Core Viewpoint - The article discusses the valuation of insurance liabilities in the life insurance industry, emphasizing the lack of consensus on fair value assessment methods and proposing a flexible and practical solution based on a fundamental theorem of insurance liability valuation. Group 1: Fundamental Theorem of Insurance Liability Valuation - The fundamental theorem reveals the direct relationship between the valuation of life insurance companies and reserves, functioning as an algebraic identity applicable to any reserve system and discount rate curve [1][3][6]. - Under reasonable assumptions, the theorem demonstrates that the Modified Value Added (MVA) equals the initial accounting reserves, leading to a derived formula for assessing the fair value of insurance liabilities [1][2][3]. - The concept of Modified Embedded Value (MDEV) is introduced, with the current Chinese solvency II internal value and the European Market Consistent Embedded Value (MCEV) being special cases of MDEV [1][2][25]. Group 2: Valuation Methods and Examples - The article compares MDEV results under different assumptions with MCEV results through specific insurance liability examples, ultimately presenting four methods for overall valuation of life insurance companies [2][12]. - An example using a ten-year annuity product illustrates the application of the fundamental theorem, demonstrating the relationship between cash flows and reserves over the product's lifespan [12][19]. - The fair value of insurance liabilities is defined based on the present value of future cash flows, with key assumptions regarding the independence of asset and liability cash flows [15][23][24]. Group 3: MDEV Concept and Applications - MDEV is defined as a modified version of Embedded Value, differing from traditional EV models by using future one-year forward rates for investment returns and market value for initial asset values [25][26]. - The article highlights that MDEV can be applied in scenarios where capital return rates and surplus asset return rates are not constant, establishing a connection to MCEV as a special case of MDEV [27][29]. - The implications of MDEV in the context of insurance products with options and guarantees are discussed, emphasizing the need for stochastic interest rate models to evaluate liabilities accurately [29][30].