The valuation effects of embedded value disclosure by life insurers

SYNOPSIS European life insurers began disclosing embedded value information (EV) over a decade ago due to concerns with traditional local accounting standards. EV is an estimate of the present value of future net cash flows from in-force life insurance business. However, U.S.-based life insurers have yet to adopt this disclosure, although several surveys and empirical studies suggest that EV disclosure provides valuable information in assessing life insurers' performance. This paper examines the incremental valuation effects of EV disclosure in the presence of U.S. GAAP. We utilize a sample of cross-listed life insurers as surrogates to assess the valuation effects of EV disclosures for U.S. life insurers. Our empirical results show a higher association between EV and stock market prices than those of traditional accounting metrics such as earnings or book value. The results also show that EV has incremental explanatory power beyond those of traditional U.S. GAAP accounting measures. Our findings provide vital input to FASB and IASB as they currently engage in a joint project to develop uniform globally acceptable, comparable accounting standards for life insurers.

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The Informational Content Of Voluntary Embedded Value (EV) Financial Disclosures By Canadian Life Insurance Companies

International Business & Economics Research Journal (IBER) ◽

10.19030/iber.v8i12.3192 ◽

2011 ◽

Vol 8 (12) ◽

Author(s):

Jacques Préfontaine ◽

Jean Desrochers ◽

Lise Godbout

Keyword(s):

Life Insurance ◽

Value Relevance ◽

Balance Sheet ◽

Market Value ◽

Insurance Companies ◽

Informational Content ◽

Life Insurers ◽

Embedded Value ◽

External Stakeholders ◽

Financial Disclosures

The informational content and relevance to external stakeholders of voluntary financial disclosures by commercial banks is now becoming more widely recognized. For instance, banks voluntary disclosures of liquidity, interest rate and market risk metrics have been bound to be closely associated with market value of equity and credit ratings. So far, there has been very scarce published research on investigating the informational content and relevance to external stakeholders of voluntary financial disclosures by life insurance companies. In order to improve upon this situation, this paper studies and reports the informational content of voluntary embedded value (EV) financial disclosures by Canadian life insurance companies. As opposed to traditional statutory balance sheet and earnings reporting, EV voluntary disclosure attempts to estimate the present value of future earnings generated by a life insurers current book of various insurance businesses. The preliminary results presented in this study indicate that EV voluntary financial disclosures communicate intrinsic informational content and provide value relevance to external stakeholders in the sense that they were found to be closely associated with life insurers market value of equity.

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The Informational Content Of Voluntary Embedded Value (EV) Financial Disclosures By Canadian Life Insurance Companies During The Recent Period Of Market Turmoil

International Business & Economics Research Journal (IBER) ◽

10.19030/iber.v10i4.4179 ◽

2011 ◽

Vol 10 (4) ◽

pp. 1

Author(s):

Jacques Préfontaine ◽

Jean Desrochers ◽

Lise Godbout

Keyword(s):

Life Insurance ◽

Credit Ratings ◽

Market Value ◽

Insurance Companies ◽

Informational Content ◽

Recent Period ◽

Life Insurers ◽

Embedded Value ◽

External Stakeholders ◽

Financial Disclosures

The informational content and relevance to external stakeholders of voluntary financial disclosures by commercial banks is now becoming more widely recognized. For instance, banks voluntary disclosures of liquidity, interest rate and market risk metrics have been found to be closely associated with market value of equity and credit ratings. So far, there has been very scarce published research on investigating the informational content and relevance to external stakeholders of voluntary financial disclosures by life insurance companies during the recent period of market turmoil. In order to improve upon this situation, this paper updates previous findings and reports on the informational content of voluntary embedded value (EV) financial disclosures by Canadian life insurance companies during the 2000-2010 time period. As opposed to traditional statutory balance sheet and earnings reporting, EV voluntary disclosure attempts to estimate the present value of future earnings generated by a life insurers current book of various insurance businesses. The preliminary results presented in this study indicate that recent EV voluntary financial disclosures failed to communicate intrinsic informational content and to provide value relevance to external stakeholders in the sense that they were not found to be closely associated with life insurers market value of equity and credit ratings during the recent 2007-2010 period of market turmoil.

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Unregulated Corporate Financial Disclosure and Analysts’ Forecast Properties: The Case of Embedded Value Reporting by Life Insurers

Journal of Accounting Auditing & Finance ◽

10.1177/0148558x211063262 ◽

2022 ◽

pp. 0148558X2110632

Author(s):

Samir M. El-Gazzar ◽

Rudolph A. Jacob ◽

Scott P. McGregor

Keyword(s):

Voluntary Disclosure ◽

Alternative Hypothesis ◽

Forecast Accuracy ◽

Fair Value ◽

Cash Flows ◽

Accurate Estimation ◽

Corporate Management ◽

Life Insurers ◽

Embedded Value ◽

Information Set

This paper investigates the association between life insurers’ voluntary disclosure of embedded value (EV), an unregulated market-driven fair value measure, and analyst forecast accuracy and dispersion. EV is an estimate of the present value of future net cash flows from in-force life insurance business. Advocates of this disclosure believe that EV is a better measure of economic performance than traditional GAAP measures. Others argue that corporate management has discretion in estimating and reporting EV. Further, analysts may have access to information that allows the development of possibly more accurate estimation metrics in the absence of EV disclosure. It is then an empirical issue to determine whether EV disclosure has any incremental effect on analysts’ forecast properties. Using a multi-country setting, we find that EV disclosure is positively associated with analysts’ earnings forecast accuracy and negatively related to forecast dispersion. This result is consistent with the alternative hypothesis that disclosure of EV provides a richer information set that enriches analysts’ forecasts beyond their own in-house developed surrogates. As guidance for insurance accounting and disclosure evolves, our findings support the value of continuing to provide EV information to the public.

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The Determinants of Merger Withdrawals’ Abnormal Returns in The Australian Market

Journal of Economics and Development ◽

10.33301/2015.17.03.05 ◽

2015 ◽

pp. 89-110 ◽

Cited By ~ 1

Author(s):

Thuy Nguyen Thu ◽

Giang Dao Thi Thu ◽

Hoang Truong Huy

Keyword(s):

Financial Crisis ◽

Event Study ◽

Abnormal Returns ◽

Market Response ◽

Crisis Period ◽

Valuation Effects ◽

Event Study Method ◽

Private And Public ◽

Method Of Payment ◽

The Impact

This paper examines the abnormal returns in merger withdrawals in Australia, especially distinguishing the market response between private and public targets. We also study the determinants of those abnormal returns, including the method of payment and the impact of financial crisis periods. Using the event study method, we document that in the Australian context, the announced withdrawal of mergers involving private targets creates significantly negative valuation effects in comparison with the valuation effects in withdrawal of mergers involving public targets. We also find that a financial crisis period strongly affects abnormal returns of merger withdrawals. However, the method of payment does not have any impact on the abnormal returns.

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