12. Analysis of Change in EV

Question 1

Reasons for analysing change in EV

Answer 1

A(o)CEV PUMP

Assumption revision by comparing AvE
Calculation of management incentive schemes
Extra check of EV calculation
VNB written over year (provide management)

Profit and Loss EV - identify individual sources, to indicate areas where management action needed
Unprofitable contracts - identify so they can be redesigned, re-priced or cancelled
Management understanding of the business (improve)
Provide investors with more realistic picture of true underlying sources of additional value creation

Question 2

Components of AOEV

Answer 2

EV @ start financial period
* VNB @ POS
* Expected return on CB (Unwind of RDR)
* Expected profit transfer to ANW
* Operating experience variance (relative to opening assumption)
* Operating assumption and model changes
* Non-recurring expenses
* Expected return on ANW
^ EV Operating Return

• Investment return variances on IF
• Investment return variances on ANW
• Effect of economic assumption changes
• Effect of foreign currency movements
• Effect of tax changes

EV Earnings = sum of above
Dividends accrued or paid

Total change in EV
EV @ end of financial period