Accounting in Transition From bookkeeping to strategic steering

02 May 2018

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4. What is the journey ahead of us?

3

3. What are the implementation challenges for Asian Insurers?

Source: public domain (related to “Building the bridge as you walk on it” book from Robert E. Quinn)

Building the bridge while you walk on it.

Typical example of a high-level system landscapeand architecture

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Feeder systems

Actuarial Systems

Investment Systems

L&H Technical

Accounting

Pricing / Costing

Non-technical Accounting

Consolidation & Reporting

P&C Technical

Accounting

Business

Closing L&H

Integration Layer(s)

Pla

n,

Re

serv

ing

, V

olu

me

Ma

na

ge

me

nt

Closing

Sub-ledger systems

P&C L&H …

L&H Subledger

L&H Subledger

L&H Sub-

Ledger(s)

L&H Subledger

L&H Subledger

P&CSub-

Ledger(s)

L&H Subledger

L&H SubledgerExcel files

L&H Subledger

L&H Subledger

Solvency II

General Ledger(s)

US GAAP

IFRS

Local GAAPs

…

Current challenges IFRS 17 requirements

Integration Layer(s)

Closing

Closing P&C

L&H Subledger

L&H Subledger

Investment Sub-

Ledger(s)

FINANCE

OPERATIONS

IFRS17

IFRS9

Solvency II

Reconciliation

New Business

Models

New Regulation

Stakeholder

Transparency

Requirements

Data

Volumes

Data Security

This chasm is getting

harder to navigate as the

world changes

FINANCEOPERATIONS

FINANCEOPERATIONS

This challenge is in part due to historical

computing performance reasons

Subledger

Subledger

Subledger

Subledger

Subledger

Subledger

General

Ledger

Planning

& Budgeting

Profitability

Cost Controlling

Consolidation

Special Purpose

Ledgers

Leads &

Quotations

Policies

Claims

Collections

& Payments

Actuarial

An intermediary ‘Jungle’ of

systems has resulted that

is different in each

insurance company

Extractions &

Aggregation

Revaluation

Results

ResultsMethods

Suspense

Accounting

Investments..

P&C Views

Life Views

Health ViewsSpecial

subledgers

Solvency

There was previously no universal

‘Insurance Subledger’

Various tools were used to build bridges

IBNR

Aggregates

Each application manages its

own accounting

IFRS

FINANCEOPERATIONS

Subledger

Subledger

Subledger

Subledger

Subledger

Subledger

General

Ledger

Planning

& Budgeting

Profitability

Cost Controlling

Consolidation

Special Purpose

Ledgers

Leads &

Quotations

Policies

Claims

Collections

& Payments

Actuarial

An intermediary ‘Jungle’ of

systems has resulted that

is different in each

insurance company

Extractions &

Aggregation

Revaluation

Results

ResultsMethods

Suspense

Accounting

Investments..

P&C Views

Life Views

Health ViewsSpecial

subledgers

Solvency

There was previously no universal

‘Insurance Subledger’

Various tools were used to build bridges

IBNR

Aggregates

Each application manages its

own accounting

IFRS

Provide source dataPreparation

of Future Cash Flows

Valuation and

Accounting

Present-ation

Disclosures, Analysis, Reporting

FINANCEOPERATIONS

Subledger

Subledger

Subledger

Subledger

Subledger

Subledger

General

Ledger

Planning

& Budgeting

Profitability

Cost Controlling

Consolidation

Special Purpose

Ledgers

Leads &

Quotations

Policies

Claims

Collections

& Payments

Actuarial

An intermediary ‘Jungle’ of

systems has resulted that

is different in each

insurance company

Extractions &

Aggregation

Revaluation

Results

ResultsMethods

Suspense

Accounting

Investments..

P&C Views

Life Views

Health ViewsSpecial

subledgers

Solvency

There was previously no universal

‘Insurance Subledger’

Various tools were used to build bridges

IBNR

Aggregates

Each application manages its

own accounting

IFRS

Operational & Market Data Provision

Generation of Best Estimate

Cash Flows

Calculation of Risk

Adjustment

Allocation of risk adjustment,Direct costs

DiscountingCash Flows

Deferral of Projections

Deferral ofActuals

& CSM Calculation

Creation of subledger

journal entries

Creation of General Ledger

entries

Consolidation, Disclosure

Preparation, Planning Update

The Historic Challenge

FINANCEACTUARIALOPERATIONS

ANALYTICS, REPORTING & DISCLOSURE

Operational & Market Data Provision

Generation of Best Estimate

Cash Flows

Calculation of Risk

Adjustment

Allocation of risk adjustment,Direct costs

DiscountingCash Flows

Deferral of Projections

Deferral ofActuals

& CSM Calculation

Creation of subledger

journal entries

Creation of General Ledger

entries

Consolidation, Disclosure

Preparation, Planning Update

General Ledger

Business Planning

Consolidation

Governance & Compliance

Financial Asset Management

Policy

Claims

Billing

Reinsurance

Market Data

Insurance

Financial

Flows

Group Finance

Stochastic Calculations

Model Callibration

Planning

Simulation

Creating the next generation basis for SAP Finance

S/4 FINANCEACTUARIALOPERATIONS

ANALYTICS, REPORTING & DISCLOSURE

Operational & Market Data Provision

Generation of Best Estimate

Cash Flows

Calculation of Risk

Adjustment

Allocation of risk adjustment,Direct costs

DiscountingCash Flows

Deferral of Projections

Deferral ofActuals

& CSM Calculation

Creation of subledger

journal entries

Creation of General Ledger

entries

Consolidation, Disclosure

Preparation, Planning Update

General Ledger

Business Planning

Consolidation

Governance & Compliance

Financial Asset Management

Policy

Claims

Billing

Reinsurance

Market Data

Insurance

Financial

Flows

Group Finance

Stochastic Calculations

Model Callibration

Planning

Simulation

What-if Analyses

HANA

Addressing this issue

S/4 FINANCEACTUARIALOPERATIONS

ANALYTICS, REPORTING & DISCLOSURE

Operational & Market Data Provision

Generation of Best Estimate

Cash Flows

Calculation of Risk

Adjustment

Allocation of risk adjustment,Direct costs

DiscountingCash Flows

Deferral of Projections

Deferral ofActuals

& CSM Calculation

Creation of subledger

journal entries

Creation of General Ledger

entries

Consolidation, Disclosure

Preparation, Planning Update

General Ledger

Business Planning

Consolidation

Governance & Compliance

Financial Asset Management

Policy

Claims

Billing

Reinsurance

Market Data

Insurance

Financial

Flows

Group Finance

Stochastic Calculations

Model Callibration

Planning

Simulation

What-if Analyses

HANA

Lifecycle & Closing Management

?????

Advanced Multi-GAAP Management

????

Profitability, Solvency & Allocation

(FS-PER)

Accounting for Insurance Contracts

(Insurance Analyzer)

Accounting for Financial Instruments

(AFI)

HANA

Finance & Risk Data Model

Integration

?????

In 2018 SAP introduces the S/4 Finance Subledger

S/4 FINANCEACTUARIALOPERATIONS

ANALYTICS, REPORTING & DISCLOSURE

Operational & Market Data Provision

Generation of Best Estimate

Cash Flows

Calculation of Risk

Adjustment

Allocation of risk adjustment,Direct costs

DiscountingCash Flows

Deferral of Projections

Deferral ofActuals

& CSM Calculation

Creation of subledger

journal entries

Creation of General Ledger

entries

Consolidation, Disclosure

Preparation, Planning Update

General Ledger

Business Planning

Consolidation

Governance & Compliance

Financial Asset Management

Policy

Claims

Billing

Reinsurance

Market Data

Insurance

Financial

Flows

Group Finance

Stochastic Calculations

Model Callibration

Planning

Simulation

What-if Analyses

HANA

Finance & Risk Data Model

Subledger

Lifecycle & Closing Management

Advanced Multi-GAAP Management

Profitability, Solvency & Allocation

Accounting for Insurance Contracts

Accounting for Financial Instruments

Financial Closing Process Control

S/4 FINANCEACTUARIALOPERATIONS

Operational & Market Data Provision

Generation of Best Estimate

Cash Flows

Calculation of Risk

Adjustment

Allocation of risk adjustment,Direct costs

DiscountingCash Flows

Deferral of Projections

Deferral ofActuals

& CSM Calculation

Creation of subledger

journal entries

Creation of General Ledger

entries

Consolidation, Disclosure

Preparation, Planning Update

General Ledger

Business Planning

Consolidation

Governance & Compliance

Financial Asset Management

Policy

Claims

Billing

Reinsurance

Market Data

Insurance

Financial

Flows

Group Finance

Stochastic Calculations

Model Callibration

Planning

Simulation

What-if Analyses

HANA

Finance & Risk Data Model

Subledger

Lifecycle & Closing Management

Advanced Multi-GAAP Management

Financial Close Cockpit

Profitability, Solvency & Allocation

Accounting for Insurance Contracts

Accounting for Financial Instruments

Benefits of next-generation SAP S/4 Hana Finance

S/4 FINANCE

Subledger

ACTUARIALOPERATIONS

ANALYTICS, REPORTING & DISCLOSURE

HANA

Operational & Market Data Provision

Generation of Best Estimate

Cash Flows

Calculation of Risk

Adjustment

Allocation of risk adjustment,Direct costs

DiscountingCash Flows

Deferral of Projections

Deferral ofActuals

& CSM Calculation

Creation of subledger

journal entries

Creation of General Ledger

entries

Consolidation, Disclosure

Preparation, Planning Update

General Ledger

Business Planning

Consolidation

Governance & Compliance

Financial Asset Management

Lifecycle & Closing Management

Advanced Multi-GAAP Management

Policy

Claims

Billing

Reinsurance

Market Data

Finance & Risk Data Model

Insurance

Financial

Flows

DIGITAL BOARDROOM

One version of the financial truth

Drill-down to lowestgranularity

Valuation ‘walks’ to aid what-if analyses

Thin General Ledger

Easy audit-trail

Faster & ‘continuous’ closing

Reduction in IT complexity

Simplified, non-redundant data flow

Ease of simulation & sensitivity analysis

Profits and cost on most granular level

BENEFITS

Group Finance

Stochastic Calculations

Model Callibration

Planning

Simulation

What-if Analyses

Profitability, Solvency & Allocation

Accounting for Insurance Contracts

Accounting for Financial Instruments

There are two alternatives to approaching IFRS17

Chore OpportunityGet IFRS17 done as fast and pragmatically and rapidly

as possible in the current landscapeUse IFRS17 as an opportunity to once and for all

streamline financial flows

In either case theIFRS17 project

requiresaddressing all

financial flows at their lowest

granular level

Analytics and reporting manageable but forces the gradual build out of an accounting system within a tool framework not

built for that purpose(Over time auditing and versioning becomes a serious issue)

A future-proof true accounting subledgerthat finally integrates operations, actuarial and

finance easing daily operations

What are the differences?

Analytics Approach Accounting Approach

Contractual Service MarginCash Inflows

CSM

Cash Outflows Risk Adjustment

CSM

• You need to build and maintain an accounting functionality

• High reconciliation effort

• Blind spots in audit trail due to versioning

• Keep up with new regulatory changes

• Clear audit trail and history/versioning

• Fully integrated in closing process

• No need to build accounting by design

• Easy BS/P&L Planning/Simulation/Forecasting

INITIAL RECOGNITION with First Operational Premium – SUBLEDGER POSTINGS

Discretionary BenefitDirect Acquisition

CostOther Cash

InflowContractual Service

MarginGuaranteed

Benefit/Claim

266,67

113,26

113,26

43,96

Expense Other Cash Outfl.

Guaranteed Obligation

Risk Adjustment

Premium sum Valuation

Option Valuation

IS Ba L: Op. In-Transit Financial Processing

IS PL R: Premium sum Operational

IS Ba L: Premium sum Operational

43,96266,67

35,46

35,46

913,16

77,251518,73

5

75,75

913,1675,75

77,25

1518,73

5 3500 3500

3500 3500

76,14

Accounting-driven approach for compliance and detailed insights

Subledger Accounts

Actual data coming from external systems (ex. core insurance,..)

Expectation based accounting figures

Advanced multi GAAP accounting approach to simplifyFinance

Nominal risk freediscounting

IFRS 17 valuation

Residual cashflow deferral

Margin for capital costs

Actuarial baseline Actuarial baseline

Nominal risk freediscounting

Market 1 GAAP

Residual cashflow deferral

Prudent adjustment todiscounting

Prudent adjustment tocashflows

Prudent adjustment todiscounting

Nominal risk freediscounting

Internal Valuations

Residual cashflow deferral

Margin for capital costs

Nominal risk freediscounting

Market 2, 3, 4… GAAP

Margin for capital costs

Actuarial baseline

Swiss RE Insights: https://vimeo.com/picturesmith/review/216365639/73c2de0d78

Digital Boardroom

Digital Boardroom

Completing the bridge

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Financial Products Subledger

HANA

Lifecycle & Closing Management

Advanced Multi-GAAP Management

Finance & Risk Data Model

Profitability, Solvency & Allocation

Accounting for Insurance Contracts

Accounting for Financial Instruments

Provide source dataPreparation of Future Cash

Flows

Valuation and Accounting

PresentationDisclosures,

Analysis, Reporting

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The information and opinions contained in the presentation are provided as at the date of the presentation and are subject to change without notice. Although the information used was taken from reliable sources, Swiss Re does not accept any responsibility for the accuracy or comprehensiveness of the details given. All liability for the accuracy and completeness thereof or for any damage or loss resulting from the use of the information contained in this presentation is expressly excluded. Under no circumstances shall Swiss Re or its Group companies be liable for any financial or consequential loss relating to this presentation.

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