What is ‘Valuation Premium’
The rate set by a life insurance company based on the value of the company’s policy reserves. The valuation premium is calculated by an insurance company. The company ensures that, first and foremost, it has adequate policy reserves to cover payouts. Once the value of the policy reserves is determined, the insurance company can calculate the valuation premium that will cover its liabilities. In this manner, the insurance company can make sure that it will have the assets necessary to cover all of its policies.
Explaining ‘Valuation Premium’
A valuation premium is a life insurance calculation that bases charges for premiums on the company’s liabilities. At times, an insurance company may opt to set a premium that is lower than the calculated valuation premium if their experience and statistical records indicate that a lower premium is justified. In the event that a lower premium is charged, the insurance company would be obligated to hold the difference in a deficiency reserve.
Further Reading
- IPOs versus acquisitions and the valuation premium puzzle: A theory of exit choice by entrepreneurs and venture capitalists – www.jstor.org [PDF]
- Sustainability and risk premium estimation in property valuation and assessment of worth – www.tandfonline.com [PDF]
- The nature of the foreign listing premium: A cross-country examination – www.sciencedirect.com [PDF]
- The valuation of FDIC deposit insurance using option-pricing estimates – www.jstor.org [PDF]
- The valuation premium of the common stocks of Islamic financial institutions – www.degruyter.com [PDF]
- Willingness to pay for health insurance in a developing economy. A pilot study of the informal sector of Ghana using contingent valuation – www.sciencedirect.com [PDF]
- Valuation of catastrophe reinsurance with catastrophe bonds – www.sciencedirect.com [PDF]
- The practice of investment valuation in emerging markets: Evidence from Argentina – www.sciencedirect.com [PDF]
