by Esther Shein, Contributing Writer, SAPinsider Digital transformation is paving the way for insurance companies to modernize their processes and Swiss Re, one of the world’s largest wholesale insurance and reinsurance providers, has partnered with SAP to develop and test its SAP S/4HANA for Financial Products Subledger (FPSL). This innovative solution provides concurrent accounting across multiple accounting bases for both liabilities and assets, automated reconciliations and advanced analytics. It also includes planning and projection capabilities to give the CFO all the information needed to both understand past performance and steer the business effectively for the future. The high degree of automation and efficient processes will mean the finance department can be kept lean, focused on value-added activities. The SAP partnership with Swiss Re came in response to the ever-increasing number of new or changing global accounting mandates. This includes adding completely new standards like IFRS17 (International Financial Reporting Standards) or improving US GAAP (Generally Accepted Accounting Principles) as a result of the Financial Accounting Standards Board (FASB) initiative on Long Duration Targeted Improvements (LDTI). On Jan. 1, 2022, insurance companies in over 120 countries where IFRS is the applied accounting standard when they report to shareholders, will be required to comply with IFRS 17. This new standard is prompting a major transformation in actuarial and finance reporting processes, systems and data, according to a Deloitte report. The first FPSL release, which has been available to the market since mid-2018, is focused on supporting IFRS17 compliance. The solution has quickly gained traction by virtue of the high degree of pre-configured functionality. This means clients can rapidly progress the IFRS 17 implementation, as much of the “heavy-lifting” has already been done. Additionally, FPSL is well prepared for the LDTI standard, issued by the FASB. LDTI will impact US insurance entities that issue long-duration contracts, such as term life, universal life, traditional whole life and limited payment, among others. LDTI is viewed as the biggest overhaul in FASB accounting in several decades and will require changes to systems, processes and data. A PWC survey finds that because of LDTI requirements, 75% of impacted insurers anticipate some level of change to their company’s three-year business plans. And a Deloitte report on LDTI notes that “LDTI does not have a ‘one-size-fits-all’ solution.” Consequently, many insurers have historically struggled to build custom tools “that could stand up to audit-like scrutiny,’’ the report states. This transformation is also critical because in many insurance companies, data is often not shared between finance and the rest of the organization, making it challenging to integrate and share critical financial, actuarial, claims and other information that they both need. This can be problematic in today’s complex regulatory and reporting environment. FPSL is designed to help insurance firms, banks, financial technology companies, and financial corporations deal with these issues. With FPSL, financial organizations can simplify IT complexity by consolidating data silos and create a central hub for managing data between operational and finance systems – all while streamlining accounting flows and increasing transparency and control. Swiss Re chose SAP as a co-innovation partner for FPSL due to their long-standing expertise in building effective end-to-end financial accounting solutions and the cutting-edge technologies that underpin SAP S4/HANA. The synthesis of Swiss Re’s deep business expertise and SAP’s technological know-how has facilitated rapid delivery of the FPSL product which already comes with rich functionality built in.

The Subledger Difference

FPSL can help insurance companies better address the complexities of traditional, monolithic architectures. At the core of SAP S/4HANA is a multi-GAAP engine with baseline delta accounting capabilities. Complementing this accounting engine is a module that supports the preparation of estimated cash flows provided by actuarial upstream systems. The Baseline Delta Approach represents a true multi-GAAP approach for the reinsurance industry, according to Gerhard Lohmann, CFO of Reinsurance at Swiss Re. “At its core [the Baseline Delta Approach] is about splitting accounting entries into two components: first, the denominators common to all valuations (the baseline) and second, the components specific to any given valuation (the delta),’’ said Lohmann. “This enables a concurrent closing process in which the baseline is booked first with common components to all valuations and then in an immediate second step the respective delta(s) are booked. In this manner, today’s interdependencies of a sequential closing process can be overcome, leading to significant acceleration.” Learn more about the Baseline Delta Approach in a paper published by Swiss Re and KPMG. FPSL allows insurance companies to generate multiple valuations and apply financial steering methods based on SAP S/4HANA. Businesses can automate and control processes in a simple, effective way to realize the benefits of financial transformation:

Manage increasing regulatory complexity by incorporating new valuations and reporting standards such as IFRS 9, IFRS 17, and U.S. GAAP.
Reduce reporting efforts by generating multiple financial valuations simultaneously.
Minimize time requirements for performing operational tasks while increasing the capacity for analytics.
Steer financial resource allocation.
Simplify compliance and reduce its associated costs.

The FPSL solution also supports multi-currency and multi-entity accounting for digital businesses. Based on a logical accounting process model, it provides a business-oriented configuration that simplifies an implementation. Organizations gain a platform based on a centralized accounting rules engine and specialized calculators that help ensure data quality, completeness, and accuracy. As a result, their data is booked, versioned and audit ready. In addition, FPSL centralizes all accounting data and rules for financial instruments and insurance contracts, lightening product systems from accounting and controlling tasks. This significantly reduces costs and makes it easier to reconcile different sets of books. FPSL’s source and result data includes: estimated cashflows; actuarial and accounting portfolio definitions; business transaction; market data; best estimate cashflows; calculation results; and subledger documents.

Real Return on Investment

FPSL’s capability can help reduce the number of general ledger (GL) accounts required for your business by as much as 92%, according to SAP internal research, using the software’s multi-dimensional accounting functionality. Tight integration with GLs keeps data redundancy to a minimum and provides drill-down capabilities to the transaction level. Engineered for high-end performance, the FPSL can handle even the largest data volumes efficiently and process operational business events in near-real time. At the same time, IT can use the subledger to reduce technical complexity and provide business users with instant insight, along with full data lineage and transparency. As a result, business users can access data on the fly, make better decisions, and think and act more quickly. FPSL integrates into the accounting documentation chain, paving the way for true financial transformation. For example, you can:

Document all transactions — from a GAAP-specific perspective — on a contract, instrument, or portfolio level.
Leverage integration with finance functionality in SAP S/4HANA to perform drilldowns from an aggregated view at the GL-account level all the way down to very granular levels in the subledger, enabling detailed analysis and greater insight.
Use enhanced calculation and accounting capabilities.
Simplify the preparation of estimated cash flows provided by actuarial systems for insurance companies.

Swiss Re leverages these features to re-engineer end-to-end processes and improve the transparency of hand-offs between actuarial and finance. In addition, the timeliness and quality of financial analysis can be significantly improved. Overall these changes will lead to more efficient processes with improved automated analytics and controls.

Take Control of Complexity and TCO

Enterprises will have a single source of truth across the entire business with SAP’s financial subledger, thanks to easy-to-consume data. The solution ensures compliance with legal requirements on the basis of proven concepts and offers accelerated and increased automation of the closing process. Insurance and financial organizations will have control over complexity and total cost of ownership, with streamlined integration of other solutions — such as actuarial, financial and operational — with SAP HANA as the underpinning technology to assure speed, scalability, and robustness. FPSL reduces your data footprint with a preconfigured data model and business content. “We consider the Baseline Delta Approach supported by the Baseline Delta Approach subledger solution as a promising long-term solution to cope with present and future challenges in financial management,’’ notes the Deloitte report. Swiss Re is currently focused on implementing FPSL to support IFRS 17 and IFRS 9 compliance with the aim to implement FSPL across all valuations. The standardized but rich functionality will enable Swiss Re’s Finance department to transition its role from one focused on controls and compliance to enhancing its financial steering capabilities. For more information regarding the SAP S/4HANA for Financial Products Subledger , please read this Solution in Detail.

Articles

Inside the Value of the SAP S/4HANA for Financial Products Subledger Solution: Insurance Provider Swiss Re Teams with SAP to Take SAP S/4HANA for Financial Products Subledger to the Next Level

Published: 02/17/2020

Reading time: 6 mins

by Esther Shein, Contributing Writer, SAPinsider Digital transformation is paving the way for insurance companies to modernize their processes and Swiss Re, one of the world’s largest wholesale insurance and reinsurance providers, has partnered with SAP to develop and test its SAP S/4HANA for Financial Products Subledger (FPSL). This innovative solution provides concurrent accounting across multiple accounting bases…

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Inside the Value of the SAP S/4HANA for Financial Products Subledger Solution: Insurance Provider Swiss Re Teams with SAP to Take SAP S/4HANA for Financial Products Subledger to the Next Level

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