Central accounting and net settlement services for the global (re)insurance market

Transcription

1 Central accounting and net settlement services for the global (re)insurance market

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3 The global reinsurance market is an increasingly complex and regulated business. Participants are required to meet ever-more demanding regulatory requirements for both client money and their own capital, while delivering process efficiency and cost reduction. Liquidity and cash management are high on everyone s agenda. Integral to the success of the insurance market is the management of contractual performance and cash flow between brokers, cedents and carriers; including effective management across borders and currencies. Netsett a global market utility that offers an automated central accounting, financial reporting and reconciliation process alongside the net settlement of claims and premiums aims to achieve significant improvements to the operation of the market. 3

4 Time for change In the global (re)insurance sector, agreeing transactions remains in many cases a paper-based process that can take three months or more. Delays are caused by all queries being resolved manually prior to a final figure being agreed. Further set-backs may also occur as a result of poor data granularity, which can lead to a backlog of unidentified claims that equates to funds stuck in the system delaying resolution and complicating reporting. It is encouraging that change to transactional agreement and settlement is already underway. Significant progress has been made by the Ruschlikon Initiative to engage leading players of the insurance and reinsurance industry in advanced back office processes such as technical accounting, claims and settlement using the ACORD Global Reinsurance and Large Commercial (GRLC) Standards. Netsett looks to build upon this pioneering work and has ensured its functionality is aligned to the Global Best Practices employed by the Ruschlikon community. A lack of transparency around the cash in, and foreign exchange (FX) conversion process, compounds the problem and can lead to significantly-increased costs. As concerns grow over expenses, and reporting requirements become increasingly stringent, the heightened risks as well as the delays caused by opaque processes are becoming major concerns. In common with every other significant global market, the insurance market faces economic and compliance challenges, however the sector is robust and ready to grasp opportunities presented by initiatives such as Netsett. Netsett addresses these challenges by: Acting as a catalyst for process efficiency Netsett can lead to a more than 50% increase in operating efficiency, thereby accelerating the reconciliation process and reducing the cost of servicing transactions. Improving the quality and integrity of data With unmatched cash and unpaid ledger entries eliminated, and query-management moved to the beginning of the reconciliation process, participants can gain greater visibility and control over future payables and receivables, deeper insight into market performance, and a reduction in credit risk. Creating certainty of cash/fx movements Variations in FX risk throughout the settlement cycle can lead to significant conversion losses. Netsett offers automatic, up-front FX reconciliation, which saves time, decreases cost and risk, while providing competitive rates of exchange. Moving from gross to net, as well as faster settlement Netsett offers a minimum 30-day increase in the speed of settlement and a 1-to-4 ratio of cash flow reduction arising from net settlement. Further reductions may be available from cross-currency netting. Regulatory Reporting Netsett will deliver improved reporting that will assist you in embedding regulatory and compliance requirements into your business both globally and locally. Such combined factors result in the traditional end-to-end accounting and settlement process, which can otherwise take three months or more, being finalised efficiently and swiftly once funds are available, taking only days to complete. 4

5 Netsett: Exploring the benefits What does it do? Netsett provides global accounting and net settlement using structured data to enable organisations to exchange and settle accounting information automatically and efficiently. It facilitates the transfer of claims and premium data both within global insurance groups and between global cedents, brokers and carriers by building on the principles and benefits enjoyed by the London Market, making net settlement available to the global insurance market. Revolutionary change These combined strengths act as a catalyst for change for players in the sector providing the opportunity to achieve benefits in three areas: operational efficiency, transparency and control and treasury efficiency [see Figure 1]. Designed as a flexible platform, Netsett reconciles both technical and financial accounts and operates on an open-market and intra-company basis. The platform can operate in conjunction with existing systems and processes requiring no additional hardware or software bar access to standard web-browsers thereby offering global reach with minimal disruption. Netsett is ACORD accredited and is designed to utilise ACORD data standards. ACORD is a global, non-profit organisation serving the insurance and related industries which facilitates the development of open consensus data standards and standard forms. ACORD works with its members and partner organisations to drive uptake of these standards. Implementing ACORD Standards has been shown to improve data quality and flow, increase efficiency, and produce billions of dollars of savings to the global industry. Interconnected benefit case across operations, risk, finance and treasury Netsett does not exclude those organisations that do not have ACORD capability. A translation service can be provided as part of the solution, whereby data provided in an agreed, convenient, format is translated and embedded into an ACORD message. In addition to ACORD, Netsett is working with various key global market participants. These include the Ruschlikon Group; the LMG Non Bureau Working Group (NBWG); and the International Underwriting Association (IUA), all of whom are working on the transformation of the industry s back-office processes. The Netsett service fully harnesses the power of its founding partners. As well as drawing on Xchanging s technology experience, it makes full use of Deutsche Bank s unparalleled global transaction banking and FX capability to power the netting and settlement process, giving a single netted payment for all counterparties in each settlement cycle. 5

6 How does Netsett work? Netsett has two distinct capabilities, exploiting its common design principles and key components. These capabilities are: Intra-Group This provides the ability to exchange, agree/query and settle insurance premium and claim transactions between two or more entities within the same group. Inter-Company This provides the ability to exchange, agree/query and settle insurance premium and claim transactions between two or more external companies. Organisations without ACORD messaging capability are still able to benefit from Netsett s two distinct capabilities relating to Intra-Group and Inter-Company requirements. "We have a long-standing track record of providing innovative transaction banking and capital market solutions to the global insurance industry. Deutsche Bank is delighted to be a partner in the Netsett initiative, which we believe will revolutionise the way the industry processes premium and claims payments." Michael Spiegel, Global Head of Cash Management Corporates and Trade Finance at Deutsche Bank All ledger items that are agreed as both payable and due fall into the settlement cycle designed to run weekly. The settlement cycle is designed to operate in multiple currencies and across all time zones. This service works on a netted basis to reduce settlement charges and improve the cash position of participants. 6

7 Netsett end to end process Participant A is a net payer into Netsett in this cycle. There is potential to settle in five core currencies (here funding is in USD). Participant B is a net recipient. He opted to receive all payments in GBP settlement core currency. Final conversion into exotic currencies is also possible. articipant A (cedent broker) nternal systems TA Acknowledgement FA Acknowledgement 1 Message Hub (Translation service and routing of messages) Transaction instructions Acknowl edgement FA Acknowledgement articipant (carrier) nternal systems eb access eporting Netting eport View transactions 2 Ledger (Agree query and release transactions) Due items 3 Netting (resulting in one net position per participant and currency) 5 View transactions pdate ledger eb access eporting Netting eport Settlement eport 4 Settlement (resulting in one payment per participant and currency) Settlement eport Process flow: 1 Company A, which is required to pay the premium or settle a claim, submits a TA or FA message to Netsett The TA or FA will be displayed within the Netsett virtual ledger. The status of that ledger entry is managed and updated through the subsequent message exchanges Company B, which is to receive the premium or claim funds, will access the Netsett browser to view the details of the transaction. Company B may either choose to accept or query the TA message by sending a query message from Netsett to Participant A 2 3 With the web access to view their ledger entries, participants have complete transparency on the status of their payables and receivables at any point in time Once the transaction(s) have been agreed, the virtual ledger will release the transaction for settlement All due TAs or FAs that have been released will be processed in the next settlement cycle Deutsche Bank will run a net calculation, resulting in one net position per participant and currency Once the calculation has been completed, netting reports will be sent to inform participants of their financial obligations i.e. what needs to be paid into the cycle (if net payer) or what they are expected to receive (if net receiver) 4 5 Net payer participants are able to fund the Deutsche Bank Netsett account(s) in pre-defined and agreed currencies. Netsett can accept settlement in non-defined currencies. In this case, Deutsche Bank will undertake a FX conversion using its market leading FX platform. We guarantee our rates will match, and in many currencies better your existing FX rates At a defined cut-off time, Deutsche Bank reconciles the individual credit positions Once all expected funds have been received, Deutsche Bank will initiate a transfer from the individual participant's or participant Netsett accounts to a dedicated internal Deutsche Bank account and pay all net receivers Once the funds have been paid out to the net receivers, Deutsche Bank confirms the movement of monies With this confirmation, the ledger status will be updated automatically and the settlement cycle is closed and the whole process starts again for the next cycle 7

8 Case study proving the point The benefits of Netsett have been demonstrated in a nine-month trial with RSA Insurance Group, which began in December The trial has delivered clear results, demonstrating Netsett s ability to eliminate unmatched cash and unpaid ledger entries. RSA confirmed that it has seen settlement cycles accelerated from six to two weeks, and gross to net settlement balances reduced by more than 50% across the pilot. The pilot, therefore, delivered for RSA an 80% improvement in capital efficiency, 50 % reduction in operational activity and zero unreconciled items and cash. Who is behind Netsett? Netsett is the result of a strategic partnership between Xchanging a business process, procurement and technology services provider with expertise in the global insurance sector and Deutsche Bank. While Xchanging is experienced in managing the current London Market settlement service, Deutsche Bank is a world leader in combining technology and banking for the financial services industry. The platform leverages the Bank s long-standing track record of providing innovative transaction banking and capital markets solutions to the global insurance industry. Commenting on the pilot scheme, RSA said: Our pilot experience with Netsett allowed us to significantly improve our cash- flow management, helping to reduce external liquidity needs particularly in volatile currencies and, therefore, limit our exposure to FX risk. 8

9 Leveraging existing platforms Any industry of this size requires economies of scale in order to generate savings through operational efficiencies. The insurance sector is no exception, and digital and technological advances have changed many aspects of the industry s working practices. To give an example, for many years the London Market has reaped the benefits of a fully-automated, multi-lateral netting and settlement process delivering both treasury and operational cost-efficiencies in both the Lloyd s and Companies Markets. The figures prove this. Historical experience shows that the market settles in the region of 54 billion of premiums and claims between brokers and carriers annually but due to the London Market s netting and settlement process only moves a net figure of 11 billion. Moving forward The Netsett initiative is set to revolutionise the way the global (re)insurance industry processes premium and claims payments. Netsett offers organisations worldwide the opportunity to align business processes, create consistency and economies of scale across geographies in order to drive treasury efficiency. The International Underwriting Association (IUA) believes that Netsett can bring real and lasting benefits to the international insurance market with significant advantages to be gained across operational, risk finance and treasury environments through improvements to the accounting and settlement process. Market participants operating outside London still struggle with complex and costly reconciliation processes; a lack of consistent, cost-effective accounting and settlement operations; and liquidity management issues resulting from large-scale cash movements (refer to text box below). Leveraging the benefits realised in the London Market could lead to significant cost reductions and increased operational efficiency for the worldwide insurance industry and there are distinct commercial and regulatory drivers for making this the case. Netsett achieves this by automating historical industry practices to maximise operational efficiency, enhance transparency, and control and drive treasury efficiency. Accounting issues facing market participants outside the London Market Liquidity issues associated with large scale cash movements Counterparty default risk Complex, time-consuming and costly reconciliation processes Increased cost of regulation arising from unmatched balances Lack of consistent and cost-effective accounting and settlement operations Poor control, transparency, cost and execution of FX 9

10 Award winning Netsett was recognised by Treasury Today with a prestigious Adam Smith Award in the 2012 One to Watch category for its work with RSA, one of the solution s shaping partners. Netsett also won the Technological Initiative of the Year award at the 2013 Worldwide Reinsurance Awards, cited by the judges as a genuinely bold and pioneering project. Netsett also won ACORD s 'Business process Improvement Award' in 2014 for it's use of ACORD standards as a global accounting and settlement system. The pilot delivered for RSA an 80% improvement in treasury efficiency, 50% reduction in operational activity and zero unreconciled items and cash. Sean Norris, Director, Netsett Next Steps If you would like to know more, feel free to contact us. Xchanging plc Sean Norris Director, Netsett Direct: +44 (0) Mobile: +44 (0) sean.norris@xchanging.com Sean Allen Vice President, Sales Direct: sean.allen@xchanging.com Deutsche Bank Paul Duffy Director, Capital Markets and Treasury Solutions Direct: +44 (0) Mobile: +44 (0) paul.duffy@db.com John McGill Director, Capital Markets and Treasury Solutions Direct: Mobile: john-s.mcgill@db.com Emmanuel de Résseguier Managing Director, Head of Non-Bank Financial Institutions EMEA and Head of Global Transaction Banking for France Direct: +44 (0) Mobile: emmanuel.de-resseguier@db.com 10

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