Equity Valuation Using Embedded Value Methods for Nigerian Life Insurance Companies

This study applies embedded value methodology to the equity valuation of Nigerian life insurance companies and examines how embedded value analysis enhances understanding of insurer financial performance relative to conventional accounting metrics. Embedded value, which captures the present value of in-force policy profits in addition to adjusted net worth, is the standard actuarial valuation tool for assessing the economic value of life insurance businesses. In Nigeria, life insurer equity valuations by analysts rely predominantly on price-to-book and price-to-earnings ratios that fail to capture the economic value embedded in policy portfolios. This study applies the European Embedded Value principles framework to publicly available financial data from five listed Nigerian life insurance companies for the period 2020 to 2023. Traditional embedded value components including adjusted net worth, value of in-force business, and new business value are estimated using disclosed actuarial assumptions and sensitivity-adjusted discount rates. Embedded value results are compared with market capitalization and book value metrics. Findings reveal that all five companies trade at significant discounts to their estimated embedded values, suggesting that the market does not fully recognize the economic value of their in-force policy portfolios. New business value contributions are modest, reflecting high expense ratios and low new business margins. The study concludes that embedded value analysis reveals materially different equity value estimates than conventional metrics for Nigerian life insurers. It recommends that listed life insurers voluntarily publish embedded value supplements to annual reports.

Keywords: embedded value, life insurance valuation, equity analysis, Nigerian Exchange Group, in-force business.