Insurance Finance Transformation: The business case for change

Transcription

1 FINANCIAL SERVICES Insurance Finance Transformation: The business case for change March financetransformation

2 2012 KPMG International Cooperative ( KPMG International ). KPMG International provides no client services and

3 CoNTENTS INTRoDuCTIoN & ExECuTIvE SuMMARy 1 BACkGRouND 1870 to 2002 How did we get in this mess? 3 THE DRIvERS FoR CHANGE 2002 to 2012 Why is finance suddenly so important? 5 ISSuES What are the problems we have to solve? SySTEMS AND DATA PEoPLE REPoRTING PRoCESS CoNCLuSIoN The business case Why should we make this investment? KPMG International Cooperative ( KPMG International ). KPMG International provides no client services and

4 Introduction & Executive summary PAuL BISHoP Lead Partner for Insurance Finance Transformation 30 the potential to reduce Finance operational costs by up to 30 Percent Percent Over the last five years, the Finance functions of almost every major UK life insurance company have been going through significant change with a level of investment never seen before. The current phase is dominated by Solvency II which has crystallised a number of long standing issues and challenges in these finance functions. These can no longer be ignored as regulators, markets, rating agencies and other key stakeholders increase the pressure for faster, more reliable and a significantly greater volume of financial information than ever before. At the same time there is the constant pressure on CFOs to reduce operational costs and investment budgets have been scarce for support functions. For decades, life insurers have underinvested in Finance and have coped with a steady increase in internal and external reporting, and with new products and new structures, all with short term solutions. Most have now reached the stage where incremental change will not work and the fundamental underlying issues around data, systems, models, processes and people have to be addressed. CFOs and finance leadership are generally well aware of this. They know only too well, that the legacy finance systems for insurers are horrendously complicated, slow and high risk to change. These systems typically consist of multiple platforms, a range of inconsistent data sources, link into complex valuation calculation engines and are surrounded by an intricate web of spreadsheets. The inefficiency and inflexibility from this systems architecture and related processes are further compounded by organisational issues, where silo behaviours and lack of communication result in a high level of dependency on key individuals and breakdowns in communication. All this has to change. However, the business case for this change has always been difficult. The challenges to Finance have built slowly over time, and superficially they have been met Financial Statements and Regulatory Returns have been produced on time with clean Audit reports, Boards and Management have reviewed and discussed monthly and quarterly packs. There are operational cost benefits from change, but it is often hard to justify the investment in these terms alone. On the other hand, it is difficult to be direct with a Board where the real issue is the fragility of some of the key numbers and the focus is sustainable speed and quality of reporting. Solvency II has helped by providing a regulatory mandate to address many of the underlying issues, and many life insurers have used this as an opportunity to improve models and systems in particular, but there is still a lot to be done. 1 The business case for change 2012 KPMG International Cooperative ( KPMG International ). KPMG International provides no client services and

5 spending substantial sums of money to address these risks when they crystallise, but this is arguably too little too late In our experience, critical to an effective Business case is a full analysis of the risks inherent in current systems and processes and in particular the risks and costs inherent to not changing them. Boards and senior management are generally protected from the warts and all view of Finance and need to be shown the risks they are running which are generally consistent across the industry. In most cases, there is a compelling Business case, however the key is ensuring the Executive Board are clear on the impact of not making the right investment from a commercial and operational view. From our experience with a number of clients we know there are some clear financial benefits, with the potential to reduce Finance operational costs by up to 30% and to reduce significantly, capital reserves, through reduced operational risk. But arguably the biggest benefit is mitigating the risk associated with poor financial information both internally and externally. Companies typically end up spending substantial sums of money to address these risks when they crystallise but this is arguably too little too late as the damage is already done. This article explores the issues raised, and concludes with our view as to how to frame the case for change. We will be producing a series of best practice papers, which focus in more detail on some of the more challenging areas and emerging solutions. I hope you find this article both interesting and relevant. Figure 1: Summary of issues and risks in insurance finance functions Issues Risks Benefits of change tems ta & Sys Da Data Model architecture Surrounding technology People Most life insurers have significant issues managing/ controlling data, especially policy data from legacy systems Regulators (Solvency II) require traceability and transparency from reports to underlying data Markets/Boards require drill down to support detailed analytics to tight timetables with a high degree of accuracy/reliability Many life insurers have multiple models, never designed to support current reporting requirements in terms of: speed of reporting detailed outputs transparency and controls over inputs and processing Large number of End user computing (EUCs) Silo mentality particularly between accountants and actuaries with a lack of accountability/ understanding of overall results Key man dependencies Inefficient/slow data processing, increasing costs and delaying reporting and increasing risks of error Regulatory censure for non-compliance Prudential capital required to reflect risk of errors Inability to provide robust explanations leads to loss of internal and external credibility Inflexible systems unable to respond to change Operational efficiency estimated value of 20-30% savings in finance Capital & Cash 50% of explicit & implied reserves, 10% of operational risk capital Reduced cost of future change 25% of overall finance change budget Improved speed and quality of reporting value 5% of market capitalisation Business decisions based on late, poor quality, inadequate Improved business Reporting Close process driven by system constraints/ financial information decision support value speed organisational design is slow and liable to error determined by business Source: KPMG LLP (UK) KPMG International Cooperative ( KPMG International ). KPMG International provides no client services and The business case for change 2

6 BACkGRouND: 1870 to 2002 How did we get in this mess? external reporting requirements for the life insurance industry did not change significantly for over Most people do not realise that external reporting requirements for the life insurance industry did not change significantly for over 100 years. Between 1870 and the early 1990s, the Financial Statements of a UK life insurer were very limited, reported relatively late, and did not provide any of the following: Any useful profit and loss information, instead providing a life fund statement of accrual adjusted cash flows and a transfer to profit and loss Any quantification of long term policyholder liabilities, instead including the amount of the life fund Any significant disclosures a typical set of financial statements was around 10 pages Figure 2: Extract from 1870 Life Insurance Companies Act and Hambro Life Assurance plc 1981 Annual Accounts Set out below are the Revenue accounts formats from the 1870 Life Insurance Companies Act and Hambro Life s 1981 Financial Statements. As you can see after 110 years later not much has changed. Hambro Life was a FTSE 100 company at that time, and its Financial Statements were only 11 pages long the Financial Statements of a typical FTSE 100 life insurer today would be 180 pages and counting. Revenue schedule as set out by Life Assurance Companies Act 1870 Hambro Life Assurance Company Annual Accounts 1981 Source: Life Assurane Companies Act 1870 Source: Companies House archives Source: KPMG LLP (UK) The business case for change 2012 KPMG International Cooperative ( KPMG International ). KPMG International provides no client services and

7 it is only really with the financial crisis of 2001/2002 and the capital exposures it identified, that the position really changed There were regulatory reports, such as the DT1 returns, which provided more information, including details of liabilities, but disclosure was very limited and the deadline was six months. Limited companies were essentially valued on dividend flows. There was a significant reliance on the Appointed Actuary to manage capital, which for most major companies was not seen as an issue as there were significant surpluses and in any case with profit benefits in particular were regarded as highly flexible. Strategically and operationally, Life companies were very focused on sales, and most management reporting was around sales volumes and related activity and expenses. In late 1994, Modified Statutory was introduced into Life insurance financial reporting. Embedded value reporting had already been introduced by the banks in the 1980s, and now found its way into Life Company reporting during the 90s. This increased the detail required for statutory reporting, but did not really fundamentally change things. It was only really in the new millennium with the financial crisis of 2001/2002 and the capital exposures it identified, the Equitable case and its impact on managing with profits, the introduction of IFRS and the codification of embedded value into EEV that the position really changed, both internally and externally KPMG International Cooperative ( KPMG International ). KPMG International provides no client services and The business case for change 4

8 THE DRIvERS FoR CHANGE: 2002 to 2012 Why is finance suddenly so important? All the factors raised in the previous section resulted in a period of intense change from 2002 to the current day and this level of change looks set to continue for the foreseeable future. These changes have been driven by a number of factors, namely: Regulation. European Embedded Value and major changes to solvency requirements in the UK are already in place. The next phase which includes Market Consistent Embedded Value and Solvency II is due for implementation and IFRS Phase II is not too far away. Business needs. Insurance markets have become increasingly open and price competitive during this period and at the same time many insurers have had their capital eroded by increased solvency requirements, adverse investment markets and in some cases, poor business decisions. With capital scarce and profitability under pressure, management and Boards need more relevant, regular and timely financial information, around actual and planned product and channel profitability and capital requirements. The market place. External stakeholders, principally analysts and rating agencies, are also looking Figure 3: Summary of some of the key Solvency II requirements Solvency II requirements Issues Detail in key areas that is robust enough to bear Previously unused to such scrutiny, numbers regulatory scrutiny, possibly external audit have generally contained significant estimates Disclosures Detailed analysis of assets and liabilities, and related and approximations Pillar 3 capital requirements, plus profit and loss attribution Data The data in the Quantitative Reporting Template (QRTs) must be complete, accurate and appropriate and there must be complete traceability from the QRTs back to the underlying data Increased requirements for granularity of data Insurers finance systems are complex, require a number of reconciliation and controls and do not easily support traceability of data Documentation Demanding requirements as regards documentation of models, processes, policies and systems Limited documentation exists and requires remediation Amending and documenting old systems will be expensive and has limited value going forward Timetable Quantative Reporting Templates (QRTs) will be required within six weeks Currently FSA Returns are required within three months, and more complex ICA calculations within six months Producing and validating figures for submission to regulators in shortened timescales is a very real challenge Source: KPMG LLP (UK) The business case for change 2012 KPMG International Cooperative ( KPMG International ). KPMG International provides no client services and

9 many insurers have had their capital eroded by increased solvency requirements, adverse investment markets and in some cases poor business decisions Management and Boards need more relevant, regular and timely financial information, around actual and planned product and channel profitability and capital requirements for more robust, more detailed and more consistent information about the performance of insurers. The market has clearly penalised the life sector in particular for its perceived lack of transparency. The increased focus also reflects the change of ownership in the industry and in capital structures, with significantly greater use of debt and other non-equity capital, the effective demise of mutuals and the decreasing prominence of 90:10 funds. Moreover, analysts are not just concerned about actual results, they also want reliable forecasts and plans. value. There is also increasing pressure on finance to add value, both in terms of meeting needs, but also in terms of efficiency. Many insurers have underinvested in finance systems, processes and people, and have dealt with recent change by adapting and extending historic capability. This has led to a labour intensive process and a high cost base for finance which will need to be addressed. Cost reduction is at the forefront for many CEOs. Specifically in terms of Solvency II requirements, there is little or no flexibility in a number of key areas which present particular difficulties to life insurers, as summarised in Figure 3. Further information on Solvency II requirements can be found on our KPMG website 1, including a recent article on Solvency Optimisation in the Business 2 which talks about insurance management historically being focused on value protection and reducing losses and not forward looking and value creating. It discusses how companies need to optimise business performance to ensure they remain competitive in the post- Solvency II world. The Solvency II requirements mean that the cost of minimal compliance is high amending and documenting old systems is expensive and the incremental cost of strategic solutions that much less. So, for many CFOs, Solvency II represents a once in a lifetime opportunity to address the fundamental issues a view KPMG share which partly explains the current level of major change programmes Extract from: Evolving Insurance Regulation: Time to get ahead, KPMG International, February KPMG International Cooperative ( KPMG International ). KPMG International provides no client services and The business case for change 6

10 ISSuES: What are the problems we have to solve? Financial reporting has long been the poor relative in the life industry So from a Financial Reporting and Management perspective, the life insurance industry was stable for over 100 years, and then 10 years ago started a process of change that continues to accelerate. This was always going to present challenges, but there are other factors which make it worse. Finance and particularly Financial reporting has long been the poor relative in the life industry. It has always taken second place to sales and customer service, to the extent that in many companies major changes around products, corporate and fund structures and acquisition integration have been initiated with only limited consideration of Finance, and this has contributed to the complexity of underlying systems and models. More subtly, Finance has been dominated until very recently by the Actuarial profession, who tend to be more comfortable with estimates and less focused on detailed reporting disciplines and controls, than accountants. This has left Finance facing a greater scale of change than was or is generally understood by management and the Board, and less able to deal with that change. Key to any Business case is making this clear. So what are the issues that require investment? The next section highlights the common issues under three headings Systems and data, People and Reporting processes. Finance faces a greater scale of change than was or is generally understood by management and the Board 7 The business case for change 2012 KPMG International Cooperative ( KPMG International ). KPMG International provides no client services and

11 SySTEMS AND DATA At a high level, every life company has the same data flow from underlying records through to reports. In Figure 4 we show the typical data flows within an insurance company. Figure 4: Typical data flows in an insurance company Published Prices Financial Statements, FSA Returns and other internal/external reporting unit Pricing General Ledger valuation System Investment Accounting other Sub -Systems Policy Administration Third parties e.g. Customers, Suppliers, Investments, Staff, Banks etc. Source: KPMG LLP (UK) 2012 Multiple systems on different platforms built at different times and potentially from different companies acquired over time, need to interface to produce the valuation calculations and financial reports. There are typically a number of issues with the core systems which are summarised in Figure 5. Multiple systems on different platforms built at different times and potentially from different companies acquired over time 2012 KPMG International Cooperative ( KPMG International ). KPMG International provides no client services and The business case for change 8

12 SySTEMS AND DATA Continued... Figure 5: Summary of key issues with insurers systems architecture Systems Issues Impact Policy Admin systems Provide: Multiple policy systems (usually a result of multiple As policy data forms core for acquisitions of old books) typically built pre-2000 reflecting requirements of that time Premiums, claims & commission due & received/ paid to accounting systems Policy data for calculation of liabilities, Embedded values & Capital Old systems, poorly documented and very difficult to change Often do not have policy level accounting data & limited claims data for calculations as functionality never fully developed Requires complex & time consuming manual reconciliation Lacks flexibility and drill down capability to support changes in reporting, limited granularity Produces actuarial and accounting data on inconsistent basis. Actuarial data often has serious data quality issues revenue account, liabilities, EV and capital requirements calculations the issues result in high processing costs, reconciliation and development time across multiple systems Errors and inconsistent actuarial data, resulting in reporting delays and inefficiencies requiring extensive valuation and remediation Changes to systems slow, costly and high risk to reporting Provide: Multiple models on different platforms, built over time Subject to error and re-work, by Actuaries to support specific products, or blocks of resulting in reporting delays Calculation of products, are not flexible to support current reporting policyholders Outputs require significant expert requirements liabilities validation and review valuation Poorly documented, lack flexibility and transparency Inconsistent with accounting models Built to support small number of runs and are inefficient records i.e. product hierarchy, which with long run times, require extensive manual intervention makes analysis and control of and subject to failure and re-work results overall difficult Not well controlled internally Changes difficult and risky to implement other systems Investment Accounting General ledgers Provide: Investment accounting Extensive EUCs required to support reporting, impairing transparency Investment Do not fully support sub-fund product and asset matching and increasing risk of errors income and gains requirements Potential for errors, requires Expenses General ledgers reconciliation and manual Accounting Multiple ledgers common following acquisition, using calculations for different bases, records and interfaces to consolidate time spent manually reconciling transactions between bases Ledgers and consolidation systems generally struggle to support multiple reporting bases all major life companies report on at least three bases and enhanced analytics Source: KPMG LLP (UK) The business case for change 2012 KPMG International Cooperative ( KPMG International ). KPMG International provides no client services and

13 Each incremental change has been covered by complex, ingenious even brilliant- short term solutions, layered on top of the underlying systems Almost without exception, the response to these issues until recently has been tactical end user computing ( EUCs ), primarily spreadsheets. This is true at every level, be it data validation and manipulation to build model point files, collating and analysing model outputs, providing analysis or reconciliations that the ledgers cannot support or delivering multi-gaap reporting and enhanced analytics. Each incremental change in internal or external reporting, new acquisition or restructuring has been covered by complex, ingenious even brilliant short term solutions, layered on top of the underlying systems, and on top of earlier EUCs. The problem today is that whilst each EUC no doubt made sense as a quick, cheap response to an immediate need, overall they have led to a systems architecture that makes no sense at all it is incredibly complex, almost impossible to understand, extremely difficult to control or change and yet again poorly documented. The overall impact is very limited analysis capability for internal business decision support and external explanation of results and high risk of errors in reporting, and distrust from the markets and from Regulators and ratings agencies. This in turn leads to poor decisions, greater scrutiny, reduced share price, increase in capital requirements, all leading to increases in costs and impacting profit. A suitable solution needs to be found KPMG International Cooperative ( KPMG International ). KPMG International provides no client services and The business case for change 10

14 PEoPLE Finance leadership has lacked the vision, the skills and often the inclination to drive change Developing, operating and managing all the data, systems and processes are people. The issue in life insurance finance is very simple the bulk of those currently in a position to provide leadership developed their core skills prior to 2001, in a period when Actuaries were seen as a breed apart, there was limited interaction between them, accountants and other professionals, and limited demands as to the speed, quantity and quality of reporting. Figure 6: Summary of some of the key people issues Issues Impact Roles and functions Accountants not Finance responsible involved in calculation for reporting but unable of liabilities to explain technical Actuaries operate issues or results, unchallenged liabilities and movements Lack of finance Limited review & leadership challenge control Actuarial Control disciplines Systems Little discipline around process reporting deadlines Materiality differences between accountants and actuaries. Analysis of surplus control judgmental & performed at high level Actuaries developing systems separately, outside of normal IT development and run disciplines Predominance of tactical solutions created by Finance Reporting inefficiencies Open to risk of errors Reviews performed at different levels of materiality Inconsistent model development, unsupported framework, leading to processing and review inefficiencies reporting delays Excessive reliance on individuals to run processes, review & validate Finance Annual Accounts Limited challenge as receivers of opaque results Actuarial models Recons & analysis Reports Multiple iterations and runs to produce results Source: KPMG LLP (UK) The business case for change 2012 KPMG International Cooperative ( KPMG International ). KPMG International provides no client services and

15 Complexity of systems, the proliferation of EUCs, the extent of data and modelling issues all led to excessive reliance on individuals with expert knowledge In Figure 6 we highlight some of the challenges that have created structural and skills issues in the current environment, where there is strong demand for quality analysis of results, and for efficient, integrated processes and systems which require financial and other professionals to work closely together. And all this is self-reinforcing. Finance leadership has lacked the vision, the skills and often the inclination to drive change which is challenging and uncomfortable, and is likely to undermine their authority which is often based on their unique expertise in dealing with today s problems. Conversely, the systems issues outlined in Figure 6 contributed to a further people issue key man dependency. The complexity of systems, the proliferation of EUCs, the extent of data and modelling issues all led to excessive reliance on individuals with expert knowledge to run processes and to review and validate results KPMG International Cooperative ( KPMG International ). KPMG International provides no client services and The business case for change 12

16 REPoRTING PRoCESS Finance will have to produce a fully reconciled balance sheet including all liabilities by the end of week three Solvency II will require Life companies to deliver the quarterly Quantative Reporting Template (QRT) within six weeks to the Regulators. In order to do this, Finance will have to produce a fully reconciled balance sheet including all liabilities by the end of week three, to allow sufficient time to calculate required capital, profit and loss attribution and to complete review and sign-off procedures in the following three weeks. In Figure 7 we set out our view on what the expected close process will be under Solvency II, benchmarked against a typical close today. Figure 7: Illustration of a future state quarterly quality close process under Solvency II over current close timetable LEDGER CLoSE Agree Non -Recurring Expense provisions Current process timeline Restatement adjustments (e.g. UK GAAP To IFRS) Asset Data Policy Data Recs & Adjs to correct data Expense Data Further acceleration of ledger close components ACTuARIAL RESERvING Demographic & Expense Assumptions Model Point Files created Manual Reserves calculated Economic assumptions & ESG s generated Adjs Model runs (all bases) and analysis of change Analysis of movement/ surplus Significant acceleration of modelling Current process timeline Quicker and higher quality analysis Current process Analysis change, RCM in Wk 8 Pre Wk 1-2 Wk 3-4 Wk 5-6 Wk 7-8 Wk 9-10 Wk Wk 12+ SoLvENCy II QRT Stress tests Capital calculations Quarterly QRT Additional modelling and reporting AGGREGATIoN & ANALySIS BU IFRS Result to Group BU EEV Result to Group Press release Current process timeline Current process Board Approval & Results announcement Source: KPMG LLP (UK) The business case for change 2012 KPMG International Cooperative ( KPMG International ). KPMG International provides no client services and

17 CFOs are asking how will they reduce the process from twelve to six weeks and still be confident disclosing externally The question CFOs are asking is how will they reduce the process from twelve to six weeks and still be confident with what they will be disclosing externally. So what are the issues behind the current timetable? We believe these can be summarised as shown in Figure 8. As we can see the reporting process issues are closely interrelated to the technology and people issues. Figure 8: Summary of reporting process issues and their impact Reporting process issues Impact Reconciliation & Re -work Poor processing controls result in errors being detected late in the process Multiple reporting bases supported by different teams and different systems and models System constraints on analysis of surplus make it estimate based and highly judgmental Re-work delays and disrupts the reporting process Excessive time spent reconciling results on different bases, duplication of effort Length of run times are uncertain and can lead to major delays Data and model point creation It takes 2-3 weeks to generate inputs to models due to manual intervention required Heavily reliant on EUCs which are inflexible and require manual intervention Inefficient manual processes which requires extensive review and correction New reporting requirements result in additional layers of EUCs, increasing complexity and processing speeds Model processing times Number of models developed long time ago, when calculations were deterministic and liabilities only calculated twice a year All calculations are based on same underlying data and core cashflows however can be different models for different reporting bases Can be different models for different products Model structures not built to run on fast reporting timescales Multiple models result in multiple inputs, competition for run space and problems with reconciliation and analysis Multiple models inefficient and difficult to control and change Source: KPMG LLP (UK) KPMG International Cooperative ( KPMG International ). KPMG International provides no client services and The business case for change 14

18 CoNCLuSIoN: The business case Why should we make this investment? Finance change programmes there is a compelling business casemajor Figure 9: Summary of benefits of change involve significant costs, but there are substantial benefits for most life insurers. Regulatory compliance is a given, and we would expect any business case to reflect the incremental cost of improvements over and above any regulatory minimum. We would expect to see the following items, highlighted in Figure 9, in the business case. We have put some indicative values on the benefits based on our experience with a number of clients. Clearly these values are all dependent on each individual company s circumstances and the level of investment made. Nonetheless, in general we believe there is a compelling business case to be made. There are some clear financial benefits, such as reducing operational costs and capital, through reduced operational risk Issues Investment and benefits value operational Efficiency Cost of Finance has generally increased recently with high project spend and some level of external support to business as usual in the lead up to Solvency II Most life companies, however spend a significant proportion of their people costs in Finance on low value processing, which can be significantly more efficient with the introduction of the appropriate technology Looking forwards, KPMG believe that there are significant opportunities for cost reduction in key processing areas such as; Policy accounting Data extraction and management Model development and processing Estimated at 20% to 30% of the cost of Finance Most Life companies hold significant reserves for the risk of accounting and actuarial misstatements, Enhanced controls and improved quality of reporting will result in a Estimated 50% of explicit or implicit Capital either explicitly or implicitly through the use of product release of reserves and a reduced reserves & 10% & Cash assumptions. They will also hold Capital for Operational Risk, which will again be increased if there are reporting issues capital requirement of Op Risk Capital Financial Reporting will continue to change to meet A more robust and flexible IT and Estimated value Reduced cost internal and external requirements IFRS is the obvious modelling platform, supported by 25% of annual of future example, but will only be a part of developments over reduced key man dependencies will Finance change change the next 10 years. For many Life companies, changing reduce the costs and increase the budget Finance is very hard and very expensive at present speed of change Improved In practice we have found over the last three years that this Enhanced controls, transparency and Estimated speed & is the key driver of Finance change, and is a major benefit quality of analysis will reduce the risk of value up to quality of but one most life companies only consider fully when the error and improve the quality of external 5% of Market reporting risks of errors and misunderstanding actually crystallise presentation of results capitalisation Poor quality, late management information with limited Faster, more reliable management Benefit to be Improved drill down capability can result in inefficient decision information, supporting business decisions determined by business making. More time spent by Finance on reconciling on best uses of capital will improve return the business decision and re-working than value-added analysis of results/ on investment as well as reducing overall support metrics and trends capital costs i.e. allocating available capital more efficiently less reliance on more expensive external debt Source: KPMG LLP (UK) The business case for change 2012 KPMG International Cooperative ( KPMG International ). KPMG International provides no client services and

19 Key to the business case approval will be ensuring the Board are clear on the impact of not making the right investment from a commercial and operational perspective many Life insurance companies have substantial reserves set aside for potential errors but arguably the biggest benefit is mitigating the risk associated with poor financial information both internally and externally. Companies typically end up spending substantial sums of money to address these risks when they crystallise but this is arguably too little too late as the damage is already done. Taken together the issues we have highlighted in this article, represent a significant barrier to change that cannot be dealt with incrementally through tactical measures. It requires an integrated solution that will bring finance up to the standards required by Solvency II and increasingly expected by external markets and Boards. Key to the business case approval will be ensuring the Board are clear on the impact of not making the right investment from a commercial and operational perspective. In our next article we will be looking at some of the underlying solutions to these issues and their benefits based on our experience of best practice working with some of the UK leading life companies. For further information on KPMG s Insurance Finance transformation position, please visit our dedicated website 3. Should you have any questions relating to the issues raised in this article or, questions relating to your firm s finance transformation business case, please feel free to speak to your usual KPMG contact or one of our subject matter experts listed KPMG International Cooperative ( KPMG International ). KPMG International provides no client services and The business case for change 16

20 Contact us Paul Bishop Insurance Finance Transformation Leader T: +44 (0) E: Martina Neary Finance Transformation T: +44 (0) E: Brid Meaney Finance Transformation T: +44 (0) E: Richard Care Modelling T: +44 (0) E: Andrew Lyon People and Change T: +44 (0) E: Gavin Lubbe Systems T: +44 (0) E: Phil Brooke Financial Services Sourcing T: +44 (0) E: Louise Portelli Programme T: +44 (0) E: Daniel Clark External Reporting T: +44 (0) E: The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved. Printed in the United Kingdom. RR Donnelley l RRD l March 2012 l