Present Value of Future Profits meaning

In legal and transactional practice, present value of future profits (PVFP) is the discounted value, at the valuation date, of the projected distributable profits expected to arise from an insurer’s in‑force book of business over the remaining life of those policies. It is an actuarial and valuation expression, not a term defined by statute or case law in England & Wales, Scotland, Northern Ireland or Ireland, and its use is broadly consistent across these jurisdictions. PVFP is typically used in insurance M&A, reinsurance (including funds‑withheld and quota share deals), portfolio transfers (such as Part VII transfers in the UK), securitisations of value‑in‑force (VIF), and purchase price allocations and impairment testing in financial reporting. It is commonly calculated using risk‑adjusted discount rates and cash‑flow projections that allow for lapses/persistency, mortality/morbidity, expenses, investment returns, tax, capital requirements, and the time value and cost of options and guarantees. Assumptions and methodology are usually set by reference to actuarial practice (for example, embedded value frameworks) and the parties’ transaction documents, and should align with applicable accounting and regulatory regimes (such as IFRS and Solvency II). PVFP is distinct from, but often a component of, embedded value and may inform pricing, earn‑outs, regulatory submissions and board valuation...