Because new business is such an important source of profit for life insurance, there are a number of KPIs focused exclusively on this topic. Now, one of the challenges with life insurance is that new policies written can last for a number of years, making it difficult to identify the impact of that new business on the profits of a given year. On top of this, life insurance policies typically generate premiums over the life of the policy, whereas retirement products, such as annuities usually generate a single upfront premium. All of this makes it really difficult to properly compare one year's premiums to another's. So many of the new business metrics try to ensure that there's a meaningful trend for both premiums and also profits. Now, the first metric is the present value of new business premiums, and that's a hybrid number. It reflects the amount of premiums received for new business, which generates only single premiums, plus the present value of premiums for new business, which generates regular premiums. This metric is widely used by European insurance companies. But one note of caution here is that there isn't any real standardization for how the present value number is calculated. For example, the discount rates and assumptions used. Therefore, some analysts are a little bit cautious about placing too much reliance on it. Now, an alternative to present value of new business is to use the annual premium equivalent when they're looking at the premiums from new business. Instead of providing premiums on a present value basis, it instead provides a smooth number, that is the recurring premiums received in the year plus 10% of the single premiums written. So effectively, we're taking the single premiums and spreading them over a 10-year period. So assuming that on average, single premium policies will last for 10 years. Now, annual premium equivalent is a metric that's widely used by UK insurance companies. Now, the final metric is the new business margin and this compares the present value of the expected profit on new business with the present value of premiums taken from above. And that effectively provides an indicator of the future profit margins for the business that's been written in the current year. Now, as with the present value of new business premiums, there isn't really any standardization and approach here. So again, a little bit of caution may be needed when we're interpreting these numbers.
