|21st - 23rd October 2010 | Prague / Czech Republic|
The market-consistent embedded value (MCEV) is an approach to the allowance for risk where assets and liabilities are valued in line with the market prices of risks and therefore consistently with each other. It has been developed to address the contentious issues with traditional embedded value reporting how to set the risk discount rate, how to allow for options and guarantees and how to allow for cost of capital. As the concept of MCEV addresses these problems in a robust manner and gives a new perspective on value, these techniques became an integral part of company reporting and internal management.
This has been further pronounced in June 2008 when the CFO Forum published MCEV Principles©* making the publication of market consistent results compulsory for CFO Forum companies by year-end 2009 – later delayed until year-end 2011. Also, though there are key important differences, the direction of Solvency II and Phase 2 of the IASB/FASB insurance contracts project indicates an approach which will contain many areas of similarity to MCEV. These developments require actuaries to be completely comfortable with both the theory of MCEV and the practical implications for their companies.
*Copyright © Stiching CFO Forum Foundation 2008