lu_inside12-full
Create successful ePaper yourself
Turn your PDF publications into a flip-book with our unique Google optimized e-Paper software.
Inside magazine issue 12 | Part 03 - From a corporate perspective<br />
Key Indicators Description Focus<br />
MCEV<br />
“The Market Consistent Embedded Va<strong>lu</strong>e is a measure of the consolidated<br />
va<strong>lu</strong>e of shareholders’ interests in the covered business.” (CFO Forum)<br />
The future business is exc<strong>lu</strong>ded from the MCEV.<br />
CoR<br />
The Combined Ratio is calculated by dividing the sum of incurred losses and<br />
expenses by the earned premiums. When this ratio is below 100 percent, it means<br />
that the undertaking is making an underwriting profit (the company received more<br />
money in premiums than it paid in claims). This ratio does not take into account the<br />
investment income.<br />
The combined ratio is one true measure of the insurer’s profitability, as it takes into<br />
account the loss ratio, the expense ratio and the policyholder’s dividend ratio. It is<br />
particularly useful for monitoring business lines in non-life insurance companies.<br />
PVFP<br />
“The Present Va<strong>lu</strong>e of Future Profits reflects the intrinsic va<strong>lu</strong>e of financial options and<br />
guarantees on in-force covered business.” (CFO Forum)<br />
The PVFP represents the present va<strong>lu</strong>e of anticipated profits from in-force<br />
insurance contracts.<br />
RoE<br />
The Return on Equity (RoE) is equal to the Net Income over the Shareholders’<br />
Equity. This indicator allows a comparison to be made of the profitability of<br />
different entities, as it reveals how much profit is generated with the equity<br />
invested by the shareholders.<br />
EVA The Economic Va<strong>lu</strong>e Added. EVA = Net Operating Profit After Taxes (NOPAT) -<br />
(Capital * Cost of Capital).<br />
The EVA corresponds to the realized profit in excess of the cost of capital. It means<br />
that va<strong>lu</strong>e is added when the realized return is above the cost of capital.<br />
RAROC<br />
The Risk Adjusted Return on Capital. The RAROC is a risk-adjusted profitability<br />
indicator. It is the expected return/economic capital.<br />
RORAC<br />
The Return on Risk Adjusted Capital is calculated as the net income divided by the<br />
allocated risk capital.<br />
The RORAC is similar to the RAROC; in this case, however, it is not the rate of return<br />
that is adjusted for risk, but rather the capital.<br />
NBM<br />
The New Business Margin represents the created va<strong>lu</strong>e arising from new business<br />
or additional premium. It is calculated as VNB/PVNBP, i.e. the profit on new business<br />
over the Present Va<strong>lu</strong>e of New Business Premiums.<br />
The higher the ratio, the higher the portion of the premiums that accrue to<br />
shareholders as profit.<br />
Life insurance business<br />
Non-life insurance business<br />
125