S/4HANA Financial Products Subledger

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S/4HANA Financial Products Subledgerfor IFRS, Multi-GAAP & Solvency


With IFRS17, the International Finance Reporting Standards aims to establish one set of principles for recognition, measurement,presentation and disclosure of insurance contracts for better transparency to its customers and stake holders. The new financialreporting standards will represent the most significant change to insurers accounting requirements in over past 20 years.

One accounting model for all insurance contracts in all IFRS jurisdictions.

To digitize ever increasing regulatory complexity, transformation to support IFRS17 cannot be looked at in isolation but to vision multi-GAAP and Solvency support via one solution platform.

SAP’s latest technology can support and complement one of the most pressing needs of the insurers and re-insurers in their Life/Health and Property/Casualty businesses.

Additionally, how S/4HANA Financial Product Subledger brings a platform that uniquely satisfies Multi-GAAP, Solvency requirements along with fulfilling the urgent need to comply with IFRS17 standards for now.

Overview & Scope

Definition & Scope

Separation of components

Gen

eral

Mod

elPr

emiu

m

Allo

catio

n Ap

proa

ch

CSM

Risk Adjustments

Discount Rate

Expected Value of future cashflows

Varia

ble

Fee

Appr

oach

Liability for remaining Coverage

Risk Adjustments

Discounting

Cashflows of claims liability

Presentation/ Disaggregation

Re-Insurance Held

Transition

Disclosure

Preparation Valuation Financial Insight

Overview Financial Insight Valuation Preparation & Data Requirements Key takeaways Customer Stories

Source : EY – applying IFRS17, 2018


Presentation Requirements

IFRS17 specifies minimum amounts of information that need to be presented on the face of the statement of financial position and financial performance. These are supplemented by disclosures to explain the amounts recognized at the face of primary financial statement

IFRS17 also requires separate presentation of amounts related to insurance and re-insurance contracts held in primary statements. There is a greater need to have sub-analysis of the required line items that can make reconciliation of values on the face of statements of financials more understandable.

IFRS17 requirements also require addition of line items on the face of financial statements, including disaggregation of line items. Headings sub-totals on the face financial positions and financial performance when such presentations is relevant to an understanding of the entity ‘s financial position and performance

Statement of financial position

Statement of financial

performance

Insurance Revenue

Insurance Finance income

or expense

Disaggregation

Insurance Service

Expense

Key Financial Statements

Source : EY – applying IFRS17, 2018



Valuation techniques & Financial Products Subledger Calculation EngineIFRS17 has three measurement approaches and the principles underlying these measurements approaches result in a fundamental change to the current regulatory and reporting practice. The detailed requirements are marked differently from existing models in a number of critical aspects

Ø Change profit emergence pattern.Ø Speed up recognition of losses on contracts that are expected to be onerous Ø Add complexity to valuation process, data requirement, assumption settings and analysing and communicating results.

In next sections we will see the IFRS17 requirement of greater granularity in contracts grouping for valuation purposes which can be handled by SAP FPS solution.

General Measurement Model Approach, also known as Building Block Approach

Default valuation approach for non-participating contracts

Insurance Contracts valued using fulfilment cashflows – the present value of probability weighted expected future cashflows plus the risk adjustment.

Plus a Contractual Service Margin (CSM), which represents the profit the insurers recognises based on the transfer of services to policy holder over time.


Contractual service margin

Risk adjustment

Discount rate

Expected value of futurecash flow

Build

ing

Bloc

k Ap

proa

ch

Varia

ble

Fee

Appr

oach


Premium Allocation Approach

Valuation techniques & Financial Products Subledger Calculation Engine

ØOptional simplified approach for contracts with duration of an year or less. Or where it is reasonable approximation of the general model.

Ø Insurance contracts valued as a liability for remaining coverage and an incurred claims liability

ØSimilar approach to existing non-life insurance contract measurement or liability for remaining coverage.

Ø Incurred claims liability discounted plus a risk adjustment

Ø Applies to contracts with direct participation feature, as defined by three criteria Ø Based on policy holder sharing in the profit from clearly identified pool of items. Ø Insurance liability based on obligations for the entity to pay the policy holder an amount equal to the value of the underlying items, net of a consideration charged for the contract – a variable fee.

Variable Fee Approach


Liability for remainingcoverage

Risk adjustment

Discount rate

Cash flows of claim liability

Prem

ium

Al

loca

tion

Appr

oach

Contractual service margin

Risk adjustment

Discount rate

Expected value of futurecash flow

Build

ing

Bloc

k Ap

proa

ch

Varia

ble

Fee

Appr

oach


CSM Use Case

IFRS17 calculationInitial recognition : 01.01.2017 – CSM calculationsSubsequent measurement on 31.12.2017

Assumptions Valuation Technique: General measurement approach (non-participating contracts) Contract Duration: 6 Years Estimated cashflows:

Premium: 4.800.000,00 EURClaims: 2.175.000,00 EUR

Negative interest rates for CSM accrual Risk Adjustment (Calculate outside) 500.000,00 EURCSM Release Pattern 1st year = 10%Actual transaction match estimated cashflows Contract is not onerous

Result at initial recognition CSM at IR

Premiums 4,800,000.00Claims -2,175,000.00Discounting effect Premiums -22,644.78Discounting effect Claim 18,822.56Risk Adjustment -500,000.00Opening Balance 2,121,177.78

CSM at 31.12.2017Opening Balance 2,121,177.78CSM unwinding -6,384.88CSM Release -211,479.29CSM Closing Balance 1,903,313.61

Result after 1st period



Insurance Contract Data

• External No.

• Business Record Date

• System Date

• Legal Entity

• Object Start Date

• Object End Date

• Status

• Coverage

• Valid From Date

• Valid To Date

• Line of Business

1:n coverages or Treaty section items

This template steers the look and feel and the available fields of this master file

Actuarial data Market DataSource Data

31 2


Insurance source data templates, hierarchies, posting of basic data, customer information, insurance risk coverages etc. Together with business specific dimensions and attributes.


Best Estimate Cash Flows (BECF) as provided from the actuarial system

Actuarial data Market DataSource Data

31 2


Gathering of data from actuarial systems.

In exampte: SAP shows BECF posting


Market Data

Market Data

31 2

Actuarial data Source Data


Yield curves are provided as input to the solution and are used to discount the best estimate cash flow projections.


IFRS17 Business Content

Primary and ReinsuranceAll three measurement models (GMM, PAA, VFA)P&C, Life and Health and Savings business

Natively integrated Subledger

• Transparent, forth and back audit and reconciliation trail from subledger to general ledger

• Standard integration with SAP General Ledger

• Subledger following the rules of bookkeeping

State of the art architecture

Flexible Integration

Detailed Analytics

High Efficiency

Future proof investment

Financial transformation beyond IFRS17Support of external and internal valuation approachesStep-wise, flexible approach into Multi-GAAP valuations


SAP Financial Product Subledger – Key Takeaways


25+ New Customers Globally Different Use Cases• Finance and Risk Data

Platform Approach• IFRS 17, 9• Multi-GAAP Accounting• Solvency II• Accounting Hub

GlobalAdoption• NorthAmerica• SouthAmerica• Europe• Asia• Africa

Global Adoption of SAPs IFRS17 Subledger for Finance and Risk Calculation

Overview Financial Insight Valuation Preparation & data requirements Key take ways Customer Stories


Talanx Insurance Group

Organization: Talanx Headquarters: Hannover, Germany

Products and Services: Primary Insurer, B2B focus Employees: 22,000

Finance Transformation – Ensure IFRS17 Compliance and Increase FinanceProductivityCustomer ObjectiveCompliance/Controls: Achieve IFRS17 compliance ahead of official timeline to stabilize processes in new accountingregimeAnalytical Capability: Ensure analytical availability of finance data for planning and simulationsInnovation: transparency of financial data from general ledger to source dataAutomation: Increase efficiency by reducing manual data acquisition and reconciliation processes to shorten closingtimelineData Lineage: Enable traceability from external financial statements to source systemsOperational Costs: Leverage cloud-based deployment option for scalable infrastructure and consumption-based monthly installmentsScalable platform: Consider highly expected growth rates of data volume due to financial and management reporting granularity requirements and the number of GAAP’s

SAP DifferentiatorsSuccessful Proof-of-Concept based on rigorous use cases on customer dataAuditor proven E2E multi-GAAP platform with robust business processes and flexibility for extensionsRoadmap for solution with SAP HANA in-memory as underlying technologyScalability with data aging supportAnalytical capabilities based on an open business intelligence interfaceIntegration with SAP ERP for drill-down from financial statement to source data

12

Overview Financial Insight Valuation Preparation & data requirements Key take ways Customer Stories


Sofia LamrhariAccount Executive, Financial Services

p +46 (0) 702 776 010m [email protected]

Contact us for engagement and more information

Harald AlpstenSenior Account Executive, Financial Services

p +46 (0) 702 820 267m [email protected]

Anders EfraimssonPrinciple Solution Architect & Digital Transformation Advisor, Financial Servicesp +46 (0) 733 587689m [email protected]

mailto:[email protected]



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S/4HANA Financial Products Subledger