IFRS17 and the possibility of a financial transformation

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IFRS17 and the possibility of a financial transformation

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Agenda

Ø Finance function of the future: IFRS17 as a stepping stonefor a financial transformation.

Ø How to go from feasibility study to implementationof IFRS 17 in the best way

Ø Customer stories: how Swiss Re and Brighthouse managed tomodernize its finance function and ensure regulatoryrequirements simultaneously

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SAP S/4HANA -to boost your application’s intelligence

DigitalPlatform

DataManagement

CloudPlatform

IntelligentSuite

AI/ML | IoT | Analytics

IntelligentTechnologies

PeopleEngagement

DigitalCore

Network & SpendManagement

CustomerExperience

Manufacturing &Supply Chain Machine Learning

ConversationalAI

IntelligentRPA

ML & DSFoundation


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Finance functions need to continue to evolve to reflect wider operating modeltrends… (lens 1)To be the custodian of financial AND non-financial data requires Finance to adopt new technologies and gain new skills to become more proactive andcommercially-minded, better tuned to provide leadership with support for strategic and tactical decisions.

CFO / CAO


Finance functions need to continue to evolve to reflect wider operating modeltrends… (lens 2)

Futu

reSe

tUp

Corporate Finance GBS Business Units Local Finance

Curr

entS

etU

pN

ewSk

ills

• Continuous reorganization of epic agile teams inresponse to changing business challenges (CarveOut, new BU’s, etc.)

• From functional to agile lead organization• Corporate Multiple location• Global data transparency and availability

enables central services• Capabilities to provide better services

• GBS set up as true end-to-end organizationmanaging the majority of backoffice and certainfront officeactivities

• GBS workforce numbers being reduced out ofdigital processing

• CoE set up as shared expert teams thatcanprovide advise and support on complex data /digital enabler

• BU to manage non-uniform grouping of units /product portfolios driven by regional businessneeds

• BU focus on business controlling to provideinsights to business

• CoE provides guidance / support on complexControlling tasks, tools and data

• Local focus on accountability businessperformance pushed closer to the front linethrough smaller, more focusedunits

• Corporate Finance, CoE and GBS provides expertservices to local

Tax

Treasury

Risk &Complia

nce

GroupAcct.

CFO

M&AGroupContr.

BUControlli

ngLocalAcct.

LocalContr.

CFOCFO

CEO

TaxBPConso

lid.

CEO

TRBP

CEO

GBS

AP, AR, FA,GL, IA

CVO

CEO

GBS

O2C,P2P,A2R,H2R,

,…

CoEAnalytics,TaxCons.,

…

Epicagileteams

GACTax

Risk &Security

TR

CEO

MDBU

Controlling


… and to do this Finance has the opportunity to leverage new organizationand talent models, as well as digital technologies

Organization and talent Digital technologies

Intelligent Automation(RPA, ML andAI)*

Close ProcessAccelerators

(e.g. BlackLine) Blockchain

Big data andadvancedanalytics

Digitalprocess Next-gen SaaSERPs

Foundational capabilitiesProgram and change management

Data management and governance

Next-gen GBS anddelivery model

Skillsupdates

Innovationandinclusiveculture

New rolesand talent

needs

* - RPA – Robotics Process Automation, ML – Machine Learning, AI- Artificial Intelligence


Vision of Finance TransformationFrom daily routine to supporting growth and new business models

Automation

Runningthe Business

Insights

Operations

DeliverInsights

Operations

PredictiveInsights

Backwardlooking

Real-timeInsights

AdvancedAnalytics

SupportStrategy

Operations

Forwardlooking

PredictiveInsights

Real-timeInsightsBackward

looking


FINANCEOPERATIONS

Subledger

Subledger

Subledger

Subledger

Subledger

Subledger

GeneralLedger

Planning& Budgeting

Profitability

Cost Controlling

Consolidation

Special PurposeLedgers

Leads &Quotations

Policies

Claims

Collections& Payments

Actuarial

Investments..

Each application manages itsown accounting

Operational & Market DataProvision

Generation ofBest EstimateCash Flows

Calculation ofRisk

Adjustment

Allocation of riskadjustment,Direct costs

DiscountingCashFlows

Deferral ofProjections

Deferral ofActuals

&CSM Calculation

Creation ofsubledger

journal entries

Creation ofGeneral Ledger

entries

Consolidation,Disclosure

Preparation,Planning Update

Insurance Financial FlowsInsurance Financial Flows


Agenda





IFRS17


Uncertainty about IFRS interpretations and solution designcan be managed through iterative design work

Other ongoing initiatives on data supply

Preparation Phase

• Interpretation ofregulations

• knowledge Building• Understand conditions• Goal and ambition• Overall requirements• Mobilization• Gap Analysis

ImplementationPhase

• Detail ofrequirements

• Detail ofdesign

• IterativeImplementationof systems anddata

Parallelcalculation andoptimizationphase

• Iterativeimplementation

• Introductionof changedprocesses

Iterative design

Go-live


Implementing SAP S4HANA Financial Products SubledgerHigh-Level Overview on Deliverables (according to SAP Activate project methodology)

System ProcessDefinition (SPD)

Solution ArchitectureAbstract

Delta DesignBaseline Build & Solution Validation

Functional Specification(FS) RICEFW

ConfigurationRationale

Technical Specification(TS) RICEFW

FSI Test Package

Prepare Explore

Configured System(RDS)

Customer BasicSettings

Prioritize ProjectBacklog

Product SpecificationMatrix

Realize Deploy

Architecture Big Picture

Test Strategy

Scope & ValueDetermination

Release Strategy

Project Backlog

Project Overview

Governance

Detailed ArchitectureDesign (DAD)

Value Audit

Cutover ManualConfiguration Guide

SAP ReleaseDocumentation

Data Migration SupportSprint Backlog


In the preparation phase of the “Best Estimated CashFlow” we aim to understandhow the BECF is expected to come into being, following a six step procedure

Define actuarialgranularity

Estimate incurredamounts

Acknowledgeactuals

G P I R D S A G P I R D S A G P I R D S A

Split intoexposure periods

Account for thepassage of time

G P I R D S AG P I R D S A

Convert lifecycle

G P I ExposurePeriod A

■ The exposure period split helps synchronize how premiums are earned with how claims occur■ It is performed on the basis of:

● The temporal distribution of claims● A potential seasonality pattern● Information on the duration of the underlying primary insurance contracts if needbe

■ In reinsurance and in the case of claims-made or claims-occurring basis, the lifecycle mismatchbetween reinsurance treaty and underlying direct insurance policies is dealt with in terms ofadditional “modulation cashflows” which undergo the same process chain thereafter

© 2018 SAP SE or an SAP affiliate company. All rights reserved. 18

That way, we can tracehow estimated amounts:

■ Are first incurred,

■ Then reported,

■ Then become due,

■ Finally become cash

■ (are “settled“)


Zerodiscount

rates

Locked-in yield curves Current yield curves

Nominalrisk-free

Inflationriskadjusted

Liquidity riskadjusted

Credit riskadjusted

Prudence-adjusted

Nominalrisk-free

Inflationriskadjusted

Liquidity riskadjusted

Credit riskadjusted

Prudence-adjusted

Curr

enta

ssum

ptio

ns

Best-Estimate Cashflow

Cashflowfilters

Contract boundaries

Recognition ofunderlyingbusiness

Derecognition of dis-tinct lifecycle buckets

Cashflowadjustments

Inflation adjustmenton level of cashflow

Resulting cashflow

ssum

ptio

nLo

cked

-ina s

Same as previous cashflow, based onlocked-in actuarial assumptions

Same as previous cashflow,prudence-adjusted

…by starting out from one and the same point and running through asequence of cashflow deltas followed by a sequence of valuation deltas..

CFM0

+∆1

+∆2

…

N/A

∆ 1

Present value calculated as basis for calculating valuation deltas

Valuation delta calculated as difference between two present values

Cashflow delta

Common starting point

Helps split off anunwind effect

∆ 2

Takes into account

© 2018 SAP SE or an SAP affiliate company. All rights reserved. 19

interest change risk


Agenda





FINANCEOPERATIONS

SAP S/4HANA -Financial Products Subledger


GeneralLedger

Proposed Architecture – IFRS 17 and Beyond

Insurance Policy System

Policy &Transactional Data

Actuarial system

Actuarial Models(Best Estimate

Cashflow)

Target SystemsSource System

Source Data Layer(SDL)

Process & Methods Layer(PML)

SAP DataServices

Financeand Risk

DataPlatform(FRDP)

Data Load Layer(DLL)

S/4HANA Financial Products Subledger

SAPPerformanceManagementfor FinancialServices (forECF use case)

SAP BusinessObjects

SAP Analytics Cloud

HANA

ResultsDataLayer(RDL)

SAP DataServices

Insurance PolicyMarket Data

EDW

Advanced Financial Closing

3rd party analysis


25+ Customers Globally•••

•••••••••••

Leading Insurer in PortugalInternational Insurance Group inSpainInternational Insurance Group in Italy andadditional 5 local Insurers in ItalyTalanx2 top AustrianInsurersNo. 5 in GermanyCredendo BelgiumNo. 2 in SouthAfricaGreat West Life / CanadaNew York LifeFive further US InsurersOne South AmericanInsurerTwo International Swiss Insurers…

Different Use Cases• Finance and Risk Data Platform

Approach• IFRS 17• Multi-GAAP Accounting• Solvency II• Accounting Hub

GlobalAdoption• NorthAmerica• SouthAmerica• Europe• Asia• Africa

Global Adoption of SAPs IFRS17 Subledger, Data Managementand Finance and Risk Calculation Engines

2828


FINANCEACTUARIALOPERATIONS

ANALYTICS, REPORTING & DISCLOSURE

Operational & Market DataProvision

Generation ofBest EstimateCash Flows

Calculation ofRisk

Adjustment

Allocation ofrisk adjustment,

Direct costs

DiscountingCashFlows

Deferral ofProjections

Deferral ofActuals &

CSM Calculation

Creation ofsubledger

journal entries

Creation ofGeneral Ledger

entries

Consolidation,Disclosure

Preparation,Planning Update

General Ledger

Business Planning

Consolidation

Governance &Compliance

Financial Asset Management

Policy

Claims

Billing

Reinsurance

Market Data

InsuranceFinancial

Flows

InsuranceFinancial

Flows

Group Finance

Stochastic Calculations

Model Calibration

Planning

Simulation

What-if Analyses

Finance & Risk Data Model

SubledgerLifecycle & Closing

Management

Profitability, Solvency & Allocations

Advanced Multi-GAAP Management

IFRS17 and local GAAPs

IFRS9 and local GAAPs

SAP S/4HANA -Financial Products SubledgerCovering full Insurance End-to-End financial flows


Include IFRS 17 within a more comprehensive Finance Business Process

Process FlowOrchestrator

SubledgerAccounting

Load

Master Data and BTsGeneration

LoadDLL

IFRS17Engine

ECP

CFs + Yc GenerationActuarial

Address VariousStakeholders

EOPOpenPeriod

DataPreparation

G/L

G/L Update

Close EOP

IFRS 17 Calculations (CF Rec/ Disc, RA, CSM, S/L Postings)IntraDay Day End PeriodEnd

EOD[CF dataValidation] [CF+Bts D/C Validation][BTs dataValidation]

Additional DataValidationpoints

Approve S/LPosting

G/L Posting Generation

Cashflow Cashflows Preparation Approve S/L PostingsGeneration

HANDSON


Successfully deliver the 36 hours sessionsCustomer’s data, at their site, with people from various counties, with their processes, …

HANDSON

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Organization: Insurer

Headquarters: Italy

Products and ServicesIt is one of the biggest insurance players in Italyforthe P&C business and worldwide leader fortelematics insurance products andservices

Italian InsurerInsuranceAnalyzer – Accounting For InsuranceContracts

Customer Objective• Compliance: Achieve IFRS17 compliance• Integration with existing SAP and non-SAP operative and analytical

solutions• Analytical Capability: Ensure analytical availability of finance data for

planning and simulations• Innovation: transparency of financial data from general ledger to source

data• Automation: Increase efficiency by reducing manual data acquisition and

reconciliation processes to shorten closing timeline• Data Lineage: Enable traceability from external financial statements to

source systems

SAP Differentiators• SAP FPS as standard software with a high degree of market-

readiness• Successful Workshops and Demonstration sessions based on

existing IFRS17 business content• Integrated functional and technical expertise and extensive partner

network to successfully deliver the IFRS17 project


FINANCE TRANSFORMATION REFERENCESTRATEGIC CO-INNOVATION

ContextToday insurance companies have to manage and report their business according to a large range of different valuations and regulatory reportingstandards. Maintaining compliance and consistency is therefore a challenging process, especially as valuations are typically performed sequentially and with manyredundancies.

ChallengesNew regulations, such as International Financial Reporting Standards (IFRS) 9 and 17, will also enforce additional reporting requirements. Thesechallenges make it difficult for insurers and reinsurers to capture reliable, comparable financial information for reporting and decision-making. They alsosignificantly increase internal process complexity, reporting efforts and operating costs.

SolutionsSwiss Re and SAP are working on a new approach to generatemultiple valuations and apply financial steering methods basedon the SAP HANA platform, enabling processes to be automated andcontrolled in a simple, effective way. Over the last few years, SwissRe and SAP have already made significant progress in this area.Swiss Re has applied its deep industry knowledge to create asophisticated multiple-valuation accounting approach to resolverelated operational and regulatory challenges. During the same time,SAP has made significant technology developments with SAPS/4HANA, SAP HANA, and cloud-based solutions

Press news: http://news.sap.com/sap-and-swiss-re-co-innovate-for-financial-reporting-and-business-steering-in-reinsurance-and-insurance/

Benefitsü Manage increasing regulatory complexity with the ability to easily

incorporate new valuations and reporting standards (such as IFRS andU.S. GAAP) on an ongoing basis

ü Reduce reporting efforts by generating multiple financial valuationssimultaneously

ü Cut the time spent on operational tasks and controls, while increasing thecapacity for analytics

ü Create the ability to steer the allocation of financial resources

Luka Mucic, CFO and Member of the Executive Board of SAP SE, added:“We are proud to work with Swiss Re, a company with profound industry knowledge, to drive the development of new solutions that will provide the insurance and financial sectorswith a significantly simplified approach to solving their sophisticated needs. It’s our firm belief that co-innovation projects like these are what will guide and shape the future of ourindustry.”


New YorkLife

Organization: New York Life Insurance CompanyHeadquarters: New York, USA

Products and ServicesNYL is the largest mutual life-insurance company inthe United States, and one of the largest life insurersin the worldEmployees: 11,463

Adopting to regulatory changes with improved user experienceObjectives

• Better adhere to external regulatory changes

• Navigate and automate complex financial planning process• Empower the business user with modern and responsive user experience

Resolution• Digitized key business processes in finance, procurement, expense management,

and human capitalmanagement

• Deployed the SAP Insurance Analyzer analytic applications, whichharmonize, validate, and error-correct post-accounting data for 30 differentNew York Life source systems

• Implemented SAP S/4HANA, which delivers a single source of truth so thecompany can gain accurate, real-time insights on all corporate andcustomer data through an integratedplatform

Future plans• Improved actuarial modeling capabilities• More-efficient financial reporting and faster processing speeds• Higher transparency and better controlling results thanks to detailed cost

allocation in the planning process• Improved performance in reporting and complex custom-build planning

functions, such as calculation of depreciation and top down distribution

SimplifiedArchitecture

ReducedTCO and datareplication

IntegratedFinancial & HRplanningand reporting


Organization: Brighthouse Financial ServicesHeadquarters: Charlotte,NC

Products and Services: Brighthouse Financial, It’score business is life andannuities.Employees: 2,500

Brighthouse FinancialA Best in Class, Best in Cost, Enterprise Data Warehouse to Handle Customer, Financial andRiskCustomer Problem StatementBrighthouse Financial has a very aggressive timeline to stand up an enterprise datawarehouse. This warehouse needs to be robust enough to handle the intricaterequirements of a life insurance company, but simple and agile enough to handle thechanging needs of customers and their own internaloperations.

Customer Objective• Make better decisions, faster• Move off the multiple Met Life data stores• Connect to mission critical operational data from multiple sourcesquickly• Provide a robust data warehouse to analyze customer, financial and riskdata• Stand up before December 31, 2017.

SAP Differentiators• Fully integrated end-to-endoffering; DataAsAService• Insurance data model to handle difficult business process rules andcontent• Industry specific software, with industry specificpeople• Competitive 5 year ROI vs a multi vendorapproach


+ DATA MODEL

Finance & Risk Data Model

ü Open and easy to enhance

+ E2E INTEGRATION

G/L Integration

Actuarial Integration

ü Seamless G/L Integration

ü Non-SAP GL connection

ü Estimated CF Preparation

ü Native connection with SAPReporting & Analyticssolutions

+ BUSINESS CONTENT

Multi-GAAP Accounting

ü “Real” subledger accounting solution

ü Flexible and preconfiguredaccounting engine (CSM, RA, CFDiscounting)

ü Central GAAP + Delta Approach

IFRS17, IFRS9

+ MODERN DATA PLATFORMSAP HANA

ü Best-in-class SAP technology with a robust,layered and scalable architecture

ü Both Transactional and Analyticalü Embedded integration with R

ü “Single version of the truth” across the organization thanks to easy to consume data

ü Ensures compliance with legal requirements on the basis of provenconcepts

ü Acceleration and increased automationof closing process

OPERATIONALEXCELLENCE

ü Streamlined integration with other solutions (Actuarial,Finance and Operation)

ü HANA as pillar technology to assure speed,scalability and robustness

ü Reduced data footprintü Preconfigured Data Model

and business content

CONTROL ofCOMPLEXITY

and TCO

SAP S/4HANA -Financial Products SubledgerValue and Capabilities -Summary


Why SAP Financial Products Subledger?

• Adherence to the principles of proper accounting including non-deletion,creation of protocols, correct authorization, auditability and version control

• Drill down possibilities from general ledger level to individual contract level• Consistent currency concept across subledger and general ledger• Single platform independent of the number of accounting regulations,

source operational or source actuarial systems• Extensive data validations• Real-time access to data for reporting purposes in relevant accounting

reporting dimensions• Accounting process triggered by events and operational postings always

available for up-to-date P&L information• Seamless integration into downstream systems such as general ledger, the

consolidation processes and disclosure tools on different granularities


Contact for engagement and more information

Anders EfraimssonPrinciple Solution Architect & DigitalTransformation Advisor, FinancialServicesp +46 (0) 733 587689m [email protected]

mailto:[email protected]

Documents

IFRS17 and the possibility of a financial transformation