EY Global Insurance CFO Survey

1. Global Insurance CFO Survey

2. 2 | Global Insurance CFO Survey Contents 5 Executive summary 7 Priorities and challenges 13 Delivering value in 2020 17 Positioning for success 23 Conclusion 25 Methodology For additional information about this survey, go to ey.com/insurance/CFO2015.

3. 3Global Insurance CFO Survey | Even as economies recover, the insurance sector continues to face many competitive pressures and regulatory challenges. Yet a new drive for growth is emerging. This survey captures the priorities and challenges for finance and actuarial teams as they seek to support business growth strategies while addressing ongoing regulatory and cost pressures. Introduction

4. 4 | Global Insurance CFO Survey

5. 5Global Insurance CFO Survey | Delivering more value to the business through performance measurement and improved decision support is the top priority for the finance function through 2020. Among senior finance professionals participating in the 2014 EY Global Insurance CFO Survey, 71% indicated that “being a better business partner” ranked among their top three priorities, with 35% placing this as number one. As insurance companies around the world continue to invest in data management and analytics capabilities, the role of finance and actuarial functions has become even more critical. The processes and systems supporting these functions are key to developing deep insights into business performance, as well as customer needs, preferences and behavior. In response, finance leaders have been increasing their efforts to improve the capabilities of their organizations to meet the new demands. In the survey, 89% of respondents stated that they have either begun a change program or are in the planning stage. However, the drive to better insights is not without challenges. Among the issues is the impact of continuing regulatory compliance demands. According to 35% of those surveyed, implementing new regulatory and financial reporting requirements was the highest priority for finance and actuarial organizations; 56% ranked this among their top three. As a result, the ability for these organizations to strike a balance between delivering value to the business and meeting daily operational demands will continue to be a challenge. Not surprisingly, the current data and technology footprint will require significant change to meet the challenges of the finance function of the future. Across the finance operating model, survey participants scored data as the least developed capability on average, while technology recorded the greatest gap between current and required future state. In order to address these challenges, insurers will need to focus on three key activities: • Modify the current reporting process by developing an efficient reporting solution architecture. • Enhance the added value to the business through the deployment of more analytical skill sets and resources and driving commercial awareness through timely and relevant management information, linked to strategic objectives and performance indicators. • Improve finance and actuarial operational performance by working “smarter, not harder,” with the right skills and processes, in the right locations. This necessitates optimized use of systems and automation to improve effectiveness and deliver more efficiency. David Foster Global & EMEIA Insurance Finance Change Leader Executive summary

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7. 7Global Insurance CFO Survey | Priorities and challenges 71% Survey participants rank “being a better business partner” among their top three priorities for the next six years 43% Senior finance professionals cite growth as the number one business driver 44% Finance teams that have launched improvement projects; 41% are in the planning stage 19% Finance leaders who say their finance and actuarial functions are completely integrated in the areas of planning, budgeting and forecasting 59% Percent of total finance and actuarial costs expended on transaction processing and reporting Although insurance companies face many regulatory and competitive pressures, improving economies are stimulating new growth strategies. Finance and actuarial teams are adjusting their own priorities in order to best support business growth, while also remaining focused on satisfying regulatory and financial reporting requirements. However, they are confronted by a range of challenges in seeking to deliver against their own and broader business objectives.

8. 8 | Global Insurance CFO Survey Figure 1: Percent of respondents ranking their driver among their top three Primary business drivers Please rank in order the following business drivers facing your organization through 2020 Acheiving growth, expanding into markets and/or expanding through MA activity Relieving pressure on costs and margin/improving profit Responding to regulatory change Improving capital and liquidity position Addressing competition from globalization and new market entrants Establishing risk migration and management Increasing simplification through organizational restructuring Preparing for leadership change and succession Other 43% 17% 20% 17% 66% 20% 11% 31% 26% 54% 51%11% 17% 9% 11% 20% 14% 17% 3% 18%9% 9% 6% 11% 31% 29% 11% 6% 3% 3% 3% 3% Order of priority: First Second Third Source: EY Research, 2014 In looking ahead to 2020, achieving growth is one of the primary drivers and priorities for insurers, with improving margins on current business and responding to new regulation also both high on the list. Of those insurers participating in the survey, 66% indicated growth was among the top three business drivers facing their companies, with less than half (43%) ranking it their number one driver and priority in the coming years. While this may signal a growing confidence in the recovery of the global economy, cost control and responding to new regulation also remains among the top three business priorities. This indicates that insurers are still feeling the impact of what continues to be a very challenging economic environment . As insurers seek to address these increasingly complex and sometimes competing set of demands and opportunities, finance and actuarial leaders recognize their increasingly important role in helping the enterprise work through these challenges and achieve its strategic objectives and ambitions .

9. 9Global Insurance CFO Survey | Figure 2: Percent of respondents ranking the driver among their top three Finance and actuarial priorities for 2020 Please rank in order the following finance and actuarial priorities facing your organization through 2020 Being a better business partner (understanding the business, improved decision support) Implementing new regulatory and financial reporting requirements (includes accounting pronouncements) Improving quality of reporting (internal and external) Setting up finance to support growth (flexibility and scalability) Aligning finance, risk, and actuarial information Delivering finance services consistently Reducing total/relative cost to operate finance Other 15% 15% 32% 12% 15% 9% 3% 21% 6% 12% 21% 18% 15% 9% 35% 35% 6% 12% 3% 3% 3% 3% 71% 56% 50% 45% 36% 27% 15% Order of priority: First Second Third 3% Source: EY Research, 2014 In order to best support and help prepare their organizations to deal with these ongoing business challenges, finance and actuarial leaders have identified several key priorities including: • Positioning finance to support the growth objectives of the broader enterprise • Implementing new regulatory and financial reporting requirements • Improving the quality of both internal and external reporting Among chief finance, actuarial and accounting executives surveyed, being a better business partner to support the growth agenda and provide better decision support ranked the highest priority, with 71% ranking this among their top three. Over a third listed this as their number 1 priority through to 2020 (see figure 2). Furthermore, recent conversations with finance and actuarial executives confirm a renewed interest and use of terms such as “value-adding activities” and “business partnering.” While these concepts are not new, cost control, new regulation and general economic challenges have typically demanded more urgent attention in recent years. Indeed, these challenges still remain high on the priority list with 56% of participants ranking the implementation of new regulatory reporting in their top three priorities. However, perhaps surprisingly, the business focus on costs and margins (as shown in figure 1) has not translated into reducing the cost of finance as being a high priority for the CFO. Only 15% of participants ranked this among their top priorities.

10. 10 | Global Insurance CFO Survey As increasing demands are placed on finance, managing the costs will be challenging Which of the following processes within your finance and actuarial organizations are performed locally, or are shared services on-shore, shared services off-shore or outsourced today? What is expected in 2020? Transaction processing Local On-shore Off-shore Outsourced Accounts payable and expense reimbursement Actuarial reserving and valuation Cost management Fixed asset accounting General accounting Payroll Revenue accounting Taxes Treasury Reporting Internal and external reporting communications Communications Decision Support Planning, budgeting and forecasting Performance analysis and decision support Capital management Controls Policy, procedures and controls Internal audit Finance Function Management Finance HR Finance IT Figure 3: Bucking the trend Utilization of on-shore shared services is expected to be highly leveraged across transaction processing functions. Outsourcing will be selectively targeted toward payroll and internal audit. Shared Services Denotes a change of 10 percentage points or more in either direction Source: EY Research, 2014

11. 11Global Insurance CFO Survey | Reducing the cost of finance did not rank as a particularly high priority for most participants. However, with insurers still under pressure to reduce costs, finance will still need to play a role in containing and carefully managing costs in the future. Indeed, phrases such as “right sizing” and becoming “more scalable” were often referenced by survey participants . Yet, with more internal and external demands being placed on finance, even maintaining the current cost base (let alone trying to reduce finance costs) will be a major challenge for most organizations. Simply applying more resources and costs to meet these new demands will not be sustainable. Finance and actuarial functions will therefore need to generate more capacity and funding that can be re-deployed to meet these new demands through greater efficiency and lower processing costs. By 2020, finance processes will need to be simplified and systems optimized to eliminate manually intensive processing activities. Only key business facing finance resources will be located in higher cost locations, with remaining resources “right sourced” in middle and lower-cost centers. This is not necessarily a new ambition as many organizations have already invested heavily in the use of shared services and lower cost off- shoring centers to drive standardization and lower processing costs. But, most participants indicated that they still wanted to do more. While transaction processing has long been a candidate for centralizing and moving to lower cost centers, most participants still see more opportunity. In addition, they also expect to have more of their reporting and budgeting processes managed through lower cost -shared service centers by 2020. It is significant that the majority of participants expect to achieve this, not through use of more off-shore centers or outsource providers, but through greater use of “on shore” shared service centers.

12. 12 | Global Insurance CFO Survey Figure 4: Percent of respondents ranking the challenge among their top three Challenges facing financial and actuarial organizations Please rank in order the main challenges finance and actuarial organizations will need to address to become better business partners and fully participate in the execution of the business strategy. Data: quality/granularity not synchronized with needs Technology: infrastructure (not fit for purpose) People: lack of resources/quality (skills) of resources Process: inconsistent/not unified across the firm Performance management expected role of finance (not viewed as a business partner) Strategy: lack of articulated finance vision Organization: decentralized organization/globally unified delivery model Cost to execute finance responsibilities Governance: finance not aligned on key enterprise governance models (e.g., data standards) Other 18% 18% 15% 18% 6% 6% 6% 9% 27% 18% 27% 12% 3% 3% 9% 21% 27% 12% 9% 12% 9% 6% 66% 63% 54% 39% 21% 12% 12% 9% Order of priority:  First  Second  Third 15% 0% Source: EY Research, 2014 Data and technology present the biggest challenges to business partnering Weakness in the quality and granularity of data is a frequent theme when talking to finance and actuarial executives in the insurance sector; technology issues are close behind, as indicated in figure 4. In our survey, participants identify data and technology as the two main challenges they face when seeking to be better business partners and fully participating in executing the business strategy. For many insurers, the challenges are indicative of legacy multiple-source systems resulting from a history of growth through acquisitions and a lack of investment in finance systems over the last 10 years or more. Finance leaders also identify a significant people challenge in relation to accessing the resources and skills they need. This may reflect the renewed focus on growth and business partnering, which requires very different skills from, for example, financial reporting production. As well as strong analytical skills, effective business partners must understand the business and the relative return on capital across different business lines. The people focus revealed in this survey may also reflect a growing interest in the wider organization being seen as a good place to work – perhaps partly in response to a likely heightened war for talent. The process challenge facing finance and actuarial teams is also identified by many participants. Its ranking behind data, technology and people may reflect a recognition that while process re-engineering is important and may well have been a key lever for incremental change in recent years, true transformation in finance now requires a significant upshift in those other elements. Processes may, however, be more of an issue for European respondents, who typically need to improve processes in order to achieve faster reporting for Solvency II compliance.

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14. 14 | Global Insurance CFO Survey Decision support is the least developed finance capability, requiring the biggest improvement to meet 2020 expectations.

15. 15Global Insurance CFO Survey | Decision support functions will undergo the greatest transition from current to future state There is no reason to expect today’s competitive, regulated and challenging insurance market to become any easier by 2020. If finance and actuarial organizations are to provide the strategic decision support that their businesses require, operating models and processes need improvement. Greater centralization of finance processes may be needed to achieve improved efficiencies and free up human resources to focus more on value-adding activities that enable better decision-making and delivery of strategic priorities. As insurance finance and actuarial departments align to become better partners to the business, the role of decision support will become a critical component of the finance operating model. In the survey, participants were asked to rank their company’s level of maturity across five finance process groups – both today and where they expect to be in 2020 (see figure 5). Decision support received the lowest current score and the highest expected maturity level in 2020, and thus revealing the biggest capability gap. Across individual organizations, the level of decision support ranged from producing management information in the form of reports to dedicated, highly skilled resources working directly with business unit leaders to provide critical insights during the decision making process. In order to meet future needs, many finance and actuarial organizations will need to invest in upgrading their planning, budgeting and forecasting, business insight and decision support capabilities to match those of best practice companies today. Notably, transaction processing was also seen to be one of the weaker finance capabilities, with respondents identifying a need to get to an “advanced” maturity level. This may reflect a drive to reduce costs and the need for better-quality transaction data as the foundation for faster and better quality reporting. This implies that many organizations still see the opportunity for further opportunities to improve efficiency and effectiveness, and that “getting the basics right” is a prerequisite foundation required to enable better reporting and business insight. Finance and actuarial process groups Basic Developing Established Advanced Leading Average maturity level Transaction processing Reporting Decision support Controls Finance function management 2014 2020 Source: EY Research, 2014 Figure 5: Comparison of maturity levels for finance and actuarial groups For each finance process group, please rate the current and expected (2020) levels of maturity within your finance and actuarial organizations. Delivering value in 2020

16. 16 | Global Insurance CFO Survey Most finance leaders see a need to improve their finance and actuarial capabilities, but do not need to be “leading” to achieve their goals.

17. 17Global Insurance CFO Survey | Finance and actuarial capabilities Basic Developing Established Advanced Leading Average maturity level 2014 2020 Operation strategy Policy Organization Governance Processes Data People Technology Performance management Source: EY Research, 2014 Figure 6: Comparison of maturity levels for finance and actuarial capabilities For each capability below, please rate the current level of maturity within your finance and actuarial organizations and the level of maturity required to meet the objectives of your finance and actuarial organizations through 2020. Across a range of organizational capabilities, data was identified as having the largest gap between current maturity levels and the level of maturity required to meet 2020 finance and actuarial objectives. Respondents’ current ratings range from “developing” to “advanced,” indicating substantial variety within organizations. Scope for improvement exists for technology as well, where some respondents listed their current maturity level as “basic,” whereas others identified it as advanced. This highlights the difference between those who have already invested in new platforms and those who have yet to do so. It is notable, however, that most finance leaders do not see a need to achieve the highest – “leading” – maturity level; “advanced” status may well be sufficient and achievable at lower cost. Interestingly, finance leaders identified people as their most established capability in 2014, but also indicated they still expect people capabilities to improve significantly through to 2020. Anecdotally, finance leaders are proud of the quality of the people they have on their teams and recognize that many are capable of taking on more challenging roles and delivering greater value to the business. Data, technology and people need most improvement to meet 2020 needs

18. 18 | Global Insurance CFO Survey There is no one right answer as to the level of investment and areas of focus required to prepare the finance function to deliver value in 2020.

19. 19Global Insurance CFO Survey | Positioning for success Source: EY Research, 2014 Figure 7: Percent of total finance and actuarial FTEs by functional area Average of survey participants In looking at the finance function within companies across the industry, it becomes apparent that there are many differences in the level of maturity among key functions and core capabilities. This is invariably the result of differences in business mix, geographic reach and strategic direction undertaken by each company. As a result, there is no one right answer as to the level of investment and areas of focus required to prepare the finance function to deliver value in 2020. However, there are three key actions that all companies, regardless of current capability and aspiration, should focus on to be best positioned to be a better business partner in the future. • Fix the reporting processes • Enhance the “value-add” to the business • Drive operational effectiveness and efficiency Robust management of new reporting processes are required to deliver speed and quality Current reporting processes among global insurers are typically inflexible and time-consuming, with significant manual intervention. Next to transaction processing, the reporting function accounts for the largest share of finance and actuarial headcount, reflecting the level of effort needed to produce the required number of internal and external reports. The underlying transaction and reporting processes remain the biggest driver of cost and resource for finance and actuarial teams. And perhaps not surprisingly, the goal for most finance and actuarial leaders is to reduce the proportionate cost and effort spent on these processes in favor of more resources spent on decision support. However, this ambition is not new and has been a typical CFO objective for many years. So while many organizations are planning for, or already have improvement programs underway, careful consideration needs to be given to agreeing the target operating model, delivery plan and responsibilities with associated success measures, to ensure the shift in cost and resource is actually delivered. 39% 35% 25% 24% 20% 23% 8% 9% 8% 9% 2014 2020 Transaction processing Reporting Decision support Controls Management All lines

20. 20 | Global Insurance CFO Survey Some of the key drivers for the current complexity (and cost) of underlying transaction and reporting processes for many have been historic mergers and acquisitions, where systems and processes were never fully integrated, and the increasing volume and scope of new reporting requirements. The traditional response to these drivers has often been to “bolt on” tactical fixes or work-arounds, which in turn incur additional resources and costs to maintain, and often cause difficulties in producing meaningful analysis and decision support. This reactive approach has contributed to the high finance cost basis and difficulties producing analysis for decision support. Additionally, organizational issues have hampered the efficient production of reports, with the connectivity across finance and actuarial functions and processes being far from optimal. By 2020, reporting processes will need to be faster, more robust and capable of providing multiple reporting views. This will require reporting processes and systems be “fit for purpose” to meet various new regulatory, financial and business requirements. Furthermore, while ensuring that the required content can actually be produced for these new reports and metrics, the requirements also require faster, and more flexible reporting processes. Fixing the reporting processes will be dependent on radical process redesign and a mind-set shift for those involved. Data consistency, supported by technology that can automate processing and readily provide multiple reporting views, will be keys to improving the reporting process. Finance needs to support and challenge the business in making the best possible commercial decisions Challenging market conditions facing global insurers require that management have access to more relevant and timely performance information. These include insights into product and channel profitability and a robust assessment or challenge of strategic decisions from a finance, risk and capital perspective. By 2020, finance will own and manage an enterprise-wide performance management process, integrating finance, risk and actuarial skills to deliver insight to the business through experienced finance business partners. Timely and relevant management information and real commercial awareness will be the keys to success. The transformation will require a cultural change, as well as a number of specific people and organizational initiatives, mainly linked to the development of the business partner role. The organization will need a deep understanding of the key drivers of shareholder value embedded in the enterprise performance management processes. This will require finance to develop new skill sets to analyze the end-to-end measures and to implement new technology and data analytics capabilities to effectively understand and help manage the performance levers. Further integration of finance and actuarial functions will be crucial, as each will bring complementary skills, including accounting, reporting and control (finance), and analytics and business understanding (actuarial). Currently, 19% of finance leaders say their finance and actuarial functions are completely aligned in the areas of planning, budgeting and forecasting while another 19% are nearly there. A further 43% anticipate full integration by 2020. How aligned are finance and actuarial in the planning, budgeting and forecasting areas? 19% 19% 19% 43% ■ Completely integrated ■ Full integration nearly complete ■ Partial integration with plans for full by 2020 ■ Partial integration with no plans for full Source: EY Research, 2014 Figure 8: Integration of finance and actuarial functions

22. 22 | Global Insurance CFO Survey As indicated by our survey participants, 85% have already launched a finance change program or are in the planning stages of a change initiative(s) in order to meet future business demands.

23. 23Global Insurance CFO Survey | Source: EY Research, 2014 Figure 9: Change program activity, percent of respondents Conclusion The global insurance industry has faced numerous challenges in recent years. While most industries have struggled in the aftermath of the global financial crisis, insurers have also had to contend with increasing regulation, including changing financial accounting and reporting requirements. Meanwhile, the market has remained “soft” and highly competitive – with continued pressure on rates and pricing. Yet encouragingly, the industry is shifting its focus toward growth. Increasingly, insurers are reviewing their product mixes and seeking to grow written premiums, whether by extending business lines, increasing their share of mature markets or developing new opportunities in emerging markets. Finance and actuarial executives recognize they have a key role in supporting these business objectives, but in turn the outlook presents a particular set of challenges in the coming years. They share the ambition and see the opportunity to deliver real value to the organization in the form of deeper insights into performance, risk management and strategic planning, helping lead their organizations to succeed. However, to do so in an increasingly complex, unforgiving and more stringently regulated environment will undoubtedly require some tough priority decisions along the way (note the plans for change program activity in figure 9). Clearly, finance and actuarial functions cannot afford to stand still and there is a need for them to retool in the coming years. As indicated by our survey participants, 85% have already launched a finance change program or are in the planning stages of a change initiative(s) in order to meet future business demands. Where are you in your finance and actuarial planning to address the top five priorities? 6% 9% 44% 41% ■ Plans in place and change program underway to deliver on priorities ■ Priorities considered and planning underway to address ■ Have considered priorities but no planning in place yet ■ Have not considered these priorities (not selected)

24. 24 | Global Insurance CFO Survey Background and methodology This survey sought the opinions of senior finance, accounting and actuarial executives from 35 global insurers operating across 10 leading insurance markets. Life, non-life and multi-line insurance companies are all represented. Conducted in the first half of 2014, the survey focused on the key strategic and business drivers for insurers and their likely impact on finance and actuarial functions through to 2020. It considered finance and actuarial priorities and the challenges ahead. The second section of the survey focused on the finance and actuarial operating model, including current and aspirational levels of maturity across nine components of the model and across five finance process groups. Finally, the survey gathered data on the structure of finance and actuarial functions, including the extent of shared services and outsourcing, numbers of full-time equivalent employees, finance and actuarial costs, and the prevalence of transformation programs. Premium volume across all participants exceeded US$330b, with per carrier totals ranging from just under US$2b to nearly US$50b. Carriers included 10 of the top 25 global insurers as ranked by A.M. Best Company. Methodology Percent of respondents by geographic region Percent of respondents by primary line of business 43% 27% 35% 38% 22% 24% 8% 3% ■ North America Life Non-Life Multi-Line Specialty Reinsurance EMEIA Asia-Pacific Source: EY Research, 2014

26. 26 | Global Insurance CFO Survey Notes

28. EY | Assurance | Tax | Transactions | Advisory About EY EY is a global leader in assurance, tax, transaction and advisory services. The insights and quality services we deliver help build trust and confidence in the capital markets and in economies the world over. We develop outstanding leaders who team to deliver on our promises to all of our stakeholders. In so doing, we play a critical role in building a better working world for our people, for our clients and for our communities. EY refers to the global organization, and may refer to one or more, of the member firms of Ernst Young Global Limited, each of which is a separate legal entity. Ernst Young Global Limited, a UK company limited by guarantee, does not provide services to clients. For more information about our organization, please visit ey.com. © 2015 EYGM Limited All Rights Reserved. EYG No. EG0221 1403-1344536 NY ED None This material has been prepared for general informational purposes only and is not intended to be relied upon as accounting, tax or other professional advice. Please refer to your advisors for specific advice. ey.com Contacts Global David Foster +44 20 7951 5687 dfoster@uk.ey.com ASEAN Esther See +65 6309 6182 esther.see@sg.ey.com Greater China Phil Gough +852 28469778 phil.gough@hk.ey.com EMEIA Ian J. Robinson +44 20 7951 6106 irobinson@uk.ey.com Oceania Andy Robertson +61 2 9248 5436 andy.robertson@au.ey.com US Sandy Sposato +1 212-773 6231 sandy.sposato@ey.com