Organisations today are preparing for the Solvency II regulatory requirements by looking at the controls, processes, and methodologies involved with their various accounting, finance, and reporting functions, and making provisions to simplify, standardize, and wherever possible, automate. Ranzal Vice President and Oracle ACE, Mike Killeen provides an overview of HPCM and discuss how companies can leverage the tool for the Solvency II requirements. This presentation is for the UK market.

1. Edgewater Ranzal
Today’s Presentation
for
Solvency II Webinar
Product Fund Accounting &
Reporting
Dec 13, 2011
Mike Killeen
Vice President
Edgewater Ranzal
London, UK

2. Edgewater Ranzal
Today’s Presentation
for
Solvency II Webinar
Product Fund Accounting &
Reporting
Dec 13, 2011
Mike Killeen
Vice President
Edgewater Ranzal
London, UK

3. Agenda
Introductions
Solvency II Overview
Business Background Product Fund Accounting Workflow
Deep Dive on Expense Allocations
Solution Overview Technology Overview
Practical Example
Q&A
Closing
Slide 3

4. About Edgewater Ranzal
Focus
Services
15 Years People
700+ clients
1000+ projects Methodology
Customers
Partnership
Slide 4

5. Our Services
Consolidation BI & Analytics Planning
Financial Performance Dashboards & Planning
Legal, Segment & Scorecards Budgeting
Mgmt Reporting Profitability & Cost Mgmt Forecasting
Financial Close Fin Analytics & Reptg Workforce Planning
HFM Optimization Operational Analytics Capital Planning
Performance Lab What-if Analysis Project Planning
Sarbanes Oxley Query & Reporting Campaign Planning
Compliance Support Visual Exploration Strategic Finance
Data Services Project Management Infrastructure
Financial Performance
Data Integration Installation
Legal, Segment & Project/Program Mgmt
Financial Data Quality Upgrades
Mgmt Reporting EPM Road Maps
Management Migration
Financial Close Application Reviews
Data Warehousing System Monitoring
HFM Optimization Business Requirements
Master Data Management Backup and Recovery
Performance Lab Process Change
ETL Services Disaster Recovery
Sarbanes Oxley Customer Training
Performance Tuning Load Testing
Compliance Support Documentation
Automation Hardware Sizing
Slide 5

6. Business Background
Slide 6

7. Solvency II Overview
• What is Solvency II?
– Updated set of Regulatory Requirements for Insurance Firms that
Operate in the European Union that is now targeted for Jan 1, 2014
– Focus is on establishing a consistent way on measuring risk and
maintaining adequate capital requirements across the European
Insurance market place
– Quantitative Impact Study 5 (QIS5) provides the most recent basis for
content as insurers prepare
• Pillars of Solvency II
– Pillar 1 – Quantitative Requirements
• Market Balance Sheet & Calculation of Technical Provisions
• MCR/SCR – Minimum/Solvency Capital Requirements
– Pillar 2 – Qualitative Requirements & Supervisor Review
• ORSA – Own Risk & Solvency Assessment
• Policies, Processes & Procedures
– Pillar 3 – Reporting, Disclosures & Transparency
• SFCR (Public) – Solvency Financial Condition Report
• RSR (Private) – Regulatory Supervisor Report
• QRT – Quantitative Reporting Templates
Slide 7

8. SII Impacts People, Process & Technology across
Finance, Technology & Management
 The Service Delivery Model describes
Service the principles of service delivery to the
Delivery internal and external customers of the
Model Finance function.
 The Governance and Integration
Framework describes the principles of
governance for each component, and
the integration of governance in the
Finance function.
Governance
and Organizational  The Organizational Model describes how
Process Model the function is structured, and people’s
Integration Model
Framework roles and accountabilities.
 The Process Model determines the
requirements for the design,
development and implementation of
optimal processes.
 The Technology and Data Architecture
describes how technology and data
Technology
and Data support the end-to-end processes.
Architecture
Slide 8

9. Key Processes in the Finance Function
• Core Finance Processes
– Sub-Ledger Accounting
• Manage Accounts Payable
• Manage Accounts Receivable
• Perform Investment Account
– Manage General Accounting
– Insurance Specific Accounting
• Perform Product Fund Accounting
• Product Actuarial Results
– Product Financial Results & Commentary
• Supporting Financial Processes
– Manage Performance
– Perform Planning & Forecasting
– Mange Risk
– Manage Tax
– Stakeholder & Internal Management
Slide 9

10. What is Product Fund Accounting?
• Product Fund Accounting is the process of producing a complete asset
build per up product fund as well as an accurate split per product fund
within a specified period.
• Product Fund Accounting Typically Involves the Following Key Types
of Activities
– Sourcing & Cleansing of Data
– Adjusting Data for various accounting/regulatory standards
– Allocating Data
– Reporting & Analysis of Data
• The Product Fund Assignment process supports regulatory, statutory,
managerial, and actuarial reporting at various levels.
– Management – Determine Profitability By Product for decisions
– Regulatory – Provide inputs to Risk Engines & Tax Reporting
– Statutory – Identify profitability by Segment
– Actuarial – provide top down comparison points for valuations
Slide 10

11. Product Fund Accounting – Fund Flows
• Fund Inflows
– Premiums
– Annuity Considerations
– Investment Income
– Investment Gains
(Realized/Unrealized)
• Fund Outflows
– Benefits Paid
– Management Fees &
Expenses
– Commissions & Other
Acquisition Costs
– Investment Losses
Slide 11

12. Product Fund Accounting – Other Key Elements
• Line of Business View
– Health
– Life
– Non-Life
• Contract
– Investment Mandate
• Linked
• Non-Linked
– Duration
– Cash Inflow/Outflow Rules
• Fund & Tax View
– Policy Holder
• Taxed
• Untaxed
– Share Holder
Slide 12

13. Typical Challenges in Process
• Legacy Policy Admin Systems may have incomplete or inaccurate
financial information
• Many elements of the process are not tracked by product fund in the
source systems, requiring allocations whose methodologies are
inconsistent and not easily understood
• Different User Communities (Finance, Tax, Actuary) may use different
sources of data for the various elements within the process, creating
discrepancies among the results and leading to reconciliation issues
• The processes can be complex and difficult to explain to an external
regulator or senior management
Slide 13

14. Typical Steps in Product Fund Accounting Process
• Prepare Inputs to Process
– Extract, Cleanse & Load Financial Account Balances & Driver Files
– Prepare Hierarchies & COA Segment Values
– Define Allocation Rules & Global Assumptions
• Perform Allocations for inflows/outflows to product funds
– Allocate Premium & Benefits from Undefined Products
– Allocate Other Balance Sheet Items Relating to Undefined Products
– Allocate Income & Expense from Undefined Products
– Allocate Management Expenses by Client Process (Acq/Maint/1x)
– Allocate Infrastructure Assets & Returns to Product Funds
– Allocate Investment Returns to Product Funds
• Calculate Notional Interest, Levies & Capital Gains Tax
• Generate Product Fund Reports for Statutory/Regulatory/Management
Slide 14

15. Consistent Challenge Across Industries:
Indirect Expenses Assignment to Products & LOBs
Standard,
accepted
process
No Standard Process
 Indirect
Costs are
difficult to
track and
measure
Slide 15

16. Solution Elements
Slide 16

17. Oracle EPM Platform Components
COMMON REPORTING WORKSPACE
1 Common Reporting Workspace
- Excel DASH- OFFICE
1 EXCEL FINANCIAL
BOARDS INTEGRATION
- Financial Reporting AD HOC REPTG
- Web Analysis/IR
- Office Integration (ppt, word) MANAGEMENT
REPORTING
2 EPM Applications 3
STRATEGIC PLANNING PLANNING
- Strategic Finance
- HFM
- Planning 2
- HPCM
3 Management Reporting PROFITABILITY & COST
FINANCIAL CLOSE
- Essbase MANAGEMENT
- Relational
- Data Warehouse
COMMON INTEGRATION FOUNDATION
4 Data Integration 5 EPMA DRM
4 FDM ODI FILE/SQL
- FDM
- ODI
- File/SQL
5 Master Data/Dimension Mgmt
- EPMA
- DRM OLTP & ODS PeopleSoft HR OLAP SAP, Oracle, Siebel, Excel Business
Systems PeopleSoft, Custom XML Process
Slide 17

18. Hyperion Profitability and Cost Management
• Packaged Profitability functionality
• Computes Profitability for Business Segments, Customers
and Products
• Pre-Built Framework for profitability modeling:
• Pre-built Measures dimension
• Support for Multiple Cost Allocation methodologies
• Pre-Built Validation reporting
• Graphical Interactive Traceability Maps
• Genealogy Reporting shows flow from any stage to any
stage
• A User-Driven application
• Measures, Allocates and Assigns Cost and Revenues via
User Defined Rules
• Finance User-facing Administration
• Provides Scenario Modeling for Decision Making
• Tightly integrated with the full Hyperion EPM Suite
• Shared Data and Metadata via EPMA
• Shared Reporting Tools like Financial Reports & Web
Analysis
• Proven Technology Stack
18
Slide 18

19. Integrated Technology Landscape to Support Those
Processes
• Overall strategic
direction and
governance of
OMSA Finance
• Finance strategy
implementation and
monitoring
• Coordinating OMSA
Finance activity
Shared Services
• Controlled environment for resources performing transactional,
recurring activities
• Centres of excellence
• Leverage expertise and economies of scale
Slide 19

20. Product Fund Accounting Flow
Budget Mgmt
Expenses 1. Mgmt Expense 2. Management
(Planning) Allocations to Reporting
Product Line (HFM or Cost/Policy
(HPCM) Essbase)
Actual Mgmt
Expenses
(GL)
- Recurring vs. Once-Off 6. To
- Initial vs. Maintenance Solvency II
Environment
Drivers &
Assumptions
5. Statutory & Product
3. Product Fund
Actual Regulatory Fund
Allocations
Investment Reporting Reports
(HPCM)
Returns (HFM or Essbase)
Shared Services
Liabilities
• Controlled environment for resources performing transactional,
Actual Client recurring activities
Ledger Data • Centres of excellence 7. To Client
(GL) 4. Actuarial
• Leverage expertise and Models
economies of scale Ledgers
Slide 20

21. Graphical View - Management Expense Allocations to
Product Line
Slide 21

22. Sample Expense Allocation Flow
Slide 22

23. HPCM Stages
• Cost Pools are allocated to one or more Stages
• Stage – Step in the allocation process that has similar
pool characteristics
Stage Name Dimension 1 Dimension 2 Dimension 3
1 GL Cost Centre Account Rel. Party
2 Cost Pool Cost Centre Cost Pool
3 Activity Function Activity
4 Product Process Product
5 Fund Product Fund
• Separate stages enable traceability and transparency
through each step of the allocation process.
Slide 23

24. Stage to Stage Example
Stage 1 to Stage 2
Stage 2 to Stage 3
Slide 24

25. Dimension definitions – How HPCM Works
Stg1 – GL Stg2 – Cost Pool Driver Definitions – Create a reference to
1
where the Driver Data is stored within the
model.
Account
2 Driver Selections – Defines what Driver
Cost Definitions to use against the Source
Cost Centre stage, typically the dimension identified as
2 3 the driver definition.
Centre Assignment Rules Definitions– Defines the
Cost Pool 3
member combination in the target
Related Driver dimension for the assignment.
Party 1
4 4 Assignments– Defines the source
dimension combination and the target
4 Assignment Rule
Slide 25

26. Direct and Indirect (Genealogy) Allocations
Drivers Deployed
•FTE (Simple)
•Various % Inputs (Custom)
•Summarization (Even)
Slide 26

27. HPCM Workflow for Cost Allocations
Allocation Cost & Revenue
Metadata
Model Allocation Profitability & Cost Analysis
Management
Definition Calculations
Slide 27

28. Sample Expense Allocation Result
Slide 28

29. Sample Expense Allocation Result
DRIVER distribution
FY PREMS-COMB COST ON COST-COMB
Accumulator Retail 29.11 11.32
Accumulator Wholesale 54.64 16.97
Closeblock 0.00 7.83
Equivest 2.74 9.39
GGA Wholesale 0.01 0.33
Other 0.05 25.87
Ret Strat/Momentum 8.85 4.07
Term 0.82 7.27
UL/VL/Other 3.79 16.96
100.00 100.00
ALLOCATION to product
Sum of Amount AMO
Prodline ACQ OH ACQ OH
Accumulator Retail 95,336 37,081 29.11% 11.32%
Accumulator Wholesale 178,989 55,579 54.64% 16.97%
Closeblock 25,646 0.00% 7.83%
Equivest 8,988 30,764 2.74% 9.39%
GGA Wholesale 26 1,076 0.01% 0.33%
Other 157 84,739 0.05% 25.87%
Ret Strat/Momentum 28,976 13,334 8.85% 4.07%
Term 2,689 23,799 0.82% 7.27%
UL/VL/Other 12,398 55,541 3.78% 16.96%
Grand Total 327,560 327,560 100.00% 100.00%
50% 50%
PROCESS allocation
Categroy Percentage
NB Selling 50%
HR 50%
100%
Slide 29

30. HPCM – Validate Model Via Stage Balancing Report
Slide 30

31. HPCM – Validate Model via Trace Allocations
The path of any allocation can be followed
backwards and forwards, beginning at any
point in the allocation
Slide 31

32. HPCM Benefits
 Business User Driven Allocation Definition & Execution
improves flexibility & productivity
 Multiple Scenarios for What If Analysis
 Traceability Maps for Transparency in the Results
 Security & Limited Workflow to secure results
 Multi-Dimensional Database Engine supports high speed
reporting and ad-hoc analysis for different user needs –
available via Web and Office Integration
 Integration with rest of Oracle Hyperion EPM solution for
Statutory Reporting & Budget/Forecasting Needs
Slide 32

33. Summary
 Solvency II is driving companies to look at their internal
people, processes & technologies with respect to how
they manage Risk and Capital
 Product Fund Accounting is one of the precursors to this
framework
 Based on the quality and nature of the data, some form of
allocation will be required
 Oracle Hyperion Profitability & Cost Management is a
packaged application that provides business users with
key capabilities in the definition, execution, scenario
modeling, & reporting of the allocation processes that
feed into the overall Product Fund Accounting Solution.
Slide 33

34. Questions & Key Contact Info
Mike Killeen, Vice President
Edgewater Ranzal – UK Division
45 Beech Street, Suite 607
London, UK EC2Y 8AD
E-mail: mkilleen@ranzal.com
Slide 34

35. Appendix I
Screen Shot Demo
Slide 35

36. HPCM Workflow for Cost Allocations
Allocation Cost & Revenue
Metadata
Model Allocation Profitability & Cost Analysis
Management
Definition Calculations
Slide 36

37. EPMA – Create & Manage Dimensions
Slide 37

38. HPCM – Define Stages
Slide 38

39. HPCM – Define Drivers
Slide 39

40. HPCM – Assign Drivers
Slide 40

41. HPCM – Define Assignment Rules
Slide 41

42. HPCM – Attaching Assignment Rules
Slide 42

43. HPCM – Attaching Explicit Assignments
Slide 43

44. HPCM – Create & Deploy Calculations
Slide 44

45. HPCM – Validate Model Via Stage Balancing Report
Slide 45

46. HPCM – Validate Model via Trace Allocations
Slide 46

47. Appendix II
Typical Project Team
Slide 47

48. Typical Project Team
Client Information
Consumers
Account Manager
Client Sponsor
Client Business
SMEs & Core Team Delivery Manager/Solution Architect
Members
Project
Mgmt
Client
Project Manager Project Manager/Business
Analyst
App
Dev Application Arch.
Sr. Principal
Client Infrastructure Client Infrastructure HPCM
Resources Financial System Architect Lead Consultant
(Oracle On Demand) Administrator(s)
Client Client ETL / Essbase / Reporting
ETL & Data Owning Report Author(s) Lead Consultant
Resources
Slide 48

49. www.ranzal.com