It stands for best estimate liability; an estimation of the liability value of a portfolio of insurance policies. It refers to the unbiased estimate of the present value of expected future cashflows of an insurance portfolio, discounted using a “risk-free” yield curve (i.e. term structure rates). The cash flows to be discounted are determined using best estimate assumptions (where no explicit, prudential margins are considered) that best reflect the risk-return profile of the portfolio.

To build up the best estimate assumptions, the projections should incorporate all expected decrements and policyholder actions, including lapses. However, insurance cash flows, by nature, cannot be determined with precision, and assuming that the best estimate liability can be determined as the fair value of liability will lead to an underestimation of the liability value. The best estimate liability (BEL) reflects an average calculation of the outstanding liability. In reality, the actual outstanding cash flows might turn out to be much larger than estimated. That why in practice an risk margin (market value margin, or MVM) is usually added on top of the estimation.

The MVM is perceived as the cost of additional capital to account for the risk of experience being far from best estimate assumptions.