Business Process Outsourcing April 27, 2010 Enrico J. Treglia

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1 Business Process Outsourcing April 27, 2010 Enrico J. Treglia

2 This material is informational only, and is not intended as an offer or a solicitation to buy or sell any securities or enter into any insurance, reinsurance or other risk transaction. By accepting this material, each recipient agrees that it will not reproduce, discuss with or distribute to others, these materials in whole or in part, at any time, without Wilton Re s prior written consent. Wilton Re is not, by making this material available, providing investment, legal, tax, financial, accounting or other advice to you or any other party, and no information or material contained herein is to be relied upon for the purpose of making or communicating investment or other decisions nor construed as either projections or predictions. Wilton Re is not acting as an advisor or fiduciary in any respect in connection with providing this information. Unless otherwise specifically stated, all statements contained herein (including any views, opinions or forecasts) are solely those of the individual(s) making the statement, as of the date indicated only, and are subject to change without notice. Changes to assumptions made in the preparation of such materials may have a material effect on returns. Wilton Re does not undertake a duty to update these materials or to notify you when or whether the analysis has changed. While the information contained in these materials is believed to be reliable, no representation or warranty, whether express or implied, is made and no liability or responsibility is accepted by Wilton Re or its affiliates as to the accuracy or completeness thereof. Wilton Re accepts no liability in either law, equity, contract, tort, negligence, or otherwise arising out of or in connection with the use of these materials including, without limitation, any errors or omissions contained herein. We shall not be liable for any direct or indirect economic losses (including without limitation loss of revenues, data, profits, contracts, use, opportunity, business or anticipated savings); loss of goodwill or reputation; or special, incidental, consequential loss or damage, suffered or incurred arising out of or in connection with your use of these materials. 2

3 Agenda Introduction My essential message to you today What are your choices? Value proposition Real experiences Tools and techniques Conclusions 3

4 Introduction Enrico J. Treglia Senior Vice President and Chief Operating Officer Background Responsibilities Wilton Re philosophy on outsourcing: Non core competencies Variable costs Expert service 4

5 My Essential Message to You Today Business Process Outsourcing (BPO) has created a significant competitive advantage for Wilton Re By becoming more familiar with business process outsourcing you will be in a in a better position to make informed, smart decisions about BPO 5

6 What are your choices? I believe you have four choices: Do nothing Implement a reinsurance program only Implement a business process outsourcing strategy only Implement a combined approach What are the Pros and Cons of each approach? 6

7 Value Proposition Do Nothing Reinsurance BPO Combined Predictable operating expenses Long term cost saving opportunities Eliminate exposure to expense risk Predictable results Monetize existing value Alternative vehicle to raise capital Immediate strengthening of controls Annual SAS 70 Type II reporting Zero value Low value Medium value High value 7

8 Do Nothing Pros if isn t broke don t fix it No additional short term cost incurred Current workforce stays in tact Cons Technology may not supported Trapped capital/value Potential exposure to aging workforce Potential costs related to SOX and Model Law controls reporting 8

9 Reinsurance Program Only Pros Monetize embedded value No conversion costs incurred Retain product and administrative knowledge in house Removes volatility of earnings Cons Technology issues remain Control environment issues remain Non strategic business retained Reliance on current workforce and technology Potential investment required 9

10 Business Process Outsourcing Only Pros Costs of administration variable/scalable Leverage new technology Continuous process and technology improvements Longer term cost savings Immediate improvement in control environment SAS 70 Type II reporting Cons Conversion required Internal staffing decisions required Exposure to expense changes at the end of the current contract period 10

11 Combined Approach Pros Effective way to raise capital without restrictive reporting requirements Reinvest in strategic initiatives for future growth Recognize trapped embedded value Shift expense exposure Immediate improvement in control environment SAS 70 Type II reporting Cons Internal staffing decisions required Reliance on third party 11

12 Real Experiences Wilton Re Human resources IT infrastructure IT non core development Investment accounting Direct new business administration In force business administration Examples Example 1 Reinsurance transaction with a transfer of administration Example 2 In force reinsurance transaction 12

13 Tools and Techniques Where do you start? Legacy systems In force non core blocks of business Assessment Tool Business Process Decision Tree 13

14 Business Process Decision Tree Step 1 Yes No Is there a potential for business process outsourcing: a.do we have legacy systems that require replacement? List systems: b.do we have non strategic products with low or ceased sales? List products:

15 Business Process Decision Tree Step 2 a. Are the products listed above on stand alone systems? Yes No b. Has the profitability of these products been assessed recently? Yes No c. Has an analysis of replacing the legacy systems been performed? Yes No Hardware Yes No Software Yes No If the answer is yes: When do I need to complete conversion and how constrained are my resources? Will I hire consultants to help with conversion (admin system, actuarial system)? Yes No What concern do I have for cost overruns? If the answer is no: How long will we have support for the current legacy admin system or actuarial system. What is my key employee risk (e.g. Ralph is the only one that knows how to complete these ten steps in a spreadsheet). d. Does the current environment meet all of the regulatory internal control requirements? Yes No 15

16 Business Process Decision Tree Step 3 Current Costs a.what is the total cost of replacing the current legacy systems b.what is the total IT cost to maintain the current system: c.what is the total the personnel costs (non IT) related to servicing identified blocks of business d.investment required to implement appropriate control environment Hardware $ Software Maintenance contracts Internal costs Base Salary Benefits Infrastructure Total Current Costs $ 16

17 Business Process Decision Tree Step 4 Summary Analysis Do Nothing Reins. Only BPO Only Combined Reduce current operating costs Reduce current head count Monetize embedded value Long term cost savings Reduce/eliminate future expense increases Improve current control environment 17

18 Conclusions Final thoughts Decision to outsource is not easy Do your decision makers (i.e. your CEO) know what all your company s alternatives are? Are your legacy products/systems disguising a larger expense issue? Business process outsourcing can offer flexible solutions Raising capital has different alternatives think outside the box Use the template to perform a high level assessment Wilton Re and CSC will be available to answer questions or assist in the assessment 18

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