Research On The Application Of MCEV In China

With the development of life insurance industry, embedded value plays an important role in management and valuation of corporate, so the research on embedded value has a very important significance. But the disadvantages of traditional embedded value approach become more and more evident with the development of theory of embedded value, thus the market-consistent embedded value had been put forward and been widely accepted in foreign country. In this paper, we describe the computation of MCEV and give some advice on selection of the parameters in the model. We select spot rate of bond as risk free rate and use Hull-White model to simulate the trend of interest rate in the future. Then we use cost-of-capital method to calculate the cost of residual non-hedgeable risk which contains mortality risk, longevity risk, lapse risk, expense risk and catastrophe risk. At last, we use a case of participating endowment insurance to explain the advantages of MCEV by comparing the results of MCEV and TEV, and we also make a sensitivity test to find which parameters have most significant effect on the result. We hope the result will offer a help of application of MCEV in our country.