Basic Principles of the Valuation of Insurance Agencies


Ekonomika a management

Basic Principles of the Valuation of Insurance Agencies

Jméno a příjmení autora:

Milan Hrdý, Eva Ducháčková

Rok:
2010
Číslo:
1
Strany:
47 - 59
Klíčová slova:
insurance agency, valuation, yield valuation, bond pricing model, valuation of assets, market capitalization, property valuation
DOI (& full text):
Anotace:
A field connected with the valuation of insurance agencies has not been dealt with in the Czech Republic although insurance agencies occupy an important position among financial institutions. That’s…více
A field connected with the valuation of insurance agencies has not been dealt with in the Czech Republic although insurance agencies occupy an important position among financial institutions. That’s why the purpose of this paper is to mention different methods of valuating which are used for purchase or takeover of insurance agencies. There are many differences in valuation and the companies consider the individual valuators as their own know-how. In order to ensure transparency it is necessary to respect the general principles and procedures of valuating applicable for the business entities and to consider the specific attributes of an insurance agency. First of all there should be known a reason for determining of investment value of such an entity because it can influence the whole procedure. The insurance agency is necessary to be evaluated when it should be sold or purchased, then in cases connected with the new partnership in the company or in cases of mergers, liquidations and comparison of the market value of shares. We can find the different approaches of valuating business entities which have their advantages and disadvantages. There are three main methods – the yield valuation, the property valuation and the method of the market comparison. The yield valuation is hold as the crucial method of valuating and is seen to be the method in the most objective and the most conclusive way. On the other hand this kind of valuation is the most demanding because a financial analysis and the internal and external analysis of a business environment are necessary to be done. The valuation according this principle describes the market potential of the valuated insurance company and the going-concern principle. We can follow the method of bond pricing model which is based on the determining of the market value of the individual assets and liabilities and identification of the equity costs. The valuating is like a combination of yield and property valuation of a bank and we get a static view of an insurance company. The paper deals also with the method of the market comparison which is applied in the USA because of the requirement of a developed market with sales and purchases of these entities. Valuation is based on the price which would be paid for a similar insurance company and it works with market capitalization which we get if we multiply the market value of a bank shares by the number of shares. It is difficult to apply this method in the Czech Republic because there are not comparable transactions and the market value of insurance companies is not known. In comparison with the yield valuation, the property valuation is based on valuating of all components of the property as a whole which can be seen as an advantage. We have to determine the accounting value of the equity and the substance value. The valuation of insurance companies is a very demanding process and the authors recommend the following of the procedure of valuating and they mention some problems and difficulties which can appear in the operations of valuating.
Sekce:
Ekonomika a management

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