C O N S U L T I N G S E R V I C E S C L I E N T C A S E S T U D I E S & A N T I C I P A T E D T R E N D S A N D S O L U T I O N S

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1 C O N S U L T I N G S E R V I C E S C L I E N T C A S E S T U D I E S & A N T I C I P A T E D T R E N D S A N D S O L U T I O N S

2 C O N S U L T I N G S E R V I C E S C A S E S T U D I E S & T R E N D S Conditions in the 2013 Insurance industry are significantly changed from those of the past. Existing companies are adding geographies and deploying innovative products, new companies are entering the market, regulation is increasing, and shareholders want larger top-line growth with lower expense ratios. And yet, many companies are using decades-old legacy systems and financial processes that require too much manual labor. The following case studies of recent work by WeiserMazars Consulting demonstrate that the environment is rich with solutions if you work with the right people. As professional consultants and advisors, we are committed to helping you optimize your operations and maximize the productivity of your Finance and IT resources. We are proud of what we have been able to accomplish for our clients. We are available to discuss the studies in this report or to share any additional information that may be helpful. Robert Cummings, Partner Robert.Cummings@weisermazars.com Wayne Locke, Partner Wayne.Locke@weisermazars.com Michael G. Flagiello, Partner Michael.Flagiello@weisermazars.com W. Alex Unterkoefler Partner Alex.Unterkoefler@weisermazars.com 2 2

3 C A S E S T U D I E S F O R C O N S U L T I N G S E R V I C E S I. CASE STUDY: COMPETITOR ANALYSIS II. III. IV. CASE STUDY: FINANCIAL CONSOLIDATION & REPORTING CASE STUDY: STRATEGIC BUSINESS PLAN IMPLEMENTATION CASE STUDY: SYSTEM UPGRADE V. CASE STUDY: CLAIMS DEFENSE SUPPORT VI. CASE STUDY: OPERATIONS TRANSFORMATION VII. CASE STUDY: SOFTWARE CUSTOMIZATION VIII. CASE STUDY: SOURCING ADVISORY A LOOK BACK & AHEAD 2012 was a very successful year for WeiserMazars Consulting group. Our annual Finance Leadership Survey provided substantial insight into ways CFOs are responding to challenges in the marketplace. We maintain a continuous dialogue with nearly 800 Senior Financial Executives in our market segment. As part of this ongoing discussion, we released our first video: A Tale of Two Insurance Companies ( which clients and fellow industry constituents say informed as well as entertained. We published 6 papers and spoke at numerous industry events, bringing focused insights to the market. Thought leadership is critical. Every conversation we have has the potential to contribute to progress for the industry. As such, we will continue to monitor and report on top project trends including: 1. An increase in companies implementing financial operations transformations in order to achieve high performing finance organizations. 2. The increasing importance of sourcing decisions to transform operations, resulting in reduced costs, increased flexibility and the ability to manage growth. 3. Increasing recognition of the essentialness of ERM implementation and capital utilization. 4. The use of workflow tools to standardize processes to provide for accountability and reduce risk. 3 3

4 Competitor Analysis A national professional liability insurance company serving more than 30,000 U.S. customers engaged WeiserMazars to develop a competitor analysis model. The client was concerned about recent loss of market share. They were also seeking to increase the marketing department s competitive intelligence and to improve their ability to communicate about product lines between service line teams, the underwriting department and the marketing department. WeiserMazars developed a three-tiered plan to assist the insurer in recapturing their market share: I. COMPARISON MODEL The WeiserMazars team began the competitor analysis by utilizing actuarial support to gather substantial data for leading industry competitors including policy and rate information. The team then incorporated this data into a Key Performance Indicator comparison tool, modeling the key competitors in the states in which the client operated. II. RATINGS MODEL Upon completing the industry comparison model, the WeiserMazars team also developed a projected rating model. This model enabled the company to compare similarly structured contracts and quotes with direct competitors. III. ACCURACY VERIFICATION To ensure the accuracy of the model output, the WeiserMazars team utilized a series of key scenarios for each competitor. Each unique scenario involved different states of origin, to determine if the company had market rating challenges in a specific state. The insurer reports increased premium and net income, as well as improved employee effectiveness as a result of engaging WeiserMazars. They have also experienced substantially improved communications between the marketing department and product managers, including significant company-wide improvement in understanding their products positions in the marketplace compared to their competitors. Additionally, the tools WeiserMazars developed have provided the insurer with a competitive advantage in pricing their products by geography. Sales and Marketing also obtained significant tools to sell through competitive obstacles on a deal by deal basis. 4 4

5 Financial Consolidation and Reporting The IT department of an international multi-line property and casualty insurance company was charged with updating their financial analysis capabilities to meet regulatory and management requirements. While internal IT had begun the process of implementing a long-term solution, the company needed to address pressing short and mid-term regulatory and management requirements. The WeiserMazars consulting team was able to identify the various FASB, regulatory, geographic and product line analysis requirements, and develop and implement a prompt and cost-effective interim solution to satisfy them. The WeiserMazars team identified key business leaders and stakeholders, both inside the corporate finance groups and in the geographies and product lines. During individual and group meetings held over a period of six weeks, the consultants sufficiently ascertained both the company s short-term and long-term requirements, developing a roadmap to promptly and cost-effectively resolve the majority of their needs. WeiserMazars' work also established a foundation for development of the long-term solution, reducing the work for the implementation team and smoothing the transition from the interim tool. The centralized clearinghouse for global financial data enhanced the insurer s operations through: Automation of significant aspects of the quarterly SEC filings Provision of more timely information to auditors and regulators Enhanced level of detail available to managers throughout the business. The data pre-formatting and ad-hoc reporting tools that WeiserMazars developed provided additional efficiencies and cost savings for the company. Going forward, they also provide for management teams to independently meet their own analysis requirements, without involving corporate finance or IT resources. WeiserMazars and the company s Financial Planning & Analysis group also established a centralized tool to collect, cleanse, standardize and aggregate financial information from 100+ product lines in 60+ geographies. This tool both met current regulatory and management requirements, and allowed for a more granular level of detail in the event of additional future requirements. 5

6 Strategic Plan Implementation A national professional liability insurance company needed assistance with implementing a strategic business plan for company operations. The company was operating without a clear strategic business plan for future operations and was, therefore, unable to maximize growth opportunities. They required a road map and a prioritization process to manage their limited budget and growing list of pending projects. WeiserMazars facilitated identification of operational strengths and weaknesses, obtained and analyzed competitor data and developed a strategic plan to accomplish their corporate vision of increased efficiency. I. KILL A COMPETITOR One strategic planning session involved a WeiserMazarsdeveloped scenario in which a larger company with more capital and resources expands into the client s marketplace. In planning their response to this development, our client identified their key strength of superior consumer relations along with a problematic weakness in operating efficiencies. somewhat substantial investments to grow. During the session, they also recognized additional risks related to their current market share and potential decreases in return on capital if they failed to invest in improved infrastructure. II. SWOT During a separate strategic planning session, the robust SWOT analysis was completed, in part by leveraging the creative concepts identified during the Kill a Competitor exercise. The resulting SWOT analysis enabled the creation of a three-year strategic investment plan and prioritization of areas for improvement. WeiserMazars also developed and provided a customized implementation action plan, focused on a dollar-by-dollar and resource-by-resource method, for the evaluation and prioritization of future projects. As a result of their work with WeiserMazars, the Board of Directors and executive management were able to better align as a team and accelerate the company s operating efficiency goals. In addition, management was able to reassess their current project plans with increased clarity and to determine which projects would best help the company to meet strategic business goals. The exercise further assisted the insurer to understand that with their current operating model, they would have to make 6

7 System Upgrade A large financial guarantee insurer engaged WeiserMazars to perform a software upgrade and general ledger pre-migration testing. The software involved was SunGard iworks Enterprise Accounting System a robust insurance general ledger and accounts payable system. Critical success factors (CSFs) for the upgrade included: 1. Ensuring that historical data was migrated accurately; 2. Ensuring the accuracy of financial reports; 3. Verification of the accuracy of the feeds from subsystems and external data sources in the upgraded version of the software. WeiserMazars facilitated the project by executing it in four major segments: Project Initiation and Management Project Kick-Off, including developing testing schedules Testing & Issue Resolution, including writing, running, and obtaining sign-off on the tests of selected key financial reports, data feeds, and additional system components. Test Result Compilation & Delivery During nearly six weeks of testing that covered all critical aspects of the accounting system, the WeiserMazars team identified and provided solutions to a number of issues that would have significantly impeded the upgrade. The dry run to go-live process that WeiserMazars developed, ensured a smooth transition of the new software into production during a critical weekend in the midst of the third quarter financial close. Upon conclusion of the successful upgrade and migration, the company re-engaged WeiserMazars to manage a larger-scale document financial processes and controls project. Gathering All Relevant Data, including financial reports and ledger feeds from the current production environment and the test environment of the new software; 7

8 Claims Defense Support WeiserMazars was hired by one of the world s largest insurers to provide forensic investigation services for a large fidelity claim. The insurer serves more than 70 million customers around the world and offers one of the industry s most extensive ranges of products and services, deep claims expertise, and excellent financial strength. Business Challenge The client s insured was a large international bank that provides retail banking, wealth management, and investment banking products and services. The company also provides trading products, such as debt, foreign exchange, interest rate, credit, equity, securitization, and commodities solutions as well as debt and equity research and institutional sales. In the fall of 2008, the Securities and Exchange Commission released details of charges against four individuals involved in a fraudulent scheme to overvalue the commodity derivatives book maintained by the insured. The charges alleged that a trader employed by the insured fraudulently overvalued a portfolio and that the inflated values were then purportedly validated by a third party in collusion with the trader. After the scheme was discovered, the insured restated its financial results by reducing net income for the first quarter of its 2007 fiscal year by approximately $200 million dollars, which reflected a 68% overstatement of net income for that quarter. In early 2010, the insured submitted a proof of loss in excess of $600 million dollars to multiple insurers that were party to its crime policy. WeiserMazars client, through several of its operating subsidiaries, had significant exposure to these losses. The evaluation of this complex loss required extensive investigation of underlying causes. WeiserMazars expedited the review process of more than two million documents, which had been compiled for the various criminal, civil, and regulatory proceedings related to the fraud, including creating a customized database of findings which were then used to produce an Interim Report. This report provided a comprehensive and detailed discussion of the insured s commodities trading operation and identified a number of management lapses and control breakdowns that contributed to the trader s ability to perpetuate the fraudulent activity. Sensitivity and Valuation Analysis We then verified the insured s $600 million loss valuation calculation by conducting a sensitivity analysis on the insured s natural gas portfolio at the time of the claim. WeiserMazars findings provided for calling into question the insured s timing of its loss claim. WeiserMazars developed detailed claim-related lines of questioning for more than 20 key individuals. WeiserMazars Valuation Analysis also raised a number of questions about the 3 rd party valuation methodology used to calculate the large portfolio losses that represented the majority of the insurance claim. As a result, the insured requested that this third party provide additional support for its approach. While the results of the loss revaluation and interviews are forthcoming, WeiserMazars has thus far uncovered several key pieces of information that could help limit our client s liability in this claim. Additionally, the consulting team has educated the client and prepared them for discussions with key individuals involved in the claim as well as opposing counsel. 8

9 Operations Transformation A multi-national insurance/reinsurance company had undertaken a global tax transformation initiative to achieve operational excellence through standardizing and integrating its existing people, processes, technology, data assets, controls and risk management. The company generates $4.5+ billion in GWP and has operations in many countries including the US, Canada, Ireland, Europe, and Asia/Pacific. It encompasses more than 30 legal and branch entities, of which 12 are regulated, requiring accounting in multiple bases including GAAP and Stat. The company s tax department operated in a reactive mode when managing the tax risks and functions, due to limited internal resources with insufficient tools. They were also unable to match the growth of internal staff resources to organizational growth and spent most of their time in data collection and aggregation activities, including support of thousands of manually intensive spreadsheets for global tax provision, compliance and reporting. Tax operations were jurisdictionally siloed, with a lack of communication. Team members found it difficult to understand activities performed by other jurisdictions and how the existing end-to-end process was held together. There were numerous non-standardized processes and procedures, creating challenges in transparency, accountability and controls. In the absence of a full end-to-end, integrated, tax operation, the tax department was left spending most of its time managing transactional activities instead of value-add tax activities. WeiserMazars served as overall program managers, lead architects, and technical advisors on implementation of a global tax target operating model (TOM). We led the software vendor selection process, and managed internal and external technology resources for implementation of a tax provision solution that brings to bear standardized (out of the box) processes to manage accounting, compliance, and operational risk/controls on a single integrated platform. WeiserMazars also developed a comprehensive risk and controls framework that could handle multiple bases of accounting, as well as assisting the client with custom technical implementation of insurance-specific applications. A tax provision system was implemented within six months and 90% of TOM was adopted within one year. The client achieved 95% automation in their provision preparation process during the financial close, enabling tax resources to focus on value-added analysis and respond to overall business needs, making them a strategic partner within the organization and a model operating unit. Additionally, executive dashboard capabilities provided management with a single source truth for tax. Through workflow enablement, the client was able to address operational control issues and satisfy internal/external audit risk mitigation requirements, and provided greater transparency across the full tax process. 9

10 Software Driven Operations Transformation A major global reinsurance company had undertaken a tax transformation initiative to achieve operational excellence through standardizing and integrating its existing people, processes, technology, data assets, controls and risk management. The company generates $5+ billion in GWP and has international operations in many countries. It encompasses over 50+ legal and branch entities requiring accounting in multiple bases including GAAP, IFRS, and Solvency II. The tax department faced a multitude of challenges including insufficient personnel, technology resources, and data and risk management. They increasingly found it difficult to effectively meet customer demands and provide strategic value to the organization. Tax operations were jurisdictionally siloed with a lack of communication across department members. Team members were often unsure which division performed which activities and how existing processes were held together. Each team followed non-standardized processes and procedures, creating significant challenges in transparency, accountability, and control. The department spent most of its time on data collection and aggregation, supported by manually intensive spreadsheets. A lack of toolsets and technology led to major struggles with managing data, accounting, compliance, and controls. It further introduced risks associated with data fidelity, traceability, and execution management of the end-to-end tax process. A full integrated, tax operation simply could not be achieved and the tax department was left spending most of its time managing transactional activities instead of analyzing and devising value-add tax activities. A WeiserMazars Consulting team served as overall program managers, lead architects and technology developers in the development and execution of a tax transformation strategy focused on implementing a global tax target operating model (TOM). The TOM standardized and integrated processes, technology and data in addition to providing a rigorous controls and risk framework to manage the full tax operation. The framework included defining standard operating procedures, creating a role-based segregation of duties and implementing audit controls in each process step. The custom solution addressed multiple bases of accounting (including GAAP, IFRS and Solvency II), multiple currencies and standardized book to tax differences; it also handled complex specific tax features such as pooled Irish branch structure double taxation accounting. We were able to deliver all of these benefits with a substantially lower cost compared to off-the-shelf solutions. With these tools and processes, the company achieved faster financial close, reduced risk of errors in tax provision determination and reporting, and enabled internal tax resources to focus on value-added analysis and overall business needs. Through built-in controls, the software also flagged operational control issues, met internal/external audit risk mitigation requirements, and provided greater transparency across the tax process. The tax department became a vital internal strategic partner. 10

11 Sourcing Advisory Due to growth from acquisitions and geographical expansion, a multi-national insurance/reinsurance client, generating in excess of $4 billion in revenue, sought to be more responsive to stakeholders across the organization by: achieving sustainable lower costs responding to growth-related needs and issues standardizing processes globally improving the finance operations The client determined that the best way to achieve this goal was through business process outsourcing (BPO). The client expected its BPO partner(s) to provide a predictable expense advantage of more than 25%; accelerate its operations through centralization and standardization of global processes and enable the finance operations team to focus on core finance and analysis activities. The client has operations in the US, Canada, Ireland, Europe, and Asia/Pacific with more than 140 dedicated resources within its global finance organization. Since its inception, the company s finance group was organized geographically and operated independently. This resulted in a lack of process standardization, resource fragmentation, and prevented the client from achieving operational scalability due to high operating costs. Non-centralized controls and documentation also created process inefficiencies, hindered operational transparency and prevented clear accountability. Prior deployment of BPO within finance operations created marginal transformational value due to its limited scope. WeiserMazars advised the client on sourcing strategy and scope definition, business case development, BPO vendor selection and management, and risk assessments. Our team began by developing a target operating model (TOM) vision to create a high-performing finance operations unit within the organization, leveraging outsourcing to eliminate nonstandard processes, resource fragmentation, and remove burdens of non-core transactional processes out of the organization. It also provided for a cost efficient, scalable and flexible platform to meet organizational growth demands. WeiserMazars performed an in-depth data collection and validation exercise to establish a cost and resource allocation baseline for all finance and accounting (F&A) processes across the finance operations group. This analysis served as a common framework for identifying target outsourced processes and in rationalizing the business case. We then identified vendors, in addition to the incumbent BPO provider, to participate in the scope definition and proposal process. The consulting team established the scope using an art of the possible approach where both the client and vendors worked off of the quantitative analysis compiled to propose an extended scope baseline of target processes to be outsourced; the client s proposals reflected their risk appetite, and vendor proposals based on their full end-to-end F&A capabilities. The final scope baseline proved to be a hybrid that maximized the number of processes to be outsourced without introducing operational risk during transition and stabilization. Ultimately, the solution entailed having a single vendor transition over 80 full time equivalent (FTEs) employees, representing approximately 50% of the existing workforce within the finance organization as a whole. Our recommendation of a single vendor was based on our assessment of the right organizational fit for the client. The client s Executive Committee took a more active role in vendor selection rather than allowing it to default to the incumbent provider. The BPO partner was chosen based on their breadth of capability surrounding the insurance value chain and their capacity to grow with the client. Final approvals, issuance of letters, contract negations and transition are scheduled to begin in second quarter of WeiserMazars continues to provide advisory support in refining the blue-print for TOM, establishing governance protocols, and getting the client ready for transition. The client expects to accomplish a five year targeted cost savings of over 30% and will accelerate the finance operations group s realization of a global, consolidated, target operating model (TOM) within two years. 11

12 Special thanks to Publication Editors: Brett Johnson, Senior Consultant, Sean Hogan, Senior Consultant Justin Bow, Marketing Writer and Julie Meyer, Marketing Manager WeiserMazars LLP is an independent member firm of Mazars Group. 12