Although 2012 was another economically challenging year, embedded value remained a key part of European companies’ disclosures, demonstrating value generation and financial robustness. In this publication, we focus on embedded value results as at year-end 2012. In addition to providing an overview of the methodology companies used and commenting on any developments, the paper covers a range of current hot topics that companies may wish to consider when developing and enhancing their embedded value approaches in the future. These include:
- Determining the risk discount rate
- Calculating the cost of capital
- Assessing the cost of residual non-hedgeable risks
- Evaluating the time value of options and guarantees
- Disclosures in embedded value reporting
- Other measures of value (market capitalization, IFRS and Solvency II)
The report also provides a high-level overview of some of the key components of an embedded value calculation.