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Book chapter
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Reference no. BEP8279
Authors: Prasanna Rajesh
Chapter from: "Valuation of Indian Life Insurance Companies"
Published by: Business Expert Press
Originally published in: 2019
Revision date: 24-Sep-2019

Abstract

This chapter is excerpted from 'Valuation of Indian Life Insurance Companies'. This book bridges the gap between the accounting and the actuarial sides of Indian life insurance companies. It explores the relationships between the embedded value calculated by actuaries and the revenue account and balance sheet prepared by the accountants. It uses publicly available sources of information to place a value on the shares of Indian life insurance companies from an outsider's point of view. Life insurance company accounts are complex and need understanding of a few concepts in order to analyze and appreciate them. This book helps a lay person with reasonable numerical abilities to gauge and understand the reasoning behind the calculation of the share price of a life insurance company. In particular, it will help analysts and accountants with no actuarial background to understand the concepts of embedded and appraisal value. Cash flow statements of these companies are often ignored and delegated to the background or usually to a single page in their annual reports. This book looks at the cash flows in detail and rearranges them to get a better picture of the financial health of the underlying companies. It also explains the relationship between the different measures of profit such as cash reserves, surplus, profit after tax, and embedded value. Very often, a lot of this information is only available internally within the life insurance companies or to their consultants. This book uses alternative approaches based purely on public disclosures by these companies thereby enables professionals without access to internal information to come to informed judgments about the actual performance of the companies.

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Abstract

This chapter is excerpted from 'Valuation of Indian Life Insurance Companies'. This book bridges the gap between the accounting and the actuarial sides of Indian life insurance companies. It explores the relationships between the embedded value calculated by actuaries and the revenue account and balance sheet prepared by the accountants. It uses publicly available sources of information to place a value on the shares of Indian life insurance companies from an outsider's point of view. Life insurance company accounts are complex and need understanding of a few concepts in order to analyze and appreciate them. This book helps a lay person with reasonable numerical abilities to gauge and understand the reasoning behind the calculation of the share price of a life insurance company. In particular, it will help analysts and accountants with no actuarial background to understand the concepts of embedded and appraisal value. Cash flow statements of these companies are often ignored and delegated to the background or usually to a single page in their annual reports. This book looks at the cash flows in detail and rearranges them to get a better picture of the financial health of the underlying companies. It also explains the relationship between the different measures of profit such as cash reserves, surplus, profit after tax, and embedded value. Very often, a lot of this information is only available internally within the life insurance companies or to their consultants. This book uses alternative approaches based purely on public disclosures by these companies thereby enables professionals without access to internal information to come to informed judgments about the actual performance of the companies.

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