Hi guys. Does anyone know of a link where I can view an embedded value calculation for a with profits product? I am finding it hard to picture tha calculation and I think that viewing an example would be an aid to my understanding. Thank you.
I'm afraid I don't have a spreadsheet calculation of an embedded value, but April 2008 Question 2 is a good indication of the kind of numerical calculations that you might need to do in the exam. The best way to envisage the calculation of the present value of future profits in an embedded value is that it looks very like a profit test that you would have done in CT5. You may have set out your calculations in a table that looked like a spreadsheet, with separate rows for each year, and separate columns for each cashflow, ie premiums less claims less expenses plus investment return on reserves less the increase in reserves. The only difference, is that a profit test looks at all years from the outset of a contract, whereas an embedded value only looks at the remaining years of an in force contract. Best wishes Mark