted for capital movements, as a percentage of the opening value.

An insurer adding ₹1,680 crore to a ₹10,500 crore opening value returns 16%.

Whether this exceeds the cost of equity is the test that matters. An insurer compounding embedded value faster than shareholders require is creating value, and one below it isn't, whatever its accounting profit shows.

Insurers disclose the components of the movement: unwinding of the existing book, value of new business, assumption changes and investment variance. Assumption changes are the line to watch, because they are where optimism gets corrected.