EFFECT OF EMBEDDED VALUE ON FINANCIAL PERFORMANCE OF INSURANCE FIRMS

Abstract

The purpose of the study was to evaluate the effects of embedded value on the financial performance of insurance firms. A descriptive research design was employed targeting insurance companies listed on the Nairobi Securities Exchange (NSE). The study targeted 30 key personnel within these insurance firms who are directly involved in the implementation and management of fintech valuation models. Primary data was collected, organised, coded and analysed using Microsoft Excel and SPSS. Regression analysis was applied to test the relationships between variables where the models under research showed a positive correlation with the Financial Performance. DCF and ECL were reflected as the most consistently utilized models while FVM is displayed as moderately applied model with EV least utilize due to its complexity through the descriptive analysis. From the findings there was significant effect between Embedded Value (EV), and insurance financial performance in terms of ROA (β=0.177, p=0.0002). The Embedded Value (EV) model also influenced financial performance, particularly among life insurers that have adopted the model. However, the high variability and limited adoption suggest that while EV is impactful despite its low implementation rate. By incorporating the present value of future profits from in-force policies, the EV model enabled firms to reflect long-term sustainability in their financial statements. Insurance firms should strengthen actuarial capabilities to fully utilize the Embedded Value (EV) model- for life insurance firms, embedded value must become central in communicating long-term financial strength. Firms should enhance internal actuarial functions and scenario-based forecasting to support EV calculations. This will improve long-range profitability planning and shareholder reporting.