Appraisal value

The appraisal value is the value of a company based on a projection of future cashflows that its owners will receive from the company's assets as well as from its current and future operations.

The appraisal value is often used to measure the financial performance of insurance companies. It is also a useful tool in measuring the viability of new ventures.

Components

The appraisal value is commonly the sum of three components:

  1. Net Excess Assets
  2. Value of Inforce Business
  3. Value of Future New Business

Also known as the actuarial appraisal value.

Net Excess Assets

The total assets available to shareholders. It includes profits made in past years but not yet distributed. In the case of Insurance companies, the Net Excess Assets includes reserves which were held to cover adverse conditions which did not eventuate (for example - higher than expected claims).

Value of Inforce Business

The present value of cashflows that the shareholders will receive from the company's existing operations.

For insurance companies this includes the cashflows earned from existing policies which the company has written. It also includes investment earnings from reserves which the insurance company has to hold to offset future claims.

Value of Future New Business

The present value of cashflows that the shareholders will receive from future expansions of the company's operations.

For insurance companies, this includes the cashflows that will be earned from future new policies.

One might also use benchmark valuation functions to estimate the appraisal value.

See also

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