Present value of new business premiums (PVNBP) is a measure of sales that forms part of the European Embedded Value accounting principles that have been adopted in order to provide uniform measures for all European insurers.
PVNBP is, like annual premium equivalent (APE), a way in which the values of single and regular premium new business sold during a financial period can be combined to give a single sales number. It is:
value of single premiums + present value of regular premium streams
There are two major differences between PVNBP and APE:
- PVNBP adjusts regular premiums to make them comparable with single premiums, APE does the opposite.
- APE uses a simple adjustment factor, PVNBP uses a more sophisticated discounted value.
The first of these is not of great importance. The APE way of doing things gives a number that is more like the sales number of a trading company and that therefore may be more intuitive.
In using a DCF PVNBP is more correct, but it introduces more uncertainties and more room for manipulation because it requires choosing an appropriate discount rate.