Accounting in Transition From bookkeeping to strategic steering
02 May 2018
2
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
44
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
29
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
30
Legal notice
©2018 Swiss Re. All rights reserved. You are not permitted to create any modifications or derivative works of this presentation or to use it for commercial or other public purposes without the prior written permission of Swiss Re.
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.
31