1. What is Value of New Business in Insurance?

The Value of New Business (VNB) is a key metric in insurance that measures the profitability of new policies written during a specific period. It represents the present value of future profits expected from new business, considering factors like premium projections, customer retention, and profit margins.

2. How Does the Calculator Work?

The calculator uses the VNB formula:

Where:

• \( Projected\ Premiums \) — Expected total premiums from new policies (currency)
• \( Retention\ Rate \) — Percentage of customers expected to renew policies (%)
• \( Profit\ Margin \) — Expected profit margin on the business (%)

Explanation: This formula calculates the economic value generated by new insurance business by multiplying projected premiums by the expected retention rate and profit margin.

3. Importance of Value of New Business Calculation

Details: VNB is crucial for insurance companies to assess the profitability of their growth strategies, make informed underwriting decisions, allocate capital efficiently, and evaluate the performance of sales and marketing efforts.

4. Using the Calculator

Tips: Enter projected premiums in your local currency, retention rate as a percentage (0-100%), and profit margin as a percentage (0-100%). All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What is considered a good Value of New Business?
A: A positive VNB indicates profitable new business. The specific target varies by company and product line, but generally, higher VNB relative to acquisition costs is desirable.

Q2: How does retention rate affect VNB?
A: Higher retention rates significantly increase VNB as they represent continued premium income and reduced acquisition costs for renewals.

Q3: What time period should projected premiums cover?
A: Typically, projections cover the expected lifetime of the policies, often 1-5 years depending on the insurance product type.

Q4: Are there other factors that affect VNB?
A: Yes, factors like discount rates, mortality/morbidity experience, expense ratios, and lapse rates also influence the comprehensive VNB calculation.

Q5: How is VNB used in actuarial valuation?
A: Actuaries use VNB to assess new business profitability, set pricing strategies, and determine the value of in-force business for financial reporting.