Hi If we are asked to calculate the EV as part of an appraisal value for a potential purchase. What EV should we assume to use? So, for example will it be sufficient to answer with the following: For the without profit business, after we have allocated assets equal to liabilities,we will project the inforce and calculate the assets needed to cover the liabilities plus the CRR (and should this be changed to the SCR?) And any surplus will be the shareholder transfer which we will need to discount at an RDR (which we will then state if market consistent EV we will use a risk free curve)?? Thanks Em
Yes, that sounds right. We'd allocate assets to cover the reserves plus the capital requirement. Yes, we should probably use the Solvency II SCR as this will be the actual constraint on the shareholders taking money out of the company in the future. As the calculation is for an appraisal value (rather than published accounts) we are free to use whichever method we think is best (so we are not constrained to use EEV/MCEV principles. However, we want a realistic value so we'd want some form of market-consistent EV (using a risk-free curve). Good luck with the exam. Mark
