Balancing earnings and capital is critical for managing the value of long-term life products. For these products, earnings emerge only over time – if at all – and depend on future market and insurance outcomes. In contrast, they cause a very concrete upfront capital strain.
Even more challenging for value managers, the value created by the expected earnings cannot be assessed without recognising the capital strain at an appropriate cost of capital: only earnings in excess of the cost of capital
The week on Risk.net, December 2–8, 2017Receive this by email