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EEV - Principle 8

C

cjpaine

Member
Hi,

EEV Principle 8 says:

"New business is defined as that arising from the sale of new contracts during the reporting period. The value of new business includes the value of expected renewals on those new contracts and expected future contractual alterations to those new contracts. The EV should only reflect in-force business, which excludes future new business."

I don't believe this statement is clear and would be grateful for anyone that can help interpret it.

I appreciate that any analysis of change in EV will look at value added by new business written between the two dates. Presumably this is what is meant by "the sale of new contracts during the reporting period" above.

However we are also told that "new business" includes the expected value of renewals and alterations and that "future new business" is excluded from the EEV calculation.

So... my question is... are the expected value of renewals and alterations (on the existing book of business) included in the EEV calculation or not?

Many thanks,
Chris.
 
EEV is a point in time measure, and it's the current value of the in force business. You don't include any New Business in this. But yes, you do include the expected value of renewals and alterations on the in force business.

New Business is only important when you want to analyse how your EEV has changed between two time points.
 
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