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Get Ready for Solvency II with Oracle's Hyperion Profitability and Cost Management (HPCM)

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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.

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Get Ready for Solvency II with Oracle's Hyperion Profitability and Cost Management (HPCM)

  1. 1. Edgewater Ranzal Today’s Presentation for Solvency II Webinar Product Fund Accounting & Reporting Dec 13, 2011Mike KilleenVice PresidentEdgewater RanzalLondon, UK
  2. 2. Edgewater Ranzal Today’s Presentation for Solvency II Webinar Product Fund Accounting & Reporting Dec 13, 2011Mike KilleenVice PresidentEdgewater RanzalLondon, UK
  3. 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. 4. About Edgewater Ranzal Focus Services 15 Years People 700+ clients 1000+ projects Methodology Customers Partnership Slide 4
  5. 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. 6. Business Background Slide 6
  7. 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. 8. SII Impacts People, Process & Technology acrossFinance, 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 howProcess 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. 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. 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. 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. 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. 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. 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. 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. 16. Solution Elements Slide 16
  17. 17. Oracle EPM Platform Components COMMON REPORTING WORKSPACE1 Common Reporting Workspace - Excel DASH- OFFICE 1 EXCEL FINANCIAL BOARDS INTEGRATION - Financial Reporting AD HOC REPTG - Web Analysis/IR - Office Integration (ppt, word) MANAGEMENT REPORTING2 EPM Applications 3 STRATEGIC PLANNING PLANNING - Strategic Finance - HFM - Planning 2 - HPCM3 Management Reporting PROFITABILITY & COST FINANCIAL CLOSE - Essbase MANAGEMENT - Relational - Data Warehouse COMMON INTEGRATION FOUNDATION4 Data Integration 5 EPMA DRM 4 FDM ODI FILE/SQL - FDM - ODI - File/SQL5 Master Data/Dimension Mgmt - EPMA - DRM OLTP & ODS PeopleSoft HR OLAP SAP, Oracle, Siebel, Excel Business Systems PeopleSoft, Custom XML Process Slide 17
  18. 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. 19. Integrated Technology Landscape to Support ThoseProcesses • 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. 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. 21. Graphical View - Management Expense Allocations toProduct Line Slide 21
  22. 22. Sample Expense Allocation Flow Slide 22
  23. 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. 24. Stage to Stage ExampleStage 1 to Stage 2Stage 2 to Stage 3 Slide 24
  25. 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. 26. Direct and Indirect (Genealogy) Allocations Drivers Deployed•FTE (Simple)•Various % Inputs (Custom)•Summarization (Even) Slide 26
  27. 27. HPCM Workflow for Cost Allocations Allocation Cost & Revenue Metadata Model Allocation Profitability & Cost Analysis Management Definition Calculations Slide 27
  28. 28. Sample Expense Allocation Result Slide 28
  29. 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. 30. HPCM – Validate Model Via Stage Balancing Report Slide 30
  31. 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. 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. 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. 34. Questions & Key Contact InfoMike Killeen, Vice PresidentEdgewater Ranzal – UK Division45 Beech Street, Suite 607London, UK EC2Y 8ADE-mail: mkilleen@ranzal.com Slide 34
  35. 35. Appendix IScreen Shot Demo Slide 35
  36. 36. HPCM Workflow for Cost Allocations Allocation Cost & Revenue Metadata Model Allocation Profitability & Cost Analysis Management Definition Calculations Slide 36
  37. 37. EPMA – Create & Manage Dimensions Slide 37
  38. 38. HPCM – Define Stages Slide 38
  39. 39. HPCM – Define Drivers Slide 39
  40. 40. HPCM – Assign Drivers Slide 40
  41. 41. HPCM – Define Assignment Rules Slide 41
  42. 42. HPCM – Attaching Assignment Rules Slide 42
  43. 43. HPCM – Attaching Explicit Assignments Slide 43
  44. 44. HPCM – Create & Deploy Calculations Slide 44
  45. 45. HPCM – Validate Model Via Stage Balancing Report Slide 45
  46. 46. HPCM – Validate Model via Trace Allocations Slide 46
  47. 47. Appendix IITypical Project Team Slide 47
  48. 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. 49. www.ranzal.com

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