Putting a price on long-term life insurance business (part II)

Extending risk-adjusted performance metrics to take into account real-world investment returns

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Balancing earnings and capital for value is critical for managing long-term life insurance products. Especially challenging is the fact that earnings’ contribution to value is ambiguous unless evaluated relative to the capital needed at an appropriate cost of capital: only earnings in excess of the cost of capital create value.

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This article follows a previous piece that focused on the relationship between technical earnings, capital intensity and value c