European Insurers Agree on Embedded Value Principles

London — On behalf of the European Insurance CFO Forum, Denis Duverne, CFO of the AXA Group and current chairman of the CFO Forum, presented the CFO Forum market-consistent embedded value (MCEV) principles at a launch event in London. Philip Scott, CFO of Aviva plc, supported Duverne and Hans Wagner, life chief risk officer of AXA group and chairman of the CFO Forum MCEV Working Group. The CFO Forum is a discussion group formed and attended by CFOs of European insurance companies (Aegon, Allianz, Aviva plc, AXA, BNP Paribas, CNP, Fortis, Generali, Hannover Re, IF P&C, ING, Legal & General, Mapfre, Munich Re, Old Mutual, Prudential, Scottish Widows, Standard Life, Swiss Re, Zurich FS). Its aim is to discuss issues relating to financial reporting developments for their businesses and how they can create greater transparency for investors. The CFO Forum was created in 2002.

The launch of the CFO Forum European Embedded Value (EEV) Principles in May 2004, together with additional guidance on disclosures in October 2005, addressed the treatment of guarantees and options and provided the insurance industry with improved sensitivities and disclosures within their financial statements. The CFO Forum publishes a new set of MCEVs, which the CFO Forum believes will bring additional consistency and improved disclosure.

Duverne stated within the context of the MCEV Principles that “these Principles are an important step forward in financial reporting for life insurers, and are based on an approach that we believe should also be applied for Solvency II and eventually IFRS Phase 2 as well.”

The CFO Forum believes that the adoption of the MCEV Principles, supported by a detailed Basis for Conclusions, will deliver:

• a shareholder’s perspective on value, being the present value of future cash flows available to the shareholder, adjusted for the risks of those cash flows
• a market-consistent approach to financial risk
• a greater focus on disclosing cash emerging from covered business
• disclosure of combined Group MCEV information

Scott added that “Embedded value remains key to measuring the performance of long-term business, and I believe that the new guidance will help improve consistency and comparability of embedded value disclosures across the industry.”

The MCEV Principles will replace EEV, and will be mandatory for CFO Forum members as of December 31, 2009, with early adoption possible.

Source: European Insurance CFO Forum