GAAP long-duration targeted improvements (LDTI)

SAP and EY perspective on LDTI for insurers

Vince Rouleau - SAP Toni Tomic - SAP Mainak Patel - SAP Zlatan Lipovaca Omnath Kandasamy
VP Financial Services Global Head of Insurance Senior Insurance Principal Ernst & Young LLP Ernst & Young LLP
Principal, Insurance Senior Manager, Insurance
 FULL INSURANCE
REGULATION AND ACTUARIAL END TO END
ACCOUNTING FRAMEWORK FINANCE FLOW AND
KNOW HOW
ACCOUNTING
AND FOCUS
OPERATIONS

THE AND PARTNERSHIP

BEST PRACTICES ECOSYSTEM RAPID

REFERENCES LONG TERM TIME TO VALUE
PARTNERS
Today’s Agenda

• Review of LDTI timelines and the impact of COVID-19

• Enabling a finance, risk, and actuarial architecture

• EY and SAP approach to management reporting under LDTI

• SAP solution framework for finance transformation

• Summary and call to action

Review of LDTI timelines and the impact of COVID-19
Revised LDTI effective dates
Revised LDTI implementation timelines and key considerations
Representative ranges for public companies1

1 This implementation timeline is based on the 2023 amended effective date for SEC filers. This timeline does not include considerations for early adoption.
Implementation timelines and status
Representative ranges for private/mutual companies (timelines more varied than for public companies)1

1 This implementation timeline is based on the 2025 amended effective date for all other insurers not subject to SEC filer requirements. This timeline does not include considerations for early adoption.
2Comparative period for private/ mutual companies is dependent on the filing type. For example, if an entity has separate account filings then the restatement period is two years (e.g., 2023 and
2024), as opposed to one year.
Enabling a finance, risk and actuarial change for insurers
Common finance and actuarial challenges for LDTI

Actuarial Transformation Finance Transformation

Challenges:
Challenges: • Accounting rules embedded in admin systems which limit granular reporting
• Actuaries spend more time preparing data than analyzing it capability
• Limited consolidated reporting capabilities (drill down to input data, ad- • Large volumes of top side entries due to poor data quality or incomplete data
hoc analysis etc.)
• Disparate applications support regulatory and management reporting

Common Challenges:
• Inconsistent data sourcing capabilities across finance and actuarial
calculation engines
• Lack of transparency and “auditability”
• Manual reporting processes

Challenges:
• Unable to reconcile data between finance and actuarial systems
• Need for historical, actual cash flows
• Increased rigor around controls
• Additional reporting disclosures

Regulatory Changes (IFRS 17 & LDTI)

EYIntegrated finance,
Integrated FRAC risk,
Architecture and actuarial architecture
Key features
Overlay & benefits
of key capabilities to address actuarial and finance challenges

SAP S/4HANA SAP

for financial products S/4HANA
subledger (FPSL) Finance
SAP
Profitability EY Intelligent
and Metrics Navigator
Performance (runs on SAP Analytics Cloud)
Management
Costing Engine
SAP HANA Data Management Suite
(PAPM)

Automated accounting rules for

1 Consistency between finance inputs and 2 finance actuals and actuarial outputs 3 Management reporting
actuarial inputs
EY and SAP approach to management reporting under LDTI
 Management reporting under LDTI
Relative impact by category (illustrative)

* Note the following: Liability for Future Policy Benefits (LFPB), Deferred Profit Liability (DPL), Deferred Acquisition Costs (DAC), Unearned Revenue Reserve (URR), Deferred Sales
Inducements (DSI), Market Risk Benefits (MRB), Embedded Derivatives(ED), host contract liabilities, and value of business acquired (VOBA)
 Using SAP capabilities for compliance with LDTI
SAC - EY Intelligent Metrics Navigator - LDTI Dashboard

The EY team has leveraged the capabilities of SAP Analytics Cloud (SAC) to build a reporting layer solution that will enable stakeholders to transparently
consume data and make sense of results. EY Intelligent Metrics Navigator is a comprehensive analytic dashboard for the CFO and finance team. It includes pre–
configured data model and dashboards that can be leveraged across multiple functions, including financial planning analysis, risk, internal audit and
management reporting.
EY Intelligent Metrics Navigator
Future policy benefits summary
EY Intelligent Metrics Navigator
Future policy benefits (rollforward delta analysis)
EY Intelligent Metrics Navigator
Future policy benefits (cash flow assumptions update analysis)
EY Intelligent Metrics Navigator
Future policy benefits (actual vs. expected benefits)
EY Intelligent Metrics Navigator
Future policy benefits (discount rate analysis)
EY Intelligent Metrics Navigator
Reference architecture

1 2 3

1 Consistency between finance inputs and 2

Automated accounting rules for 3 Management reporting
actuarial inputs finance actuals and actuarial outputs
SAP solution framework for finance transformation
Solution alignment with unified architecture
Data Sourcing Governance
Internal Data Master Reference Data Management, Metadata Management, Data Quality, Data Governance
Policy Admin Data Transformation Reporting &
Claims Admin Calculation Delivery
Ingestion Aggregation Analytics
Billing Admin
Capital Planning/
Commissions Budget Engine Finance
Data Integration Accounting General Reporting Collaboration
Investments (Real Time / Batch) Ledger &
events & Subledger Risk Engine
Reinsurance posting engine Consolidation
Capabilities
Management
Payments Sourced Data Repository (SDR) Pricing Engine Reporting
Expenses/AR/TAX Internal Events Integrated Data layer
Management Allocations Engine Portal
Actuarial External Events Consolidation Store Reg

Certification
Engine Reporting

Semantic View
Forecast - Budget Policy Finance Reserving Engine

Common Consumption
Premium Store
Reference/Hierarchy Claims

Events / Projections/Other
Costing Engine Operations
Billing Claims Regulatory
Sales / Call center Store Reporting Data Feeds

Structured Data
Customer Billing Valuations
External Data
Actuarial Engine
Affiliates Operations Commissions Store Actuarial
Tax Engines Reporting
Market Data Other Data Investments
Operations
Raw/Unstructured Data Store Underwriting
IVR/Audio/Video Sales Mobile
Engine Discovery &
Other FP&A Exploration
Social Data/Web Logs Store Asset Modeling

Data warehousing and aggregation / Financial products subledger Profitability/ SAP Analytics Cloud/Digital
Platform

Insurance Data Model (rules engine, granular financial data persistence) perf. mgmt Boardroom
SAP

S/4 financials
Source → Data linearity → Summary
SAP vision of finance transformation
From reporting business outcomes to driving business outcomes

Running the Delivering Performance

business insights optimization

Predictive
Insights Predictive Employee roles will
change:

Forward • Big-data analysts

Advanced looking
Real-time • Increased focus on
analytics
insights performance
management
Real-time
• New business
Backward insights
modelers
Operations looking
• Simulation and
Backward prediction experts
looking • Business strategy
Automation
experts
• Line-of-business
Operations Operations experts/partners
Financial motivation

Expenses typically impacted through technology Typical

Inconsistent data sourcing capabilities
modernizations, improving financial data management improvement
across finance and actuarial engines

Challenges
and finance and accounting processes range*

Lack of transparency and “auditability” Audit cost 11.6% - 17.4%

Business and operations analysis/reporting costs 12.5% - 18.7%
Manual journal entry and reporting General ledger and financial closing costs 19.3% - 29.0%
processes
Compliance costs 11.6% - 17.4%

Financial data management Financial close Reporting and analysis/efficient Compliance

• Reduced effort on data
validation and cleansing
• Less time on data collection,
data merge, and
reconciliation
• Less time spent on period close
• Shorter cycle time to execute
recurring financial processes
(analysis, reconciliation, auditing)
• Complete data linearity from
source to summary
• Significantly higher number of employees receiving
analytical information from improved visibility
• Fewer employees building reports due to flexible
dashboards
• Less time needed to create reports due to data
consolidation
• Automated content to enable regulatory compliance with
flexible framework to adapt to emerging mandates

* Improvement range is based on SAP benchmarking

Summary and call to action
Call to action
Next steps and ongoing engagement

• Monitor the ongoing updates

• Visit https://www.fasb.org/jsp/FASB/Page/SectionPage&cid=1176157086089

• Review and discuss your plan

• Share this recording and educate your teams

• Engage our team

• Schedule an LDTI review workshop via your SAP or EY lead
Thank you!
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