SAP Solution in DetailSAP for Insurance

MEETING TODAY’SINDUSTRY CHALLENGESWITH SAP® FINANCIALASSET MANAGEMENT

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Executive Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

SAP for Insurance: An Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

A Closer Look at SAP Financial Asset Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7Investment Management. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7– Comprehensive Functions for Transaction Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7– Support for a Broad Range of Financial Instruments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10– Easy Importing of Market Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11– Open Interfaces. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11– Strong Reporting Functions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11Investment Controlling . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13– Real-Time Data Retrieval . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13– Customized Portfolio and Risk Hierarchies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14– Comprehensive Market Risk Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15– Flexible Performance Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17– Broad Default Risk Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18– Useful Limit Management Tools . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19– Streamlined Reporting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20Extensions of the Solution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20– Strategic Capital Asset Planning and Controlling . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21– Integration of Portfolio Management Systems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21– Investment Fund Look-Through. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22

Outlook and Strategy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22

Let SAP for Insurance Improve Financial Asset Management for You . . . . . . . . . . . . . . . 24

Table of Processes Supported by SAP Financial Asset Management . . . . . . . . . . . . . . . . . 24

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CONTENTS

The SAP® Financial Asset Management application is an essentialpart of the SAP for Insurance solution portfolio. The applicationhelps insurance companies manage and control a broad range offinancial investments – including equity and fixed-income secu-rities, money market instruments, loans, foreign exchange instru-ments, and derivatives – from the initial entry of financial trans-actions through general ledger accounting.

SAP Financial Asset Management provides straight-through processing for financial transactions. Transactions are enteredonly once in the system. The system then automatically passesthe information from a firm’s front office to its back office.Insurance companies can use the application to handle any num-ber of accounting standards in parallel and address many of thestandards demanded by national tax-accounting requirements,U.S. Generally Accepted Accounting Standards (U.S. GAAP),purchase GAAP, various local GAAPs, and international account-ing and financial reporting standards (IAS/IFRS).

For controlling processes, SAP Financial Asset Management auto-matically takes into account all information on financial assetsand liabilities available within the system. The application alsoimports financial market data such as interest or exchange ratesfrom external providers, and uses this information for analyses ofmarket risk, default risk, and performance associated with a com-pany’s financial assets. A flexible limit-management tool isanother key feature.

Using SAP Financial Asset Management with complementarysoftware such as the SAP Cash and Liquidity Management appli-cation and the SAP NetWeaver® Business Intelligence (SAPNetWeaver BI) component provides support for electronic bank-ing, short-term liquidity planning, and advanced analyticalreporting.

SAP Financial Asset Management benefits from SAP’s deep expe-rience in the insurance industry. The application is running atmore than 90 insurance companies around the world, each man-aging assets ranging from US$1 billion to US$150 billion for atotal of US$500 billion. Further, more than 100 banks and 800corporate treasuries also use the application.

By implementing SAP Financial Asset Management, your company can expect to accomplish the following:

• Reduce processing costs through integrated, end-to-endprocesses that range from deal entry to financial accounting

• Accommodate several accounting standards in parallelwithout additional effort

• Achieve fast closes through automated accounting processes

• Speed up and simplify statutory reporting

• Meet auditing requirements and reduce operational riskwith sophisticated authorization options, extensive change pro-tocols, and segregation of duties concepts

• Manage risks and compliance with state-of-the-art riskanalysis and control

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EXECUTIVE SUMMARY

SAP Financial Asset Management is one of several core applica-tions within the SAP for Insurance solution portfolio – whichalso supports such business processes as policy management,claims management, collections and disbursements,commissions, reinsurance, and product management. (See Figure 1.)

Figure 1: SAP® Solution Map for the Insurance Industry

Applications within SAP for Insurance include the following:

• SAP Policy Management, which supports the complete lifecycle of policy administration, from acquisition through anychanges to the contract’s conclusion. The application includesbasic functions for managing products and contracts for alllines of business in all countries, including support for life andhealth insurance.

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SAP FOR INSURANCE: AN OVERVIEW

Customer,Partner and

Market

Capital Market & Reinsurance

Market Research & Product Definition

Market Development & Distribution

Underwriting Account Maintenance & Customer Care

Claims & Benefits Investment & Risk Management

Product ManagementMarket Research and Product Ideas

Product Development and ImplementationProduct Life-Cycle Management

SalesSales Planning and Controlling

Sales Force Management Customer Analysis and Marketing

Acquisition and Application Creation

Underwriting and Policy Issuance Midterm Policy Changes and Information

Automated Policy Administration

ClaimsClaims Handling and Fulfillment

Claims Recovery

ReinsuranceReinsurance Risk Management

Treaty and Facultative Reinsurance Administration Treaty and Facultative Reinsurance Accounting

Financial Asset Management Asset Allocation

Portfolio Management

Portfolio Accounting Portfolio Controlling

Insurance Business ServicesCollections and Disbursements Business Partner Management

Enterprise Management & Support

Underwriting and Policy Administration

• SAP Reinsurance Management, which helps direct insurersand reinsurers optimize their entire reinsurance business,regardless of where their partners are across the globe. Theapplication provides a single system for processing allelements of the reinsurance business. This includes active and passive reinsurance, proportional and nonproportionalproducts, facultative and obligatory programs, and even “lifeand non-life” or “marine and non-marine” reinsurancetreaties.

• SAP Financial Asset Management, which manages,automates, and optimizes the whole investment process. Sup-port from the application spans deal and order entry tosophisticated analyses of the risks and performance for a com-pany’s investment portfolios.

• SAP Insurance Commissions Management, whichmanages all related transactions, agreements, and data to helpinsurance companies focus on sales strategy and results. Theapplication gives insurance companies the power to monitorsales activity, encourage new sales, and adapt to changingmarket conditions.

• SAP Claims Management, which integrates the entire claimsmanagement process, from incoming claims to salvage real-ization. The application lets insurance companies dramatical-ly accelerate claims processing and keep costs down, whilesatisfying customers with closer attention and faster service.

• SAP Insurance Collections and Disbursements, whichperforms all related business processes quickly and precisely,across businesses or in a single system.

SAP for Insurance is an advanced set of industry-specificsolutions that help insurance companies amplify business per-formance and adapt successfully as their markets evolve. Thesolutions provide a flexible, integrated, and robust technologyplatform that efficiently handles both current and changingstandards while supporting industry best practices. Insurers canuse this platform to reduce total cost of ownership, improvecustomer service, and align key insurance processes across orga-nizational and technological boundaries. Only with SAP for

Insurance can you automate processes across the board – supporting such key core business areas as claims management,collection and disbursement, and reinsurance. It is the reliable,high-performance choice for insurers that want to enhance prof-itability and gain a competitive edge through technologicaladvancement.

With SAP for Insurance, you can integrate your entire enterpriseand offer customers cost-cutting packages that give you a much-needed edge in today’s highly competitive market. The advancedsolutions in SAP for Insurance let you easily apply appropriatestandards to the relevant processes and comply with the increas-ing need for transparency across the board. The solutions canalso help you adapt successfully to an electronic marketplace. Aservice-oriented architecture gives customers what they want,when they want it – through flexible Internet portals and otherWeb-based approaches. By giving you the option of using eitherSAP or third-party software, SAP for Insurance helps you stream-line your whole operation, speed innovation, and offer best-in-class service to your customers.

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Insurance companies and pension funds are institutionalinvestors that hold and manage assets for paying policyholderclaims. These assets include both real estate investments and vari-ous financial instruments. SAP Financial Asset Managementspecifically supports the operational management and analyticalcontrolling of financial instruments.

The application includes two fully integrated, yet separatelydeployable components that may be licensed separately. The firstis an investment management component that supports theoperational processing of financial transactions and accountingfor resulting financial instruments. The second is an investmentcontrolling component that supports analytical processing forportfolios of financial instruments with regard to market risk,credit risk, and performance.

Figure 2: Components in SAP Financial Asset Management

Investment Management

What does your investment management process look like today?

• Do you use internal deal tickets to transfer transactions fromthe front office to the back office? Are there redundant dataentries at any point between transaction entry and accounting?Do you handle any valuations or postings manually?

• Do you need to address different accounting standards in parallel?

• Is period-end processing a laborious task that includes manymanual activities?

• Are you sometimes worried about process and system security?

• Can you easily meet future regulatory deadlines?

• Do you think there might be a more cost-effective way toachieve your goals?

By addressing these issues, SAP Financial Asset Management canprovide substantial benefit to firms like yours.

Comprehensive Functions for Transaction Management

Closing and processing financial transactions are at the heart of financial asset management operations. From a trader’s entryof transactions into the system to financial accounting, theseoperations cover all processing over the lifetime of a financialinstrument. SAP Financial Asset Management integrates a rangeof otherwise laborious tasks into a straight-through process thatoffers a clear segregation of duties, provides reassuring trans-parency, and avoids redundant and error-prone data entries. Youcan customize the transaction management process to handledifferent financial instruments individually according to yourspecific needs.

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A CLOSER LOOK AT SAP FINANCIAL ASSETMANAGEMENT

SAP® Financial Asset Management

Investment Management

InvestmentControlling

Transaction manager Market-risk analyzer

Loans management Portfolio analyzer

Statutory reporting Credit-risk analyzer

Transaction management functions within SAP Financial AssetManagement include support for trading, back-office processing,and accounting. (See Figure 3.)

Figure 3: The Transaction Management Process

TRADING

Trading functions help you enter financial transactions, manageorders, and exercise rights. A range of utilities and checkfunctions help traders work as efficiently as possible.

For standardized instruments, such as securities and exchange-traded derivatives, the application defines a securities class thatcontains all master data on the specific security. Traders simplychoose the appropriate security class and enter a correspondingamount and date for each transaction, using convenient shortcutformats such as “++3” for a date three months ahead or “1m” for1,000,000.

Based on the predefinable business calendar(s) assigned to atransaction, the system automatically checks all relevant datesfor nonworking days. If nonworking days are involved, the trad-er receives a warning and can switch to either the preceding orthe following day. When using reference interest rates for float-ing interest instruments, the system automatically suggests the day-count method that corresponds to the reference rate. Thesystem lets users calculate expected cash flows of a transactionon the fly for an immediate overview of the transaction’s cash-flow pattern.

Field selection lets the user adapt the appearance of entryscreens for different financial instruments and define fields asmandatory entries, optional entries, or display only. The usercan remove unnecessary fields from the screen entirely andassign preferred default values. For convenience, users canaccess effective interest rate calculators for fixed-income instru-ments from the deal-entry screen.

When a user enters a transaction, the system displays theimported corresponding market rates (security prices and/orforeign exchange rates) for orientation and control. The usercan set the system to trigger warnings when a transaction ratedeviates more than a definable percentage from the market rate.

The system can automatically derive additional cash flows –such as taxes, fees, commissions, or other charges – based ontransaction data and a rules engine. It automatically derives thecorrect payment details for particular business partners, curren-cies, instrument types, and other transaction criteria.

When a user enters transactions, limit-management functionsautomatically check for limit violations and, if necessary, issue awarning. The system logs all limit violations. The user can alsotrigger a workflow when a limit is breached – notifying a super-visor by e-mail or a short mobile phone message, for example.

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Trading/ New Business

Back-OfficeProcessing Accounting

• Create business partner

• Create order/contract• Define collateral• Give notice of

contracts• Rollover contracts• Exercise rights

• Settle/control contracts

• Carry out correspondence

• Adjust interest rates• Define netting• Create references• Transfer between

securities accounts• Reflect corporate

actions• Review transaction

history

• Trigger postings• Handle payments• Enter reversals• Calculate accruals• Value contracts and

positions• Change holding

categories

Straight-through processing (STP)Instrument-specific setup of processUser-specific roles and authorizationAudit trails and segregation of dutiesConsistent across asset classes

Printing or e-mailing internal deal tickets is no longer necessary,as all further processing of a transaction takes place in the samesystem (due to straight-through processing). If you desire, how-ever, the system can create internal deal tickets automatically.(See Figure 4.)

Figure 4: Deal-Entry Screen for a Security Transaction

BACK-OFFICE PROCESSING

Once a trader enters a financial transaction, the system automat-ically passes the transaction to a back-office processor. The back-office processor controls the transaction for correctness andadherence to company guidelines before releasing the transac-tion. The system supports functions for generating related corre-spondence, including automatic confirmations, and the match-ing of counter-confirmations received by the counterparty.

Position management functions handle security-account trans-fers, import or entry of corporate actions, automatic fixing ofinterest rates, and netting of payments. An alert monitorprovides a real-time overview of exceptions and elapsed due dates.Once processing in the back office is complete, the back-officeprocessor marks the transaction as settled and sends it to theaccounting area.

ACCOUNTING

With accounting functionality, the system automatically carriesout all postings related to transactions that the back office hascleared and transfers transactions to the general ledger in realtime. Fully integrated with the SAP Cash and Liquidity Manage-ment application within the mySAP™ ERP Financials solution, the system also automatically initiates payments at this point.

Period-end processing takes place in the accounting area as well.The system automatically calculates the accounting effects ofsecurity price changes, foreign exchange rate fluctuations, amor-tizations, and accruals and deferrals, as well as carrying out theresulting valuation postings. The system takes into account theeffect of impairments in this process.

SAP Financial Asset Management lets you determine fair valuesbased on imported market data (such as security prices and for-eign exchange rates) or on net present values calculated in theinvestment controlling component. The accounting rules enginein the application is extremely flexible, allowing you to addresslocal as well as international accounting standards required byIAS/IFRS or U.S. GAAP.

SAP Financial Asset Management makes it easy to handle severalaccounting standards at once by maintaining parallel ledgers. Tothis end, you can set up an arbitrary number of parallel account-ing standards (valuation areas) and calibrate each one indepen-dently. This provides the necessary flexibility for defining thestructure of positions, assigning them to holding categories (val-uation classes) and applying the appropriate valuation principlesfor each accounting standard. The valuation function can alsoproduce quarterly or monthly period-end reports, includingoptional valuation resets, to meet the reporting requirements ofaccounting standards such as U.S. GAAP or IAS/IFRS. The highlevel of automation in period-end processing lets you easily meetthe international accounting fast-close requirements.

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For greater transparency, the system fully records all postings inindividual documents that link directly to the related financialtransactions. With a single mouse click, an accountant can traceback the source of any posting in the general ledger. For generalledger purposes, you can reflect parallel accounting standards byexpanding the chart of accounts, tapping special ledgers, or set-ting up several parallel general ledgers.

SEGREGATION OF DUTIES AND CONTROL

Strong transparency and control are essential for a system thatprocesses financial transactions. The investment managementfeatures in SAP Financial Asset Management deliver boththrough extensive check and documentation tools.

SAP’s time-tested role concept handles the segregation of duties.A functional separation of trading, back-office, and accountingactivities is ensured by giving every user a customized role withrelated tasks and authorizations. The system can use traderauthorizations to assign the trading of certain financial instru-ments to specific users. Business-partner authorizations restricttrading activities with specific counter-parties to a definable rangeof instruments. In addition, you can set up release requirementsthat, for example, let you require checks of certain transactionsby one or more additional employees before transferring thetransactions to financial accounting.

Comprehensive documentation functions log all financial assetmanagement activities. For internal and external auditing pur-poses, the system documents a transaction-processing historythat provides snapshots at each step. Additionally, the system logsall transaction changes, with information on the user and time of change, in protocols available for later evaluation.

LINKS TO SAP AUDIT INFORMATION

Links to SAP audit information and data retention tools helpinsurance companies fulfill reporting requirements of the U.S.Sarbanes-Oxley Act and can give tax auditors access to relevanthistorical data.

Support for a Broad Range of Financial Instruments

SAP Financial Asset Management supports a broad range offinancial instruments, including money market instruments,loans, fixed-income and equity securities, foreign exchangeinstruments, and derivatives. (See Figure 5.)

Figure 5: Financial Instruments Supported by SAP® Financial Asset Management

Predefined product categories offer various parameter settingsthat you can adjust for the financial instruments and productsyour company holds. This approach can greatly simplify dataentry and ensure consistent transaction processing.

SAP Financial Asset Management provides substantial flexibilityin setting up conditions and characteristics for specific instru-ments, while ensuring consistency among the processes

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Investment Focus

Instruments

Hedging Focus

Money Market• Fixed-term

deposits• Deposits at

notice• Commercial

paper• Floating-rate

instruments• Facilities

Loans• Mortgage loans• Promissory note

loans• Policy loans• Other loans

Securities*• Fixed-rate bonds• Floating-rate

bonds• Reverse floaters• Zero bonds• Drawable bonds• Amortization

bonds• Index-linked

bonds• Warrant bonds• Convertible

bonds• Dual-currency

bonds• Puts/calls• ABS/MBS• Stocks• Subscription

rights• Investment

certificates• Warrants• Repos/Rev.

repos• Securities

lending

ForeignExchange

• FX spot• FX forward• FX swaps

Derivatives• Cap/floor• Forward rate

agreement• Security

forwards• Swaps

– IRS– CCIRS

• OTC options on– Currency– Interest– Securities– Swaps– FRAs

• Traded futures• Traded options

* Includes short selling and bond issuance

themselves. The ability to customize a transaction managementprocess for individual types of instruments lets you match theprocessing steps to your specific needs. (See Figure 6.)

Figure 6: Product Category Concept in SAP® Financial Asset Management

Easy Importing of Market Data

SAP Financial Asset Management provides a real-time data feedwith a universal, open interface that can import data from anyinformation provider or data-feed platform. The interface cantransfer exchange rates, swap rates, prices for stocks and bonds,reference interest rates, index values, commodity prices, andfutures prices – as well as volatilities for exchange rates, interestrates, security prices, and indexes. To reduce the danger ofimporting incorrect data, you can set up consistency checks that monitor incoming data for suspiciously large deviationsfrom data that the system imported previously.

The system can also import current and historical market datausing a file interface. In this case, the market data that a providersupplies must be available in a file format that the system sup-ports. Alternatively, you can import market data directly from aspreadsheet or enter it manually. The system logs manual entriesand changes to market data for internal and external auditing.

Data that the system imports into the investment managementcomponent is also available to the investment controlling com-ponent for risk and return evaluations. This functionality en-sures consistency in the market data for accounting and analysispurposes.

Open Interfaces

SAP solutions are open systems that let you exchange data acrosssystem boundaries. Because the interfaces remain stable acrosssolution releases, no adaptation or redesign is required after anupgrade.

SAP Financial Asset Management provides interfaces for creating,changing, retrieving, reversing, and counter-confirming individ-ual financial transactions. These interfaces ensure that datatransferred to the SAP system is consistent across individualtransactions. There are also interfaces for creating, changing, and retrieving securities master data and repayment schedules.

The interfaces allow automatic security master data import (suchas ratings), integration with specialized front-office portfoliomanagement systems, or automatic import of transactionsentered in online trading systems (such as online foreignexchange or money market trading platforms).

Strong Reporting Functions

Efficient reporting requires central access to information and theability to structure and present data according to specific guide-lines. The reporting functions offered by SAP Financial AssetManagement help you keep track of financial transactions andcash flows and analyze their impact on financial accounting.

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Money market912828CA6 Treasury NoteCurr.:USD Rating: AAAInterest: 4.000 Mat: 02-15-2014 Department of Treasury U.S.

DE0001049070 Corporate BondCurr.:EUR Rating: AInterest: 6.120 Mat: 10-25-2010Commerzbank, GER

575930SR4 Municip.Rev.BndCurr.:USD Rating: AA-Interest: 2.875 Mat: 12-01-2007State of Massachusetts, USA

. . .

Foreign exchange

Securities

Loans

Derivatives

Floating-rate bonds

Fixed-rate bonds

Zero bonds

Index-linked bonds

. . .

AreasProduct

Categories(system-defined)

ProductTypes

(customer-defined)

Classes(securities and listed derivatives)

Stock

Invest. certificate

Bond

Warrant bond

Convertible bond

. . .

OPERATIONAL REPORTING

The application offers a wide range of predefined operationalreports that can support daily operations or meet periodic andstrategic reporting needs. These predefined reports cover infor-mation for transaction processing – including deal blotters, dataon transaction status, transaction history, open issues, importantdates, and required release correspondence. They also supportreporting related to cash flow and liquidity, position analysis,profit and loss analysis, and accounting information.

You can adapt all of these reports to your specific requirementsthrough field selection, filtering, sorting, or subtotaling. You canthen save the resulting variants of the original standard reportson a personal or company-wide level for later use. Most reportsallow drill-downs to increasingly detailed information – forexample, from transaction summary to transaction detail todetails on the business partner. (See Figure 7.)

Figure 7: Operational Reporting in SAP® Financial Asset Management

You can easily create customized operational reports, withoutcoding, within a few minutes and save the reports for future use.Online reports use out-of-the-box logical databases, whichextract information from various data sources within the systemand translate the data into meaningful key figures. This providesa comprehensive and consistent repository of information for

creating the desired reports. You can access the databases andvarious reporting tools – either SAP or non-SAP – to define thedata selection, information attributes, and report display. Youcan also export this data to Microsoft Office or otherapplications for further processing and presentation.

ANALYTICAL REPORTING

You can expand or adapt the predefined business content inSAP Financial Asset Management for your specific reportingrequirements and upload all relevant investment managementinformation to SAP NetWeaver BI for a variety of analytical eval-uations. Using SAP NetWeaver BI, you can analyze and reportdata received from many different information systems or appli-cations – whether SAP or non-SAP sources. SAP NetWeaver BI isideally suited for strategic cross-area reporting such as jointreporting on financial assets and real estate investments,asset/liability analysis, or quarterly and annual projections. (See Figure 8 and “Extensions of the Solution” below.)

Figure 8: Analytical Reporting Based on SAP® Financial Asset Management andSAP NetWeaver® BI

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STATUTORY REPORTING

Regulatory authorities have traditionally imposed extensive disclosure requirements on insurance companies. These require-ments have expanded significantly in many countries as a conse-quence of the increased volatility of capital markets at the beginning of this decade.

Statutory reporting software in SAP Financial Asset Manage-ment can help you efficiently meet today’s regulatory reportingrequirements. Information from SAP Financial Asset Manage-ment and the SAP Real Estate Management application is auto-matically imported into the statutory reporting application,combined with related master data, and stored in a special ledgerwithin the mySAP ERP Financials solution. From there you canthen generate the reports and forms you need. (See Figure 9.)

Figure 9: Statutory Reporting with SAP® Financial Asset Management

Predefined statutory reports are currently available for thereporting requirements of Germany, Switzerland, and Austria.You can adapt the software to meet the reporting requirementsof other countries.

Investment Controlling

What does your investment controlling process look like today?

• Do you control for market risk and credit/default risk?

• Do you calculate the fair value of your investments on a dailybasis?

• Can you carry out “what-if” analyses based on relative andabsolute market data scenarios?

• Do you calculate your value at risk across all asset classes?

• Can you break down analyses along alternative portfolio hier-archies and drill down to the single-transaction level?

• Can your risk controller view all the operational details of atransaction and review its history and processing status with afew mouse clicks?

• Does your risk-controlling system reflect transactions at thevery moment that traders enter them?

• Can you monitor activities of your traders in real time and setup limits for them?

• Are traders automatically warned if a transaction breaches alimit?

• Do you measure portfolio performance relative to appropri-ate benchmarks?

By addressing these issues, the investment controlling functionsin SAP Financial Asset Management can provide further benefitsto your firm.

Real-Time Data Retrieval

Effective analysis of risk and performance requires data that isup-to-date, accurate, and consistent. Even the most sophisticat-ed calculation algorithms and risk figures are rendered useless ifthey depend on data that is outdated, incomplete, or flawed.Data used for risk and performance evaluations generally stemfrom two sources: current capital market information and aninsurance company’s present holdings of financial assets andcash.

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Statutory Reporting Database

Statutory ReportingMaster Data

Securities Loans Money Market Real Estate

Statutory Reports

Statutory ReportingSpecial Ledger

SAP Financial Asset Management can import real-time marketdata and store it centrally for use by all SAP applications andusers and as input for all investment controlling calculations. Allthe calculations can thus be based on real-time market data.Because the investment management and investment controllingfunctions in SAP Financial Asset Management use the same mar-ket data, accounting and risk/performance analyses areconsistent with each other.

Information about the financial assets of a company is automati-cally retrieved from the investment management component inreal time. Analyses from the investment controlling componentreflect transactions as they enter the system, as well as anychanges to those transactions. For cash-flow analyses, the systemcan retrieve your current cash position and expected cash flowsfrom SAP Cash and Liquidity Management – which captures allliquidity-relevant information across the SAP system, includingfinancial assets and operational insurance business.

The system can easily import information on highly complex,structured instruments. As a result, the investment controllingarea can take assets from other areas or systems into account,such as real estate or itemized mutual fund investments. (SeeFigure 10.)

Figure 10: Data Basis for Risk and Performance Analysis in SAP® Financial AssetManagement

Customized Portfolio and Risk Hierarchies

To manage risk and performance efficiently, you must clearlyquantify the contribution of organizational entities (such asprofit centers), risk objects (such as financial instruments), andindividual risk factors (such as reference interest rates and cur-rencies). This requires support for analyses using a variety of cri-teria and aggregation levels.

SAP Financial Asset Management can display the quantified risk and performance contributions of organizational entities in portfolio hierarchies that you define, according to your com-pany’s needs. You can use various characteristics from yourfinancial transactions and operating cash flows to create these

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Market Data

Investment Controlling

Financial Objects (SAP) GenericObjects

• Exchange rates• Security prices• Reference

interest rates

• Indexes• Swap rates• Commodity

prices

• Volatilities• Correlations• Betas

Third-PartySystems

Liquidity Management

Current cash position

Expected cash flows

Securities

Loans

Money market instruments

Foreign exchange

Derivative instruments

Investment Management

hierarchies – such as trader, transaction currency, type of finan-cial instrument, or exchange. You can also define your own char-acteristics, either automatically based on various transactionattributes or by entering them manually as transactions arerecorded.

By defining the sequence of selected characteristics, you candetermine the hierarchy levels at which individual risks areaggregated. (See Figure 11.)

Figure 11: Sample Two-Tier Portfolio Hierarchy by Asset Class

Because you can create any number of portfolio hierarchies, youcan cover risk reporting from many different perspectives – suchas specific organizations, instruments, or countries. Just as youcan use portfolio hierarchies to measure the contribution oforganizational entities to overall risk, you can use riskhierarchies to measure the contribution of individual riskfactors – such as reference interest rates, exchange rates, indexlevels, volatilities, or stock prices. (See Figure 12.)

Figure 12: Sample Two-Tier Risk Hierarchy by Type of Risk

Comprehensive Market Risk Analysis

Market risk analysis measures the effect of changes in capitalmarket variables on the value of your company’s currentholdings. Important market variables include interest rates,exchange rates, stock prices, and the volatilities related to suchfactors. Market risk analysis also includes the calculation of anasset’s present value (mark-to-market valuation) based oncurrent market information.

Typical questions answered by market risk analyses include thefollowing:

• What is the current value of our financial assets?

• What happens to asset values as interest rates change?

• What happens to asset values if a catastrophe occurs (such asthe events of September 11, 2001)?

• What is the maximum loss we can expect, and the probability,if market parameters change in an adverse way?

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Asset Class

Country

U.S. UK Japan U.S. Japan UK Japan

Fixed Income Real EstateStocks

Currency

Term

Money Market

1-month Libor3-month Libor6-month Libor12-month Libor

Capital Market

1-year Libor3-year Libor

Money Market

1-month Euribor3-month Euribor6-month Euribor12-month Euribor

Capital Market

1-year Euribor3-year Euribor

Money Market

1-month Libor3-month Libor6-month Libor12-month Libor

Capital Market

1-year Libor3-year Libor

Interest Rate USD Interest Rate GBPInterest Rate EUR

Interest Rate Risk

Total

MARK-TO-MARKET VALUATION

SAP Financial Asset Management uses current market data tocalculate the present values of financial assets. Valuationalgorithms exist for all areas, including advanced valuation mod-els for derivative instruments such as those of Black and Scholes,Garman-Kohlhagen, Cox-Ross-Rubinstein, or Hull-White. If youprefer alternative valuation models, SAP Financial Asset Manage-ment also supports the attachment of external price calculatorswithout modification to the system.

To increase transparency, the system documents calculations indetailed and comprehensible logs. It stores the resulting valuesand – in case of non-traded instruments, for which no marketprices can be imported – uses these results for fair-value account-ing purposes.

SENSITIVITY AND SCENARIO ANALYSIS

Sensitivity analyses let you measure the impact of a (typicallymarginal) change in a single market parameter on the presentvalue of a portfolio of assets. Sensitivity figures offered by SAPFinancial Asset Management include basis-point value, Macaulayand Fisher Weil duration, convexity, and the Greeks for options.You can also evaluate the effects of exchange rate fluctuations forassets with foreign currency denominations.

Scenario analyses calculate present values and other key figuresfor a portfolio of assets based on combinations of market parame-ter values (market data scenarios). Scenario analyses are especial-ly important to insurance companies as they allow for theextreme case simulations (“stress tests”) that are often requiredby regulatory authorities.

With SAP Financial Asset Management, you can define and storeany number of absolute and relative hypothetical market datascenarios and base the available analyses on one of these scenar-ios. To calculate sensitivities under certain market conditions,you can combine scenario and sensitivity analyses. You couldthus determine, for example, the basis-point value of a European

bond portfolio measured in U.S. dollars, if the yield curve for theeuro shifted up by 25 basis points and the euro/dollar exchangerate dropped by 3%.

CURRENCY EXPOSURE

If your company’s asset allocation strategy seeks to exploit oppor-tunities offered by international investments, analyzing andhedging foreign currency risks is an essential element in manag-ing market risk. SAP Financial Asset Management provides toolsfor measuring exposure to exchange rate fluctuations (takinginto account risks caused by financial assets) and the risks relatedto insurance business carried out in foreign currencies.

LIQUIDITY ANALYSIS

In many countries, regulatory authorities substantially restrictthe use of debt financing by insurance companies. With evenshort-term borrowing then virtually impossible, maintaining li-quidity reserves at optimum levels becomes a key value driver.Using SAP Financial Asset Management with SAP liquidity management software, you can combine the current level of li-quidity with expected cash flows to monitor development of the liquidity reserve over time.

You can create scenarios or scenario progressions to analyze theimpact of capital market fluctuations on the cash flows producedby your financial assets. This feature would let you examine, forexample, the impact of market fluctuations on variable oroptional cash flows.

VALUE-AT-RISK ANALYSES

Value-at-risk analysis is an extension of net present value analysis.This type of analysis uses a standard measure for risk across allcategories of financial instruments and, with historical or simu-lated market data, lets you calculate the potential value loss of aposition that, based on a certain probability and period, youmight incur before hedging or selling the position. (See Figure 13.)

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Figure 13: Graphic Evaluation of Value at Risk

Due to its uniform net present value approach, value-at-riskanalysis has become a highly useful risk-controlling instrument.Its popularity has also increased with the greater availability ofhistorical market data in recent years. SAP Financial Asset Man-agement supports a range of value-at-risk analysis models –including the historical simulation, variance-covariance, andMonte Carlo models. You can decide which of these proceduresto use, based on the particular instrument that you want toevaluate. The solution lets you directly influence calculationperformance by offering various calculation approaches withinthese models such as full valuation and delta and delta-gammacalculations. You can also import external data for the calcula-tions or use market data stored in the SAP system. For the vari-ance/covariance approach, a statistics calculator lets youestimate volatilities and correlations.

Flexible Performance Analysis

After managing market risk, the most important analytical taskin earning a return on your financial assets is performancemeasurement and analysis. As with market risk analyses, youcan conduct yield calculations with SAP Financial AssetManagement along any of the portfolio hierarchies. This capa-

bility lets you evaluate investment returns according to variousperspectives – such as those of the individual portfolio manager,risk controller, or executive manager.

You can set up the evaluation schedule according to your ownrequirements. The system supports monthly, quarterly, semi-annual, and annual performance evaluations. Once you have setup the portfolio hierarchies and evaluation schedule, you canchoose from the following yield calculation methods:

• Money-weighted rate of return

• Time-weighted rate of return

• Standard Dietz and modified Dietz method

The money-weighted rate of return method determines thereturn on a portfolio over the selected period, including theeffects of capital inflows and outflows. The result thus resemblesthe internal rate of return for a portfolio of assets based on allcash flows and value changes that occur over the evaluation peri-od. This includes changes in financial resources available forinvestment over time (capital inflows and outflows).

When yield calculation measures the investment skill of a portfo-lio manager, these external capital inflows and outflows tend todistort the measurement. The time-weighted rate of returnmethod (TWRR) eliminates the effect of externally generatedcapital inflows and outflows that the portfolio manager usuallycannot influence directly. Standard and modified Dietz are bothapproximation methods for the TWRR.

SAP Financial Asset Management can calculate performance fig-ures according to the Global Investment Performance Standardsof the CFA Institute. In addition to absolute return calculations,the system can compare a portfolio’s performance to freely defin-able benchmarks such as indexes. (See Figure 14.)

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-2.5

-2.0

-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

5% 15% 25% 35% 45% 55% 65% 75% 85% 95%

Pos

ition

cha

nge

(mill

ion)

Cumulated frequency (%)

Value at risk €1.48 million at 95% confidence level

Figure 14: Performance Benchmarking

Broad Default Risk Analysis

What would the loss be if one or more of your business partnersdeclared bankruptcy tomorrow, next month, or a year fromtoday? Can you answer these questions precisely, in a matter ofminutes, and for each business partner? Could your analysis takeaffiliations between business partners into account as well? Basedon your current financial assets, could you quantify your totalexpected loss from default risk over a future period?

Increasingly, insurance companies invested in debt instrumentsmust measure, analyze, and manage default risk – especially asregulations governing risk control expand. SAP Financial AssetManagement helps you calculate exposure to default risk thatarises from your capital market investments. This includes creditrisk (both counterparty risk and issuer risk) as well as settlementrisk (both direct settlement risk and third-party settlement risk).(See Figure 15.)

Figure 15: Default and Credit Risk Terminology in SAP Financial AssetManagement

To determine default risk, the system calculates the individualrisks for each business partner (counterparty or issuer), takinginto account business partner relationships. You can use differ-ent formulas to calculate default risk exposure, as well asexpected loss from loans, securities, money market, derivativeinstruments, and foreign exchange transactions. By adaptingthese formulas to different types of financial instruments, youcan set up your own profile for risk calculations. For example,you can measure the credit risk exposure for transactions basedon nominal amounts or mark-to-market values (presentvalues). For a settlement risk exposure calculation, youradvance payment amount and the amount due from the counterparty would be the relevant basic key figures.

Your risk calculations can also take into account informationsuch as credit ratings, the period of risk commitment – as wellas the volatility of a transaction’s value, expected recovery rates,netting agreements, and collateral. (See Figure 16.)

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Credit Risk Settlement Risk

Counterparty Issuer Direct settlement risk

Third-party settlement risk

Default Risk

Figure 16: Example of Default Risk Calculation Setup

Once you have set up your key figures for measurement ofdefault risk and the corresponding calculation formulas, SAPFinancial Asset Management will automatically calculate thecorresponding attributable amounts for every transaction andasset position maintained in the system. Your default risk keyfigures will correspond exactly to your definition of default risk.In addition, these figures will be based on comprehensive data,always up-to-date and readily available when you need them.

Useful Limit Management Tools

In addition to measuring market and default risk, you must setupper limits for those risks and constantly monitor those limits.You also need limit controls that show when a limit is violatedand automatically warn traders who try to enter a limit-

violating transaction – as well as a log that records all violationsfor internal audits. By supporting these tasks, SAP Financial AssetManagement helps you restrict potential losses and keep yourtrading activities under control.

SAP Financial Asset Management lets you define, process, andevaluate risk limits according to your own specifications. You candefine limits using various characteristics, and specify limitamounts for particular criteria. You could, for example, stipulatethat the exposure caused by derivative transactions should notexceed US$100 million.

You can also assign several limit characteristics to a limit amountto create multidimensional limits. For example, to prevent trans-actions by a specific fixed-income trader in the utilities industryfrom exceeding an exposure of US$50 million, you can set a limitfor the particular trader, limit product group (in this case, fixed-income instruments), and industry. (See Figure 17.)

Figure 17: Example of a Multidimensional Limit Structure

In addition, you can use both direct and derived limit characteris-tics for limit definition. Direct-limit characteristics are takenstraight from the transaction data (such as trader, currency,product type, and business partner). Derived-limit characteristicsare customer-specific and based on a transaction’s direct charac-teristics. If, for instance, you wanted to set a limit for transactionsconcluded with business partners in Latin America, you could

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Key Figures• Net present

value• Nominal

amount• Advance

payment • Amount due

from CP

MarkupsDepend on product’s market-value change period and market-value volatility

DefaultProbability

Depends on rating and riskcommitment period

Other Factors• Collateral • Netting

agreements• Recovery rates

Calculation Formulas (customer-specific examples)• Default-Risk Exposure

Credit-risk exposureRisk = max (0; net present value)

Direct settlement-risk exposure (for instruments settled directly with counterparty)

Risk = amount due from counterpartyThird-party settlement-risk exposure (for instruments settled with clearinghouse)

Risk = (max (0; amount due from counterparty - advance payment amount)• Expected Loss

Credit-risk exposureRisk = (max (0; net present value) + markup) x default probability

Direct settlement-risk exposure (for instruments directly settled with counterparty)

Risk = amount due from counterpartyThird-party settlement-risk exposure (for instruments settled with clearinghouse)

Risk = max (0; amount due from counterparty - advance payment amount)

Attributable amount fordefault-risk exposure

Attributable amount for expected loss

ManufacturingUS$500 MIndustry

Instruments

Trader

UtilityUS$300 M

TransportationUS$200 M

ServiceUS$300 M

Fixed IncomeUS$500 M

EquityUS$300 M

DerivativesUS$100 M

ConnorUS$150 M

BauerUS$200 M

GomezUS$150 M

HashimotoUS$250 M

US$50 M

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enter Latin America as the value for a customer-specific charac-teristic geographical region. Each transaction with a businesspartner from this region would then be checked against thedefined limit.

SAP Financial Asset Management also supports an integratedonline limit check. Traders can use this function to determinetransaction risk and check a deal against the defined limits beforeit is finalized. When the transaction is concluded, utilizations forthe affected limits are increased automatically to reflect thetransaction exposure. The system displays the result of the limitcheck and writes it to a log for later evaluations if the transactionis concluded. In addition, you can set up the system to trigger aworkflow when a transaction is entered that breaches the setlimits.

To accommodate the integrated limit check, the system regular-ly values all financial positions by updating the limit utilizationswith current market data. In addition to the utilizations for eachcentrally defined limit, the system generates individual recordsfor each transaction. You can see the impact of individual dealson the total utilization and use this information to change finan-cial transactions during the day.

Streamlined Reporting

Reporting for risk and performance analysis is generally based on the defined portfolio or risk hierarchies. This lets you viewkey figures (such net present value, duration, nominal value,and market value) for a particular date on a broad range ofaggregation levels – from a company overview to single securitypositions and transactions. The drill-down also works for key figures that require complex aggregation algorithms, such asvalue-at-risk figures.

Clicking on single positions or transactions takes you to detailedviews of corresponding transactions and their processing status.From here you can see associated postings in the SAP generalledger. Such integration gives risk controllers the highest possi-ble level of transparency.

Next to tabular displays along the portfolio hierarchy are graphi-cal reporting tools and numerous options for exporting data, forexample to spreadsheet applications. A results database lets yousave and archive risk and performance calculations along withthe portfolio hierarchy. You can thus reproduce these figures forhistorical evaluations or audits.

SAP Financial Asset Management also offers comprehensive stan-dard reports for default risk and limit reporting and is linked toSAP query and drill-down reporting tools. You can display allexisting limit utilizations in aggregated form for any given date,including exception reporting. You can also track limitutilizations over time to see which transactions affect the expo-sure or review a list of all defined limits along with changes tothe limit amounts over time. These capabilities help you moni-tor all trading and limit-definition activities effectively and main-tain high standards for operational security.

From limit utilization reports, it is possible to drill down to theexposure for individual transactions and transaction details –including partner data. For each transaction, you can view adetailed log that documents how the risk amount was calcu-lated. The system stores histories of limit amounts andutilizations until they are archived. You can access the archiveddata any time you need it. With these features, you can trace theextent to which individual traders have used or exceeded theirlimits over any time period.

Extensions of the Solution

Many insurance companies maximize their return on invest-ment for SAP Financial Asset Management by addingcomplementary solutions from SAP, its partners, or third parties.Examples of typical extensions that can maximize the value of the system include the following:

• Strategic capital asset planning and controlling

• Portfolio management

• Funds controlling

Strategic Capital Asset Planning and Controlling

Support for evaluations based on current financial assetpositions and actual market data or market data scenarios is amust-have capability for insurance firms today. In addition, tosupport decision makers efficiently in strategic asset allocation,you need a system that can also accomplish the following:

• Run analyses across all capital assets, including real estate andother investments

• Accommodate various scenarios for expected capital assetpositions (such as a current position complemented byexpected investments and sales per asset class or differentasset allocation strategies)

• Calculate key figures for risk, return, and liquidity and simu-late financial statements based on different market data sce-narios, asset allocation scenarios, and accounting standards

Some firms have used the potential of SAP NetWeaver BI torealize such groupwide capital asset planning and controllingfor their strategic asset allocation processes. In this case, the sys-tem extracts information on capital assets from the correspon-ding SAP and non-SAP systems to SAP NetWeaver BI. While therequired data extractors for SAP systems are delivered with eachsolution, you can establish project-based extractors for non-SAP systems to accommodate data located in the systems ofother providers. Thus information on all capital assets held byyour company are pooled within SAP NetWeaver BI and areavailable for comprehensive analytical “as-is” reporting. Byusing a calculation engine that is based on SAP NetWeaver andsupplied by one of SAP’s partners, you can combine the datapool for your group’s capital assets with market data and plan-ning data (such as projected asset-class weights or plannedinvestments and sales). Thus information on all capital assetsheld by your company are pooled within SAP NetWeaver BI andare available for comprehensive analytical as-is reporting. Byusing an SAP NetWeaver-based calculation engine supplied byan SAP partner, the data pool for your group’s capital assets canbe combined with market data. (See Figure 18.)

Figure 18: Technical Concept of Strategic Capital-Asset Planning andControlling

Integration of Portfolio Management Systems

Depending on their front-office requirements, some insurancecompanies supplement SAP Financial Asset Management (whichfocuses on the middle-office and back-office processes) with spe-cialized portfolio management systems that can support theirtrading activities. Similarly, other insurance companies havedecided to outsource portfolio management and correspondingfront-office activities to specialized asset managers.

An efficient, straight-through transaction management processrequires automatic transfer of financial transactions that havebeen entered in the portfolio management system to the SAPsystem for further processing. In addition, the systems must syn-chronize market data and master data on business partners andsecurity classes. You must also assure that other processes (suchas reversals) can run across system boundaries. SAP FinancialAsset Management supports system interfaces for creating,changing, and reversing financial transactions as well as fortransferring master data – such as security classes.

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SAP NetWeaver® BI

Reporting (as-is and planned)

Calculation Engine

Capital-assetdata pool

Expected:• Liquidity• Balance sheet• P&L• Market risk• Performance

Marketexpectations

Investmentstrategies

TransactionManager• Money market• Securities• Foreign exchange• Derivatives

Loans• Mortgage loans• Policy loans• Borrower’s note

loans• Other loans

Real EstateManagement

SAP System II (Subsidiaries Europe)

SAP System I (Subsidiaries Americas)Third-PartySystem(s)

SAP® BWExtractors

SAP partner solutions are available that connect specialized port-folio management systems with SAP for Insurance solutions via atwo-way interface that automatically transfers the necessary datafrom front office to back office and vice versa. SAP is currentlyworking on expanding the connectivity of SAP Financial Manage-ment based on the SAP NetWeaver Exchange Infrastructure (SAPNetWeaver XI) component.

Investment Fund Look-Through

Investments in institutional or mutual funds often represent asignificant share of an insurance company’s assets. These invest-ments are generally reflected as investment certificates withinSAP Financial Asset Management. While this is sufficient for mostaccounting purposes, some companies want to monitor theirfund investments by single asset positions. With SAP FinancialAsset Management, you can import the various positions into thesystem and tap them for online or analytical reporting – as wellas for various risk-controlling activities.

Occasionally an accounting standard requires the breakdown offund investments by asset level for financial reporting purposes,in addition to reporting and risk-controlling activities, and thecorresponding investment company cannot provide precalculat-ed accounting data. In this case, SAP Financial Asset Managementcan handle the automated importation of fund transactions forprocessing such as directly owned assets using parallel accountingcapabilities.

What are the major trends insurance companies face in assetmanagement, and how does SAP’s solution strategy relate tothem? Observable industry trends and their chronology can differ significantly among geographic regions and markets. Figure 19 provides a sample overview of the most prevalentdevelopments.

Figure 19: Asset Management Trends Faced by Insurance Companies

SAP for Insurance solutions address internal straight-throughprocessing, stepped-up corporate governance (such as the U.S.Sarbanes-Oxley Act), and statutory reporting requirements, andmost insurers are successfully dealing with these issues. Butwhile many insurers have found a way to handle multi-GAAPaccounting under regulatory pressure, most current software isnot sufficiently automated. In addition to operationalinefficiencies, this software sustains significant operational riskdue directly to the high level of manual intervention theyrequire. As outlined previously, multi-GAAP accounting forfinancial instruments is one of the core competencies of SAPsolutions, helping companies manage several accounting stan-dards in parallel in a highly automated environment.

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Internal STP

Corporate Governance

Statutory Reporting

Multi-GAAP (including fast close)

Outsourcing

External STP

Asset/Liability Management

Solvency II

2003 2005 2007 2009

OUTLOOK AND STRATEGY

Overall process automation is becoming more important for all parties in the asset management supply chain – be theyinsurance companies, investment companies, custodians, broker-dealers, banks, or industry regulators. Such externalstraight-through processing (STP) has historically been signifi-cantly hindered by a lack of widely accepted communicationstandards. This situation should change as standardized XML-based message formats such as ISO 20022 begin to penetrate thefinancial services industry.

Driven mainly by the general desire for more efficientoperations, cross-company STP will be further fueled by anexpected increase in outsourcing activities. The outsourcing ofspecific steps in the asset management value chain to specializedservice providers can be appropriate due to economies of scaleand scope. However, insurers must make certain that outsourc-ing benefits are not thwarted by a dramatic increase in manualeffort and the operational risk involved in maintaining cross-company processes and external data interfaces.

Both external STP and outsourcing require a highly connectiveasset management system that provides a broad range of processand data interfaces. With such a system, insurance companiescan break up the value chain and distribute the individual stepsas they see fit – without losing the benefit of integrated,straight-through processes. SAP Financial Asset Managementalready offers high levels of connectivity based on the BAPI®programming interface. However, these interfaces currentlyimport and export data in a proprietary SAP format, which typi-cally requires some data transformations. The solution’sconnectivity has been further improved with the advent of SAPNetWeaver XI. In addition to all tools and services you need forconvenient communication process setup and management,SAP NetWeaver XI provides increasing amounts of preconfig-ured content, which allows out-of-the-box integration of SAPsolutions with third-party systems, based on industry messagingstandards.

Finally, insurers can expect major changes in risk management.Some insurance companies have only recently moved from anaccounting-oriented approach toward managing financial assetrisk to a market-oriented approach. However, insurance compa-nies must further expand risk management technology andprocesses to cover both assets and liabilities in an integrated fash-ion. While integrated asset/liability management (ALM) has beena topic of interest in the insurance industry for several years, fewcompanies have actually implemented comprehensive ITsolutions for this purpose. This situation can be expected tochange, as authorities in many regions build upon the legalframework for ALM established in the CEA Solvency II Project.

Unlike other providers of asset management software, SAP offersa comprehensive portfolio of insurance-specific solutions thatsupport such operative insurance processes as policy, claims, andreinsurance management. SAP thus has an understanding of theinstruments and processes involved in an insurance company’sasset and liability sides – the most basic prerequisite for develop-ing a comprehensive ALM solution that will meet future regula-tory requirements. The comprehensive deployment of SAP forInsurance can also provide a consistent database for both assetsand liabilities, which is crucial to the reliability of all subsequentanalyses. In addition, integration of SAP for Insurance with SAP’sbest-of-breed solutions for data warehousing and business intelli-gence will ensure other industry-leading ALM capabilities.

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The SAP for Insurance solution portfolio provides powerfulapplications and support for best practices that can help insur-ers lower transaction costs, while integrating and automatingkey insurance business processes. You can easily implement theindustry-tailored applications in stages, according to your com-pany’s strategic business goals, priorities, and resources.

To meet the demands of a sector in which customers can easilyswitch providers and razor-thin profit margins demand tightfiscal discipline, SAP for Insurance solutions include Web-enabled applications that seamlessly link core insuranceprocesses with customer-facing functions and back-office opera-tions. SAP for Insurance thus supports your business from firstcustomer contact through policy and product management,collections, disbursement, and claims management.

With approximately 400 customers in 45 countries, SAP forInsurance enables end-to-end data analysis that supports criticalstrategic decisions. The solutions can help you respond rapidlyto shifting realities, control costs, seize new opportunities, andstrengthen customer loyalty. Based on the open architecture ofthe SAP NetWeaver platform, SAP for Insurance helps compa-nies leverage existing technology investments while minimizingthe complexity of managing heterogeneous IT landscapes. Foradditional information please visit our Web site atwww.sap.com/insurance.

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LET SAP FOR INSURANCEIMPROVE FINANCIAL ASSETMANAGEMENT FOR YOU

TABLE OF PROCESSESSUPPORTED BY SAPFINANCIAL ASSETMANAGEMENT

Business-Process Support Special Features of SAP Financial Asset Management

Investment Management • Support for the entire life cycle of f inancial instruments – from transaction entry to accounting – through integrated, straight-through processing

• Support for a broad range of securities, loans, money market instruments, foreign exchange instruments, and derivatives

• High-level automation of back-office and accounting tasks

• Excellent multi-GAAP accounting functionality, including seamless out-of-the-box integration with SAP® general ledger functions

• Extensive reporting functionality

• Reassuring system security and transparency

• A high level of connectivity to internal and external third-party systems

Investment Controlling • Automatic real-time import of f inancial transactions, security positions, and market data for analytical purposes

• State-of-the-art market risk analytics – including value-at-risk calculations, derivatives pricing, and “what-if” analyses

• Sophisticated performance analysis and corresponding benchmarking functionality

• Advanced default-risk analytics – including default-risk exposure, settlement risk, and expected loss calculations

• Flexible limit system – including multidimensional limit definition and pretrade compliance checks

• Flexible risk/return reporting along multiple freely definable portfolio hierarchies

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