Glossary
Price to embedded value
M5.03Also called P/EV, price to EV.
Market capitalisation divided by embedded value. The standard valuation lens for a life insurer, because accounting earnings misdescribe the business.
An insurer valued at ₹21,000 crore with an embedded value of ₹10,500 crore trades at two times.
The multiple above one reflects the value of business not yet written, so it is really a judgement about future new business growth and margin. Comparing it to the new business margin and the return on embedded value is what makes it interpretable.
An insurer trading at two times with a falling margin is priced for growth it has stopped delivering.