Management indicators
As part of our performance management we measure economic value creation from strategic planning to operational management using our central management indicator, namely Intrinsic Value Creation (IVC).
The IVC enables us to record and consistently allocate the value contributions of the Group on different hierarchical levels – Group, segment/division and company. The IVC and its methodological determination form the basis on which the value contributions of the segments/divisions and of the individual operational units can be measured in a comparable manner – making allowance for their specific characteristics – in order to reliably identify value-creating areas. The core management ratios, the operational management ratios and their respective degrees of goal accomplishment create the transparency needed to optimize the allocation of capital and resources, pinpoint risks and opportunities and initiate further measures.
We refined our value-based management tools in 2008 and revised the calculation of the cost of capital. The basic methodological determination of the IVC – and hence of the economic value creation – in accordance with the consistent method for non-life and life nevertheless remains unchanged. Under this approach, the value creation constitutes the economic net income for the period less the cost of capital.
The IVC is calculated differently in the non-life and life sectors on the basis of distinct specific ratios:
In non-life business (Property/Casualty Primary Insurance and Non-Life Reinsurance) the IVC measures the difference between the NOPAT (net operating profit after adjustments and tax) and the cost of capital for risk-based capital and excess capital.
The NOPAT is an economically informative performance and management ratio for the reporting period in question. It is comprised of the Group net income recognized under IFRS after tax and fair value adjustments that arise out of the change in differences between present values and carrying amounts in the balance sheet (loss reserve discount, excess loss reserves, fair value changes not recognized in income).