MEETING TODAY'S INDUSTRY CHALLENGES WITH SAP® FINANCIAL ASSET ...

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  • 1. SAP Solution in Detail SAP for Insurance MEETING TODAY’S INDUSTRY CHALLENGES WITH SAP® FINANCIAL ASSET MANAGEMENT
  • 2. © Copyright 2005 SAP AG. All rights reserved. HTML, XML, XHTML, and W3C are trademarks or registered trademarks of W3C®, World Wide Web Consortium, No part of this publication may be reproduced or transmitted in Massachusetts Institute of Technology. any form or for any purpose without the express permission of SAP AG. The information contained herein may be changed Java is a registered trademark of Sun Microsystems, Inc. without prior notice. JavaScript is a registered trademark of Sun Microsystems, Inc., Some software products marketed by SAP AG and its used under license for technology invented and implemented by distributors contain proprietary software components of Netscape. other software vendors. MaxDB is a trademark of MySQL AB, Sweden. Microsoft, Windows, Outlook, and PowerPoint are registered trademarks of Microsoft Corporation. SAP, R/3, mySAP, mySAP.com, xApps, xApp, SAP NetWeaver, and other SAP products and services mentioned herein as well as their IBM, DB2, DB2 Universal Database, OS/2, Parallel Sysplex, respective logos are trademarks or registered trademarks of SAP MVS/ESA, AIX, S/390, AS/400, OS/390, OS/400, iSeries, pSeries, AG in Germany and in several other countries all over the world. xSeries, zSeries, z/OS, AFP, Intelligent Miner, WebSphere, Netfini- All other product and service names mentioned are the trade- ty, Tivoli, and Informix are trademarks or registered trademarks marks of their respective companies. Data contained in this of IBM Corporation. document serves informational purposes only. National product specifications may vary. Oracle is a registered trademark of Oracle Corporation. These materials are subject to change without notice. These mate- UNIX, X/Open, OSF/1, and Motif are registered trademarks rials are provided by SAP AG and its affiliated companies (“SAP of the Open Group. Group”) for informational purposes only, without representation or warranty of any kind, and SAP Group shall not be liable for Citrix, ICA, Program Neighborhood, MetaFrame, WinFrame, errors or omissions with respect to the materials. The only VideoFrame, and MultiWin are trademarks or registered warranties for SAP Group products and services are those that are trademarks of Citrix Systems, Inc. set forth in the express warranty statements accompanying such products and services, if any. Nothing herein should be construed as constituting an additional warranty. 2
  • 3. CONTENTS Executive Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 SAP for Insurance: An Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 A Closer Look at SAP Financial Asset Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Investment 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Investment 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 Extensions 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 3
  • 4. EXECUTIVE SUMMARY The SAP® Financial Asset Management application is an essential SAP Financial Asset Management benefits from SAP’s deep expe- part of the SAP for Insurance solution portfolio. The application rience in the insurance industry. The application is running at helps insurance companies manage and control a broad range of more than 90 insurance companies around the world, each man- financial investments – including equity and fixed-income secu- aging assets ranging from US$1 billion to US$150 billion for a rities, money market instruments, loans, foreign exchange instru- total of US$500 billion. Further, more than 100 banks and 800 ments, and derivatives – from the initial entry of financial trans- corporate treasuries also use the application. actions through general ledger accounting. By implementing SAP Financial Asset Management, your SAP Financial Asset Management provides straight-through company can expect to accomplish the following: processing for financial transactions. Transactions are entered • Reduce processing costs through integrated, end-to-end only once in the system. The system then automatically passes processes that range from deal entry to financial accounting the information from a firm’s front office to its back office. • Accommodate several accounting standards in parallel Insurance companies can use the application to handle any num- without additional effort ber of accounting standards in parallel and address many of the • Achieve fast closes through automated accounting processes standards demanded by national tax-accounting requirements, • Speed up and simplify statutory reporting U.S. Generally Accepted Accounting Standards (U.S. GAAP), • Meet auditing requirements and reduce operational risk purchase GAAP, various local GAAPs, and international account- with sophisticated authorization options, extensive change pro- ing and financial reporting standards (IAS/IFRS). tocols, and segregation of duties concepts • Manage risks and compliance with state-of-the-art risk For controlling processes, SAP Financial Asset Management auto- analysis and control matically takes into account all information on financial assets and liabilities available within the system. The application also imports financial market data such as interest or exchange rates from external providers, and uses this information for analyses of market risk, default risk, and performance associated with a com- pany’s financial assets. A flexible limit-management tool is another key feature. Using SAP Financial Asset Management with complementary software such as the SAP Cash and Liquidity Management appli- cation and the SAP NetWeaver® Business Intelligence (SAP NetWeaver BI) component provides support for electronic bank- ing, short-term liquidity planning, and advanced analytical reporting. 4
  • 5. SAP FOR INSURANCE: AN OVERVIEW SAP Financial Asset Management is one of several core applica- Applications within SAP for Insurance include the following: tions within the SAP for Insurance solution portfolio – which • SAP Policy Management, which supports the complete life also supports such business processes as policy management, cycle of policy administration, from acquisition through any claims management, collections and disbursements, changes to the contract’s conclusion. The application includes commissions, reinsurance, and product management. basic functions for managing products and contracts for all (See Figure 1.) lines of business in all countries, including support for life and health insurance. Customer, Market Research & Market Development Underwriting Account Maintenance Claims & Benefits Investment & Risk Capital Market Partner and Product Definition & Distribution & Customer Care Management & Reinsurance Market Product Management Market Research and Product Ideas Product Development and Implementation Product Life-Cycle Management Sales Sales Planning and Controlling Sales Force Management Customer Analysis and Marketing Acquisition and Application Creation Underwriting and Policy Administration Underwriting and Policy Issuance Midterm Policy Changes and Information Automated Policy Administration Claims Claims Handling and Fulfillment Claims Recovery Reinsurance Reinsurance 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 Services Collections and Disbursements Business Partner Management Enterprise Management & Support Figure 1: SAP® Solution Map for the Insurance Industry 5
  • 6. • SAP Reinsurance Management, which helps direct insurers Insurance can you automate processes across the board – and reinsurers optimize their entire reinsurance business, supporting such key core business areas as claims management, regardless of where their partners are across the globe. The collection and disbursement, and reinsurance. It is the reliable, application provides a single system for processing all high-performance choice for insurers that want to enhance prof- elements of the reinsurance business. This includes active itability and gain a competitive edge through technological and passive reinsurance, proportional and nonproportional advancement. products, facultative and obligatory programs, and even “life and non-life” or “marine and non-marine” reinsurance With SAP for Insurance, you can integrate your entire enterprise treaties. and offer customers cost-cutting packages that give you a much- • SAP Financial Asset Management, which manages, needed edge in today’s highly competitive market. The advanced automates, and optimizes the whole investment process. Sup- solutions in SAP for Insurance let you easily apply appropriate port from the application spans deal and order entry to standards to the relevant processes and comply with the increas- sophisticated analyses of the risks and performance for a com- ing need for transparency across the board. The solutions can pany’s investment portfolios. also help you adapt successfully to an electronic marketplace. A • SAP Insurance Commissions Management, which service-oriented architecture gives customers what they want, manages all related transactions, agreements, and data to help when they want it – through flexible Internet portals and other insurance companies focus on sales strategy and results. The Web-based approaches. By giving you the option of using either application gives insurance companies the power to monitor SAP or third-party software, SAP for Insurance helps you stream- sales activity, encourage new sales, and adapt to changing line your whole operation, speed innovation, and offer best-in- market conditions. class service to your customers. • SAP Claims Management, which integrates the entire claims management process, from incoming claims to salvage real- ization. The application lets insurance companies dramatical- ly accelerate claims processing and keep costs down, while satisfying customers with closer attention and faster service. • SAP Insurance Collections and Disbursements, which performs all related business processes quickly and precisely, across businesses or in a single system. SAP for Insurance is an advanced set of industry-specific solutions that help insurance companies amplify business per- formance and adapt successfully as their markets evolve. The solutions provide a flexible, integrated, and robust technology platform that efficiently handles both current and changing standards while supporting industry best practices. Insurers can use this platform to reduce total cost of ownership, improve customer service, and align key insurance processes across orga- nizational and technological boundaries. Only with SAP for 6
  • 7. A CLOSER LOOK AT SAP FINANCIAL ASSET MANAGEMENT Insurance companies and pension funds are institutional • Are you sometimes worried about process and system investors that hold and manage assets for paying policyholder security? claims. These assets include both real estate investments and vari- • Can you easily meet future regulatory deadlines? ous financial instruments. SAP Financial Asset Management • Do you think there might be a more cost-effective way to specifically supports the operational management and analytical achieve your goals? controlling of financial instruments. By addressing these issues, SAP Financial Asset Management can The application includes two fully integrated, yet separately provide substantial benefit to firms like yours. deployable components that may be licensed separately. The first is an investment management component that supports the Comprehensive Functions for Transaction Management operational processing of financial transactions and accounting Closing and processing financial transactions are at the heart for resulting financial instruments. The second is an investment of financial asset management operations. From a trader’s entry controlling component that supports analytical processing for of transactions into the system to financial accounting, these portfolios of financial instruments with regard to market risk, operations cover all processing over the lifetime of a financial credit risk, and performance. instrument. SAP Financial Asset Management integrates a range of otherwise laborious tasks into a straight-through process that offers a clear segregation of duties, provides reassuring trans- SAP® Financial Asset Management parency, and avoids redundant and error-prone data entries. You can customize the transaction management process to handle Investment Investment different financial instruments individually according to your Management Controlling specific needs. Transaction manager Market-risk analyzer Loans management Portfolio analyzer Statutory reporting Credit-risk analyzer 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 from the front office to the back office? Are there redundant data entries 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 many manual activities? 7
  • 8. Transaction management functions within SAP Financial Asset Based on the predefinable business calendar(s) assigned to a Management include support for trading, back-office processing, transaction, the system automatically checks all relevant dates and accounting. (See Figure 3.) for nonworking days. If nonworking days are involved, the trad- er receives a warning and can switch to either the preceding or Trading/ Back-Office the following day. When using reference interest rates for float- Accounting New Business Processing ing interest instruments, the system automatically suggests the • Create business • Settle/control • Trigger postings day-count method that corresponds to the reference rate. The partner contracts • Handle payments system lets users calculate expected cash flows of a transaction • Create order/contract • Carry out • Enter reversals • Define collateral correspondence • Calculate accruals on the fly for an immediate overview of the transaction’s • Give notice of • Adjust interest rates • Value contracts and contracts • Define netting positions cash-flow pattern. • Rollover contracts • Create references • Change holding • Exercise rights • Transfer between categories securities accounts Field selection lets the user adapt the appearance of entry • Reflect corporate actions screens for different financial instruments and define fields as • Review transaction mandatory entries, optional entries, or display only. The user history can remove unnecessary fields from the screen entirely and Straight-through processing (STP) assign preferred default values. For convenience, users can Instrument-specific setup of process User-specific roles and authorization access effective interest rate calculators for fixed-income instru- Audit trails and segregation of duties Consistent across asset classes ments from the deal-entry screen. When a user enters a transaction, the system displays the Figure 3: The Transaction Management Process imported corresponding market rates (security prices and/or foreign exchange rates) for orientation and control. The user TRADING can set the system to trigger warnings when a transaction rate Trading functions help you enter financial transactions, manage deviates more than a definable percentage from the market rate. orders, and exercise rights. A range of utilities and check functions help traders work as efficiently as possible. The system can automatically derive additional cash flows – such as taxes, fees, commissions, or other charges – based on For standardized instruments, such as securities and exchange- transaction data and a rules engine. It automatically derives the traded derivatives, the application defines a securities class that correct payment details for particular business partners, curren- contains all master data on the specific security. Traders simply cies, instrument types, and other transaction criteria. choose the appropriate security class and enter a corresponding amount and date for each transaction, using convenient shortcut When a user enters transactions, limit-management functions formats such as “++3” for a date three months ahead or “1m” for automatically check for limit violations and, if necessary, issue a 1,000,000. warning. The system logs all limit violations. The user can also trigger a workflow when a limit is breached – notifying a super- visor by e-mail or a short mobile phone message, for example. 8
  • 9. Printing or e-mailing internal deal tickets is no longer necessary, ACCOUNTING as all further processing of a transaction takes place in the same With accounting functionality, the system automatically carries system (due to straight-through processing). If you desire, how- out all postings related to transactions that the back office has ever, the system can create internal deal tickets automatically. cleared and transfers transactions to the general ledger in real (See Figure 4.) time. 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 of security price changes, foreign exchange rate fluctuations, amor- tizations, and accruals and deferrals, as well as carrying out the resulting valuation postings. The system takes into account the effect of impairments in this process. SAP Financial Asset Management lets you determine fair values based on imported market data (such as security prices and for- eign exchange rates) or on net present values calculated in the investment controlling component. The accounting rules engine in the application is extremely flexible, allowing you to address Figure 4: Deal-Entry Screen for a Security Transaction local as well as international accounting standards required by IAS/IFRS or U.S. GAAP. BACK-OFFICE PROCESSING Once a trader enters a financial transaction, the system automat- SAP Financial Asset Management makes it easy to handle several ically passes the transaction to a back-office processor. The back- accounting standards at once by maintaining parallel ledgers. To office processor controls the transaction for correctness and this end, you can set up an arbitrary number of parallel account- adherence to company guidelines before releasing the transac- ing standards (valuation areas) and calibrate each one indepen- tion. The system supports functions for generating related corre- dently. This provides the necessary flexibility for defining the spondence, including automatic confirmations, and the match- structure of positions, assigning them to holding categories (val- ing of counter-confirmations received by the counterparty. uation classes) and applying the appropriate valuation principles for each accounting standard. The valuation function can also Position management functions handle security-account trans- produce quarterly or monthly period-end reports, including fers, import or entry of corporate actions, automatic fixing of optional valuation resets, to meet the reporting requirements of interest rates, and netting of payments. An alert monitor accounting standards such as U.S. GAAP or IAS/IFRS. The high provides a real-time overview of exceptions and elapsed due dates. level of automation in period-end processing lets you easily meet Once processing in the back office is complete, the back-office the international accounting fast-close requirements. processor marks the transaction as settled and sends it to the accounting area. 9
  • 10. For greater transparency, the system fully records all postings in Support for a Broad Range of Financial Instruments individual documents that link directly to the related financial SAP Financial Asset Management supports a broad range of transactions. With a single mouse click, an accountant can trace financial instruments, including money market instruments, back the source of any posting in the general ledger. For general loans, fixed-income and equity securities, foreign exchange ledger purposes, you can reflect parallel accounting standards by instruments, and derivatives. (See Figure 5.) expanding the chart of accounts, tapping special ledgers, or set- ting up several parallel general ledgers. Instruments SEGREGATION OF DUTIES AND CONTROL Investment Focus Hedging Focus Strong transparency and control are essential for a system that processes financial transactions. The investment management Money Market Securities* Foreign Derivatives features in SAP Financial Asset Management deliver both • Fixed-term • Fixed-rate bonds Exchange • Cap/floor deposits • Floating-rate • FX spot • Forward rate through extensive check and documentation tools. • Deposits at bonds • FX forward agreement notice • Reverse floaters • FX swaps • Security • Commercial • Zero bonds forwards SAP’s time-tested role concept handles the segregation of duties. paper • Drawable bonds • Swaps • Floating-rate • Amortization – IRS A functional separation of trading, back-office, and accounting instruments bonds – CCIRS • Facilities • Index-linked • OTC options on activities is ensured by giving every user a customized role with bonds – Currency related tasks and authorizations. The system can use trader Loans • Warrant bonds – Interest • Mortgage loans • Convertible – Securities authorizations to assign the trading of certain financial instru- • Promissory note bonds – Swaps loans • Dual-currency – FRAs ments to specific users. Business-partner authorizations restrict • Policy loans bonds • Traded futures trading activities with specific counter-parties to a definable range • Other loans • Puts/calls • Traded options • ABS/MBS of instruments. In addition, you can set up release requirements • Stocks • Subscription that, for example, let you require checks of certain transactions rights by one or more additional employees before transferring the • Investment certificates transactions to financial accounting. • Warrants • Repos/Rev. repos Comprehensive documentation functions log all financial asset • Securities lending * Includes short selling and bond issuance management activities. For internal and external auditing pur- poses, the system documents a transaction-processing history Figure 5: Financial Instruments Supported by SAP® Financial Asset Management that provides snapshots at each step. Additionally, the system logs all transaction changes, with information on the user and time Predefined product categories offer various parameter settings of change, in protocols available for later evaluation. that you can adjust for the financial instruments and products your company holds. This approach can greatly simplify data LINKS TO SAP AUDIT INFORMATION entry and ensure consistent transaction processing. Links to SAP audit information and data retention tools help insurance companies fulfill reporting requirements of the U.S. SAP Financial Asset Management provides substantial flexibility Sarbanes-Oxley Act and can give tax auditors access to relevant in setting up conditions and characteristics for specific instru- historical data. ments, while ensuring consistency among the processes 10
  • 11. themselves. The ability to customize a transaction management Data that the system imports into the investment management process for individual types of instruments lets you match the component is also available to the investment controlling com- processing steps to your specific needs. (See Figure 6.) ponent for risk and return evaluations. This functionality en- sures consistency in the market data for accounting and analysis purposes. Product Product Areas Classes Categories Types (securities and listed derivatives) (system-defined) (customer-defined) Open Interfaces Money market 912828CA6 Curr.:USD Treasury Note Rating: AAA SAP solutions are open systems that let you exchange data across Interest: 4.000 Mat: 02-15-2014 Department of Treasury U.S. system boundaries. Because the interfaces remain stable across Stock Floating-rate bonds Foreign exchange DE0001049070 Corporate Bond solution releases, no adaptation or redesign is required after an Invest. certificate Fixed-rate bonds Curr.:EUR Rating: A Interest: 6.120 Commerzbank, GER Mat: 10-25-2010 upgrade. Securities Bond Zero bonds 575930SR4 Municip.Rev.Bnd Curr.:USD Rating: AA- Warrant bond Index-linked bonds Interest: 2.875 Mat: 12-01-2007 SAP Financial Asset Management provides interfaces for creating, Loans State of Massachusetts, USA Convertible bond ... changing, retrieving, reversing, and counter-confirming individ- Derivatives ... ... ual financial transactions. These interfaces ensure that data transferred to the SAP system is consistent across individual Figure 6: Product Category Concept in SAP® Financial Asset Management transactions. There are also interfaces for creating, changing, and retrieving securities master data and repayment schedules. Easy Importing of Market Data SAP Financial Asset Management provides a real-time data feed The interfaces allow automatic security master data import (such with a universal, open interface that can import data from any as ratings), integration with specialized front-office portfolio information provider or data-feed platform. The interface can management systems, or automatic import of transactions transfer exchange rates, swap rates, prices for stocks and bonds, entered in online trading systems (such as online foreign reference interest rates, index values, commodity prices, and exchange or money market trading platforms). futures prices – as well as volatilities for exchange rates, interest rates, security prices, and indexes. To reduce the danger of Strong Reporting Functions importing incorrect data, you can set up consistency checks Efficient reporting requires central access to information and the that monitor incoming data for suspiciously large deviations ability to structure and present data according to specific guide- from data that the system imported previously. lines. The reporting functions offered by SAP Financial Asset Management help you keep track of financial transactions and The system can also import current and historical market data cash flows and analyze their impact on financial accounting. using a file interface. In this case, the market data that a provider supplies must be available in a file format that the system sup- ports. Alternatively, you can import market data directly from a spreadsheet or enter it manually. The system logs manual entries and changes to market data for internal and external auditing. 11
  • 12. OPERATIONAL REPORTING creating the desired reports. You can access the databases and The application offers a wide range of predefined operational various reporting tools – either SAP or non-SAP – to define the reports that can support daily operations or meet periodic and data selection, information attributes, and report display. You strategic reporting needs. These predefined reports cover infor- can also export this data to Microsoft Office or other mation for transaction processing – including deal blotters, data applications for further processing and presentation. on transaction status, transaction history, open issues, important dates, and required release correspondence. They also support ANALYTICAL REPORTING reporting related to cash flow and liquidity, position analysis, You can expand or adapt the predefined business content in profit and loss analysis, and accounting information. SAP Financial Asset Management for your specific reporting requirements and upload all relevant investment management You can adapt all of these reports to your specific requirements information to SAP NetWeaver BI for a variety of analytical eval- through field selection, filtering, sorting, or subtotaling. You can uations. Using SAP NetWeaver BI, you can analyze and report then save the resulting variants of the original standard reports data received from many different information systems or appli- on a personal or company-wide level for later use. Most reports cations – whether SAP or non-SAP sources. SAP NetWeaver BI is allow drill-downs to increasingly detailed information – for ideally suited for strategic cross-area reporting such as joint example, from transaction summary to transaction detail to reporting on financial assets and real estate investments, details on the business partner. (See Figure 7.) asset/liability analysis, or quarterly and annual projections. (See Figure 8 and “Extensions of the Solution” below.) Figure 7: Operational Reporting in SAP® Financial Asset Management You can easily create customized operational reports, without coding, within a few minutes and save the reports for future use. Online reports use out-of-the-box logical databases, which Figure 8: Analytical Reporting Based on SAP® Financial Asset Management and extract information from various data sources within the system SAP NetWeaver® BI and translate the data into meaningful key figures. This provides a comprehensive and consistent repository of information for 12
  • 13. STATUTORY REPORTING Investment Controlling Regulatory authorities have traditionally imposed extensive What does your investment controlling process look like today? disclosure requirements on insurance companies. These require- • Do you control for market risk and credit/default risk? ments have expanded significantly in many countries as a conse- • Do you calculate the fair value of your investments on a daily quence of the increased volatility of capital markets at the basis? beginning of this decade. • Can you carry out “what-if” analyses based on relative and absolute market data scenarios? Statutory reporting software in SAP Financial Asset Manage- • Do you calculate your value at risk across all asset classes? ment can help you efficiently meet today’s regulatory reporting • Can you break down analyses along alternative portfolio hier- requirements. Information from SAP Financial Asset Manage- archies and drill down to the single-transaction level? ment and the SAP Real Estate Management application is auto- • Can your risk controller view all the operational details of a matically imported into the statutory reporting application, transaction and review its history and processing status with a combined with related master data, and stored in a special ledger few mouse clicks? within the mySAP ERP Financials solution. From there you can • Does your risk-controlling system reflect transactions at the then generate the reports and forms you need. (See Figure 9.) very moment that traders enter them? • Can you monitor activities of your traders in real time and set up limits for them? Securities Loans Money Market Real Estate • Are traders automatically warned if a transaction breaches a limit? Statutory Reporting Statutory Reporting • Do you measure portfolio performance relative to appropri- Database Master Data ate benchmarks? By addressing these issues, the investment controlling functions in SAP Financial Asset Management can provide further benefits Statutory Reporting Special Ledger to your firm. Real-Time Data Retrieval Statutory Reports Effective analysis of risk and performance requires data that is up-to-date, accurate, and consistent. Even the most sophisticat- Figure 9: Statutory Reporting with SAP® Financial Asset Management ed calculation algorithms and risk figures are rendered useless if they depend on data that is outdated, incomplete, or flawed. Predefined statutory reports are currently available for the Data used for risk and performance evaluations generally stem reporting requirements of Germany, Switzerland, and Austria. from two sources: current capital market information and an You can adapt the software to meet the reporting requirements insurance company’s present holdings of financial assets and of other countries. cash. 13
  • 14. SAP Financial Asset Management can import real-time market The system can easily import information on highly complex, data and store it centrally for use by all SAP applications and structured instruments. As a result, the investment controlling users and as input for all investment controlling calculations. All area can take assets from other areas or systems into account, the calculations can thus be based on real-time market data. such as real estate or itemized mutual fund investments. (See Because the investment management and investment controlling Figure 10.) functions in SAP Financial Asset Management use the same mar- ket data, accounting and risk/performance analyses are Market Data consistent with each other. • Exchange rates • Indexes • Volatilities • Security prices • Swap rates • Correlations Information about the financial assets of a company is automati- • Reference • Commodity • Betas interest rates prices cally retrieved from the investment management component in real time. Analyses from the investment controlling component Investment Controlling reflect transactions as they enter the system, as well as any changes to those transactions. For cash-flow analyses, the system Generic can retrieve your current cash position and expected cash flows Financial Objects (SAP) Objects from SAP Cash and Liquidity Management – which captures all liquidity-relevant information across the SAP system, including Liquidity Management Investment Management Third-Party financial assets and operational insurance business. Current cash position Securities Foreign exchange Systems Expected cash flows Loans Derivative instruments Money market instruments Figure 10: Data Basis for Risk and Performance Analysis in SAP® Financial Asset Management Customized Portfolio and Risk Hierarchies To manage risk and performance efficiently, you must clearly quantify the contribution of organizational entities (such as profit centers), risk objects (such as financial instruments), and individual 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 your financial transactions and operating cash flows to create these 14
  • 15. hierarchies – such as trader, transaction currency, type of finan- Interest Rate Risk cial instrument, or exchange. You can also define your own char- acteristics, either automatically based on various transaction Currency attributes or by entering them manually as transactions are recorded. By defining the sequence of selected characteristics, you can Interest Rate USD Interest Rate EUR Interest Rate GBP determine the hierarchy levels at which individual risks are aggregated. (See Figure 11.) Term Total Money Market Capital Market Money Market Capital Market Money Market Capital Market Asset Class 1-month Libor 1-year Libor 1-month Euribor 1-year Euribor 1-month Libor 1-year Libor 3-month Libor 3-year Libor 3-month Euribor 3-year Euribor 3-month Libor 3-year Libor 6-month Libor 6-month Euribor 6-month Libor 12-month Libor 12-month Euribor 12-month Libor Fixed Income Stocks Real Estate Figure 12: Sample Two-Tier Risk Hierarchy by Type of Risk Comprehensive Market Risk Analysis Country Market risk analysis measures the effect of changes in capital market variables on the value of your company’s current holdings. Important market variables include interest rates, U.S. UK Japan U.S. Japan UK Japan exchange rates, stock prices, and the volatilities related to such factors. Market risk analysis also includes the calculation of an Figure 11: Sample Two-Tier Portfolio Hierarchy by Asset Class asset’s present value (mark-to-market valuation) based on current market information. Because you can create any number of portfolio hierarchies, you can cover risk reporting from many different perspectives – such Typical questions answered by market risk analyses include the as specific organizations, instruments, or countries. Just as you following: can use portfolio hierarchies to measure the contribution of • What is the current value of our financial assets? organizational entities to overall risk, you can use risk • What happens to asset values as interest rates change? hierarchies to measure the contribution of individual risk • What happens to asset values if a catastrophe occurs (such as factors – such as reference interest rates, exchange rates, index the events of September 11, 2001)? levels, volatilities, or stock prices. (See Figure 12.) • What is the maximum loss we can expect, and the probability, if market parameters change in an adverse way? 15
  • 16. MARK-TO-MARKET VALUATION bond portfolio measured in U.S. dollars, if the yield curve for the SAP Financial Asset Management uses current market data to euro shifted up by 25 basis points and the euro/dollar exchange calculate the present values of financial assets. Valuation rate dropped by 3%. algorithms exist for all areas, including advanced valuation mod- els for derivative instruments such as those of Black and Scholes, CURRENCY EXPOSURE Garman-Kohlhagen, Cox-Ross-Rubinstein, or Hull-White. If you If your company’s asset allocation strategy seeks to exploit oppor- prefer alternative valuation models, SAP Financial Asset Manage- tunities offered by international investments, analyzing and ment also supports the attachment of external price calculators hedging foreign currency risks is an essential element in manag- without modification to the system. ing market risk. SAP Financial Asset Management provides tools for measuring exposure to exchange rate fluctuations (taking To increase transparency, the system documents calculations in into account risks caused by financial assets) and the risks related detailed and comprehensible logs. It stores the resulting values to insurance business carried out in foreign currencies. and – in case of non-traded instruments, for which no market prices can be imported – uses these results for fair-value account- LIQUIDITY ANALYSIS ing purposes. In many countries, regulatory authorities substantially restrict the use of debt financing by insurance companies. With even SENSITIVITY AND SCENARIO ANALYSIS short-term borrowing then virtually impossible, maintaining li- Sensitivity analyses let you measure the impact of a (typically quidity reserves at optimum levels becomes a key value driver. marginal) change in a single market parameter on the present Using SAP Financial Asset Management with SAP liquidity value of a portfolio of assets. Sensitivity figures offered by SAP management software, you can combine the current level of li- Financial Asset Management include basis-point value, Macaulay quidity with expected cash flows to monitor development of and Fisher Weil duration, convexity, and the Greeks for options. the liquidity reserve over time. You can also evaluate the effects of exchange rate fluctuations for assets with foreign currency denominations. You can create scenarios or scenario progressions to analyze the impact of capital market fluctuations on the cash flows produced Scenario analyses calculate present values and other key figures by your financial assets. This feature would let you examine, for for a portfolio of assets based on combinations of market parame- example, the impact of market fluctuations on variable or ter values (market data scenarios). Scenario analyses are especial- optional cash flows. ly important to insurance companies as they allow for the extreme case simulations (“stress tests”) that are often required VALUE-AT-RISK ANALYSES by regulatory authorities. Value-at-risk analysis is an extension of net present value analysis. This type of analysis uses a standard measure for risk across all With SAP Financial Asset Management, you can define and store categories of financial instruments and, with historical or simu- any number of absolute and relative hypothetical market data lated market data, lets you calculate the potential value loss of a scenarios and base the available analyses on one of these scenar- position that, based on a certain probability and period, you ios. To calculate sensitivities under certain market conditions, might incur before hedging or selling the position. you can combine scenario and sensitivity analyses. You could (See Figure 13.) thus determine, for example, the basis-point value of a European 16
  • 17. bility lets you evaluate investment returns according to various 2.5 perspectives – such as those of the individual portfolio manager, 2.0 1.5 risk controller, or executive manager. Position change (million) 1.0 0.5 You can set up the evaluation schedule according to your own 0.0 requirements. The system supports monthly, quarterly, semi- -0.5 annual, and annual performance evaluations. Once you have set -1.0 up the portfolio hierarchies and evaluation schedule, you can -1.5 -2.0 Value at risk €1.48 million choose from the following yield calculation methods: at 95% confidence level -2.5 5% 15% 25% 35% 45% 55% 65% 75% 85% 95% • Money-weighted rate of return Cumulated frequency (%) • Time-weighted rate of return • Standard Dietz and modified Dietz method Figure 13: Graphic Evaluation of Value at Risk The money-weighted rate of return method determines the Due to its uniform net present value approach, value-at-risk return on a portfolio over the selected period, including the analysis has become a highly useful risk-controlling instrument. effects of capital inflows and outflows. The result thus resembles Its popularity has also increased with the greater availability of the internal rate of return for a portfolio of assets based on all historical market data in recent years. SAP Financial Asset Man- cash flows and value changes that occur over the evaluation peri- agement supports a range of value-at-risk analysis models – od. This includes changes in financial resources available for including the historical simulation, variance-covariance, and investment over time (capital inflows and outflows). Monte Carlo models. You can decide which of these procedures to use, based on the particular instrument that you want to When yield calculation measures the investment skill of a portfo- evaluate. The solution lets you directly influence calculation lio manager, these external capital inflows and outflows tend to performance by offering various calculation approaches within distort the measurement. The time-weighted rate of return these models such as full valuation and delta and delta-gamma method (TWRR) eliminates the effect of externally generated calculations. You can also import external data for the calcula- capital inflows and outflows that the portfolio manager usually tions or use market data stored in the SAP system. For the vari- cannot influence directly. Standard and modified Dietz are both ance/covariance approach, a statistics calculator lets you approximation methods for the TWRR. estimate volatilities and correlations. SAP Financial Asset Management can calculate performance fig- Flexible Performance Analysis ures according to the Global Investment Performance Standards After managing market risk, the most important analytical task of the CFA Institute. In addition to absolute return calculations, in earning a return on your financial assets is performance the system can compare a portfolio’s performance to freely defin- measurement and analysis. As with market risk analyses, you able benchmarks such as indexes. (See Figure 14.) can conduct yield calculations with SAP Financial Asset Management along any of the portfolio hierarchies. This capa- 17
  • 18. Default Risk Credit Risk Settlement Risk Direct Third-party Counterparty Issuer settlement risk settlement risk Figure 15: Default and Credit Risk Terminology in SAP Financial Asset Management To determine default risk, the system calculates the individual risks for each business partner (counterparty or issuer), taking Figure 14: Performance Benchmarking into account business partner relationships. You can use differ- ent formulas to calculate default risk exposure, as well as Broad Default Risk Analysis expected loss from loans, securities, money market, derivative What would the loss be if one or more of your business partners instruments, and foreign exchange transactions. By adapting declared bankruptcy tomorrow, next month, or a year from these formulas to different types of financial instruments, you today? Can you answer these questions precisely, in a matter of can set up your own profile for risk calculations. For example, minutes, and for each business partner? Could your analysis take you can measure the credit risk exposure for transactions based affiliations between business partners into account as well? Based on nominal amounts or mark-to-market values (present on your current financial assets, could you quantify your total values). For a settlement risk exposure calculation, your expected loss from default risk over a future period? advance payment amount and the amount due from the counterparty would be the relevant basic key figures. Increasingly, insurance companies invested in debt instruments must measure, analyze, and manage default risk – especially as Your risk calculations can also take into account information regulations governing risk control expand. SAP Financial Asset such as credit ratings, the period of risk commitment – as well Management helps you calculate exposure to default risk that as the volatility of a transaction’s value, expected recovery rates, arises from your capital market investments. This includes credit netting agreements, and collateral. (See Figure 16.) risk (both counterparty risk and issuer risk) as well as settlement risk (both direct settlement risk and third-party settlement risk). (See Figure 15.) 18
  • 19. violating transaction – as well as a log that records all violations Key Figures Markups Default Other Factors • Net present Depend on Probability • Collateral for internal audits. By supporting these tasks, SAP Financial Asset value product’s market- Depends on • Netting • Nominal value change rating and risk agreements Management helps you restrict potential losses and keep your amount period and market- commitment • Recovery rates trading activities under control. • Advance value volatility period payment • Amount due from CP SAP Financial Asset Management lets you define, process, and evaluate risk limits according to your own specifications. You can define limits using various characteristics, and specify limit Calculation Formulas (customer-specific examples) • Default-Risk Exposure amounts for particular criteria. You could, for example, stipulate Credit-risk exposure that the exposure caused by derivative transactions should not Risk = max (0; net present value) Direct settlement-risk exposure (for instruments settled directly with exceed US$100 million. counterparty) Risk = amount due from counterparty Third-party settlement-risk exposure (for instruments settled with You can also assign several limit characteristics to a limit amount clearinghouse) Risk = (max (0; amount due from counterparty - advance payment amount) to create multidimensional limits. For example, to prevent trans- • Expected Loss Credit-risk exposure actions by a specific fixed-income trader in the utilities industry Risk = (max (0; net present value) + markup) x default probability from exceeding an exposure of US$50 million, you can set a limit Direct settlement-risk exposure (for instruments directly settled with counterparty) for the particular trader, limit product group (in this case, fixed- Risk = amount due from counterparty Third-party settlement-risk exposure (for instruments settled with income instruments), and industry. (See Figure 17.) clearinghouse) Risk = max (0; amount due from counterparty - advance payment amount) Manufacturing Utility Transportation Service Attributable amount for Attributable amount for Industry US$500 M US$300 M US$200 M US$300 M default-risk exposure expected loss Figure 16: Example of Default Risk Calculation Setup Fixed Income Equity Derivatives Instruments US$500 M US$300 M US$100 M Once you have set up your key figures for measurement of Connor Bauer Gomez Hashimoto default risk and the corresponding calculation formulas, SAP Trader US$150 M US$200 M US$150 M US$250 M Financial Asset Management will automatically calculate the US$50 M corresponding attributable amounts for every transaction and asset position maintained in the system. Your default risk key Figure 17: Example of a Multidimensional Limit Structure figures will correspond exactly to your definition of default risk. In addition, these figures will be based on comprehensive data, In addition, you can use both direct and derived limit characteris- always up-to-date and readily available when you need them. tics for limit definition. Direct-limit characteristics are taken straight from the transaction data (such as trader, currency, Useful Limit Management Tools product type, and business partner). Derived-limit characteristics In addition to measuring market and default risk, you must set are customer-specific and based on a transaction’s direct charac- upper limits for those risks and constantly monitor those limits. teristics. If, for instance, you wanted to set a limit for transactions You also need limit controls that show when a limit is violated concluded with business partners in Latin America, you could and automatically warn traders who try to enter a limit- 19
  • 20. enter Latin America as the value for a customer-specific charac- Next to tabular displays along the portfolio hierarchy are graphi- teristic geographical region. Each transaction with a business cal reporting tools and numerous options for exporting data, for partner from this region would then be checked against the example to spreadsheet applications. A results database lets you defined limit. save and archive risk and performance calculations along with the portfolio hierarchy. You can thus reproduce these figures for SAP Financial Asset Management also supports an integrated historical evaluations or audits. online limit check. Traders can use this function to determine transaction risk and check a deal against the defined limits before SAP Financial Asset Management also offers comprehensive stan- it is finalized. When the transaction is concluded, utilizations for dard reports for default risk and limit reporting and is linked to the affected limits are increased automatically to reflect the SAP query and drill-down reporting tools. You can display all transaction exposure. The system displays the result of the limit existing limit utilizations in aggregated form for any given date, check and writes it to a log for later evaluations if the transaction including exception reporting. You can also track limit is concluded. In addition, you can set up the system to trigger a utilizations over time to see which transactions affect the expo- workflow when a transaction is entered that breaches the set sure or review a list of all defined limits along with changes to limits. the limit amounts over time. These capabilities help you moni- tor all trading and limit-definition activities effectively and main- To accommodate the integrated limit check, the system regular- tain high standards for operational security. ly values all financial positions by updating the limit utilizations with current market data. In addition to the utilizations for each From limit utilization reports, it is possible to drill down to the centrally defined limit, the system generates individual records exposure for individual transactions and transaction details – for each transaction. You can see the impact of individual deals including partner data. For each transaction, you can view a on the total utilization and use this information to change finan- detailed log that documents how the risk amount was calcu- cial transactions during the day. lated. The system stores histories of limit amounts and utilizations until they are archived. You can access the archived Streamlined Reporting data any time you need it. With these features, you can trace the Reporting for risk and performance analysis is generally based extent to which individual traders have used or exceeded their on the defined portfolio or risk hierarchies. This lets you view limits over any time period. key figures (such net present value, duration, nominal value, and market value) for a particular date on a broad range of Extensions of the Solution aggregation levels – from a company overview to single security Many insurance companies maximize their return on invest- positions and transactions. The drill-down also works for key ment for SAP Financial Asset Management by adding figures that require complex aggregation algorithms, such as complementary solutions from SAP, its partners, or third parties. value-at-risk figures. Examples of typical extensions that can maximize the value of the system include the following: Clicking on single positions or transactions takes you to detailed • Strategic capital asset planning and controlling views of corresponding transactions and their processing status. • Portfolio management From here you can see associated postings in the SAP general • Funds controlling ledger. Such integration gives risk controllers the highest possi- ble level of transparency. 20
  • 21. Strategic Capital Asset Planning and Controlling Reporting Calculation Engine Support for evaluations based on current financial asset (as-is and planned) Expected: positions and actual market data or market data scenarios is a • Liquidity • Balance sheet must-have capability for insurance firms today. In addition, to • P&L support decision makers efficiently in strategic asset allocation, SAP NetWeaver® BI • Market risk • Performance you need a system that can also accomplish the following: • Run analyses across all capital assets, including real estate and Capital-asset data pool Market Investment other investments expectations strategies • Accommodate various scenarios for expected capital asset SAP® BW Extractors positions (such as a current position complemented by SAP System II (Subsidiaries Europe) expected investments and sales per asset class or different SAP System I (Subsidiaries Americas) asset allocation strategies) Transaction Loans Real Estate Third- Manager • Mortgage loans Management Party • Calculate key figures for risk, return, and liquidity and simu- • Money market • Policy loans System(s) late financial statements based on different market data sce- • Securities • Borrower’s note • Foreign exchange loans narios, asset allocation scenarios, and accounting standards • Derivatives • Other loans Some firms have used the potential of SAP NetWeaver BI to Figure 18: Technical Concept of Strategic Capital-Asset Planning and realize such groupwide capital asset planning and controlling Controlling for their strategic asset allocation processes. In this case, the sys- tem extracts information on capital assets from the correspon- Integration of Portfolio Management Systems ding SAP and non-SAP systems to SAP NetWeaver BI. While the Depending on their front-office requirements, some insurance required data extractors for SAP systems are delivered with each companies supplement SAP Financial Asset Management (which solution, you can establish project-based extractors for non- focuses on the middle-office and back-office processes) with spe- SAP systems to accommodate data located in the systems of cialized portfolio management systems that can support their other providers. Thus information on all capital assets held by trading activities. Similarly, other insurance companies have your company are pooled within SAP NetWeaver BI and are decided to outsource portfolio management and corresponding available for comprehensive analytical “as-is” reporting. By front-office activities to specialized asset managers. using a calculation engine that is based on SAP NetWeaver and supplied by one of SAP’s partners, you can combine the data An efficient, straight-through transaction management process pool for your group’s capital assets with market data and plan- requires automatic transfer of financial transactions that have ning data (such as projected asset-class weights or planned been entered in the portfolio management system to the SAP investments and sales). Thus information on all capital assets system for further processing. In addition, the systems must syn- held by your company are pooled within SAP NetWeaver BI and chronize market data and master data on business partners and are available for comprehensive analytical as-is reporting. By security classes. You must also assure that other processes (such using an SAP NetWeaver-based calculation engine supplied by as reversals) can run across system boundaries. SAP Financial an SAP partner, the data pool for your group’s capital assets can Asset Management supports system interfaces for creating, be combined with market data. (See Figure 18.) changing, and reversing financial transactions as well as for transferring master data – such as security classes. 21
  • 22. OUTLOOK AND STRATEGY SAP partner solutions are available that connect specialized port- What are the major trends insurance companies face in asset folio management systems with SAP for Insurance solutions via a management, and how does SAP’s solution strategy relate to two-way interface that automatically transfers the necessary data them? Observable industry trends and their chronology can from front office to back office and vice versa. SAP is currently differ significantly among geographic regions and markets. working on expanding the connectivity of SAP Financial Manage- Figure 19 provides a sample overview of the most prevalent ment based on the SAP NetWeaver Exchange Infrastructure (SAP developments. NetWeaver XI) component. 2003 2005 2007 2009 Investment Fund Look-Through Investments in institutional or mutual funds often represent a Internal STP significant share of an insurance company’s assets. These invest- ments are generally reflected as investment certificates within Corporate Governance SAP Financial Asset Management. While this is sufficient for most Statutory Reporting accounting purposes, some companies want to monitor their Multi-GAAP (including fast close) fund investments by single asset positions. With SAP Financial Outsourcing Asset Management, you can import the various positions into the system and tap them for online or analytical reporting – as well External STP as for various risk-controlling activities. Asset/Liability Management Solvency II Occasionally an accounting standard requires the breakdown of fund investments by asset level for financial reporting purposes, in addition to reporting and risk-controlling activities, and the Figure 19: Asset Management Trends Faced by Insurance Companies corresponding investment company cannot provide precalculat- ed accounting data. In this case, SAP Financial Asset Management SAP for Insurance solutions address internal straight-through can handle the automated importation of fund transactions for processing, stepped-up corporate governance (such as the U.S. processing such as directly owned assets using parallel accounting Sarbanes-Oxley Act), and statutory reporting requirements, and capabilities. most insurers are successfully dealing with these issues. But while many insurers have found a way to handle multi-GAAP accounting under regulatory pressure, most current software is not sufficiently automated. In addition to operational inefficiencies, this software sustains significant operational risk due directly to the high level of manual intervention they require. As outlined previously, multi-GAAP accounting for financial instruments is one of the core competencies of SAP solutions, helping companies manage several accounting stan- dards in parallel in a highly automated environment. 22
  • 23. Overall process automation is becoming more important for Finally, insurers can expect major changes in risk management. all parties in the asset management supply chain – be they Some insurance companies have only recently moved from an insurance companies, investment companies, custodians, accounting-oriented approach toward managing financial asset broker-dealers, banks, or industry regulators. Such external risk to a market-oriented approach. However, insurance compa- straight-through processing (STP) has historically been signifi- nies must further expand risk management technology and cantly hindered by a lack of widely accepted communication processes to cover both assets and liabilities in an integrated fash- standards. This situation should change as standardized XML- ion. While integrated asset/liability management (ALM) has been based message formats such as ISO 20022 begin to penetrate the a topic of interest in the insurance industry for several years, few financial services industry. companies have actually implemented comprehensive IT solutions for this purpose. This situation can be expected to Driven mainly by the general desire for more efficient change, as authorities in many regions build upon the legal operations, cross-company STP will be further fueled by an framework for ALM established in the CEA Solvency II Project. expected increase in outsourcing activities. The outsourcing of specific steps in the asset management value chain to specialized Unlike other providers of asset management software, SAP offers service providers can be appropriate due to economies of scale a comprehensive portfolio of insurance-specific solutions that and scope. However, insurers must make certain that outsourc- support such operative insurance processes as policy, claims, and ing benefits are not thwarted by a dramatic increase in manual reinsurance management. SAP thus has an understanding of the effort and the operational risk involved in maintaining cross- instruments and processes involved in an insurance company’s company processes and external data interfaces. asset and liability sides – the most basic prerequisite for develop- ing a comprehensive ALM solution that will meet future regula- Both external STP and outsourcing require a highly connective tory requirements. The comprehensive deployment of SAP for asset management system that provides a broad range of process Insurance can also provide a consistent database for both assets and data interfaces. With such a system, insurance companies and liabilities, which is crucial to the reliability of all subsequent can break up the value chain and distribute the individual steps analyses. In addition, integration of SAP for Insurance with SAP’s as they see fit – without losing the benefit of integrated, best-of-breed solutions for data warehousing and business intelli- straight-through processes. SAP Financial Asset Management gence will ensure other industry-leading ALM capabilities. already offers high levels of connectivity based on the BAPI® programming interface. However, these interfaces currently import and export data in a proprietary SAP format, which typi- cally requires some data transformations. The solution’s connectivity has been further improved with the advent of SAP NetWeaver XI. In addition to all tools and services you need for convenient communication process setup and management, SAP NetWeaver XI provides increasing amounts of preconfig- ured content, which allows out-of-the-box integration of SAP solutions with third-party systems, based on industry messaging standards. 23
  • 24. TABLE OF PROCESSES LET SAP FOR INSURANCE SUPPORTED BY SAP IMPROVE FINANCIAL ASSET FINANCIAL ASSET MANAGEMENT FOR YOU MANAGEMENT The SAP for Insurance solution portfolio provides powerful Special Features of applications and support for best practices that can help insur- Business-Process Support SAP Financial Asset Management ers lower transaction costs, while integrating and automating Investment Management key insurance business processes. You can easily implement the • Support for the entire life cycle of financial instruments – from industry-tailored applications in stages, according to your com- transaction entry to accounting – through integrated, straight- pany’s strategic business goals, priorities, and resources. through processing • Support for a broad range of To meet the demands of a sector in which customers can easily securities, loans, money market instruments, foreign exchange switch providers and razor-thin profit margins demand tight instruments, and derivatives fiscal discipline, SAP for Insurance solutions include Web- • High-level automation of back- office and accounting tasks enabled applications that seamlessly link core insurance • Excellent multi-GAAP accounting processes with customer-facing functions and back-office opera- functionality, including seamless out-of-the-box integration with tions. SAP for Insurance thus supports your business from first SAP® general ledger functions customer contact through policy and product management, • Extensive reporting functionality collections, disbursement, and claims management. • Reassuring system security and transparency • A high level of connectivity to internal and external third-party With approximately 400 customers in 45 countries, SAP for systems Insurance enables end-to-end data analysis that supports critical Investment Controlling strategic decisions. The solutions can help you respond rapidly • Automatic real-time import of financial transactions, security to shifting realities, control costs, seize new opportunities, and positions, and market data for strengthen customer loyalty. Based on the open architecture of analytical purposes the SAP NetWeaver platform, SAP for Insurance helps compa- • State-of-the-art market risk analytics – including value-at-risk nies leverage existing technology investments while minimizing calculations, derivatives pricing, the complexity of managing heterogeneous IT landscapes. For and “what-if” analyses additional information please visit our Web site at • Sophisticated performance analysis and corresponding bench www.sap.com/insurance. marking 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 24
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  • 28. www.sap.com /contactsap 50 077 089 (05/12) Printed in USA.