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SAP Accounting for Insurance Contracts

The extent and scope of the Solvency II directive affects all core operations belonging to an insurance firm: pricing, underwriting, risk management, assets management and others. Financial, risk and actuarial departments will need to comply with changes to the type and frequency of reporting. For some insurance firms this will have to be done in parallel with changes to IFRS requirements.

Parties such as insurance customers, executives, shareholders and regulators want and need to ensure that an insurance company is profitable and solvent at any point in time. The necessity for timely, consistent and accurate information demands an approach not previously defined by insurance technology.

With current  insurance systems, financial postings are commonly done in the operational systems and then transferred into the financial systems in order to create the balance sheet based on local Generally Accepted Accounting Principles (GAAP). 

In addition to GAAP requirements, insurance companies must comply with further accounting and risk management principles prescribed by the international bodies IASB or EIOPA such as IFRS 4 or Solvency II. The key objective of these regulations is to protect the shareholders (IFRS 4) and the policyholders (Solvency II).

The financial systems currently used by insurance firms focus on GAAP requirements but are not prepared to manage new regulatory reporting requirements. Where an entity has a large number of sub-entities, each with individual  financial systems, these complex requirements  need to be built into the corresponding systems.

This causes companies to miss out on efficiency enhancing measures in the following areas:

  • Reducing effort for system enhancing and maintenance 
  • Unifying the insurance data model to be as lean as possible based on best practice
  • Ensuring full historization , seamless traceability and drill-down from result to source
  • Integrating and automating processes where appropriate