financial asset management

Financial Asset Management Introduction to Analyzers and New Strategic

Developments

Christian Kupper, Julia Schäfer SAP

Leipzig, June 10, 2008

sample for a picture

in the title slide

© SAP 2008 / SAP International Forum for Insurance /

1.

Introduction to Analyzers1.1. Market Risk Analysis1.2. Performance Calculation and Benchmarking1.3. Limit Management

2.

New Developments in Financial Asset Management

Agenda


SAP Investment Management for Insurance Is Part of SAP for Insurance

Market data

supply

Technical infrastructure: SAP NetWeaver

Front office,

trading

Payment

transactions

Master dataSettlement

Multi-GAAP valuationRegulatory reporting

LoansSecurities

Cash, currencies, derivatives

SAP Investment Management for Insurance

General ledger

Market risk analysis

Performance analysisBenchmarking

Limit management

SAP Investment Controlling for Insurance

Consolidation Reporting

SAP NetWeaver Business Intelligence

Planning and projections


Company structure Asset classes

Balance sheet classification

Different Areas of the Company Generally Have Different Risk Perspectives

Portfolio manager hierarchy


Real estate

Asset class

Total

Fixed income

Country

DE CHUS CHDE

Stocks

USDE

Data is classified and shown from different perspectives: Example of a possible portfolio hierarchy with two levels

The Central Element of Analyzers Is the Portfolio Hierarchy


FINANCIAL OBJECTPredefined, product-

type dependent characteristicsISINNominalRatingBusiness partner…

User-defined analysis characteristicsTrader APortfolio X…

The Analyzers Can Be Supplied by Different Systems

Asset managementMoney market tradingSecuritiesLoansDerivativesCurrencies

External dataSpecial funds single valuesReal estateThird-party systems…

Investment controllingMarket risk analysisStress testsSensitivitiesVaRPerformance measurementBenchmarkingLimit management…


Risk Key Figures and Reporting in the Market Risk Analyzer

Risk key figuresNPVSensitivities

DurationPVBPConvexity

Value at risk (historic, Monte Carlo, VarCovar)

VaR contributionMarginal VaRMean excess loss

Risk reportingPortfolio hierarchiesCurrent and historic dataStress tests/market data shiftsWhat-if analysisReporting of fair value difference

Any parameterization with regard to holding period and confidence level of the VaR key figures

2.03.04.05.06.07.08.09.0

10.0

1 M 2 Y 4 Y 6 Y 8 Y 10 Y

TS 5 (+) Current TS TS 6 (long-)


The Analyzer Information System Stores All Key Figures for the Long-Term and Ensures Auditing Acceptability


Yield Calculation Methods and Key Figures in the Portfolio Analyzer

Yield calculation methods

Time weighted rate of returnMoney weighted rate of returnApproximation methods

DietzModified Dietz

Portfolio key figuresTreynor RatioSharpe RatioInformation RatioSortino RatioJensen’s Alpha

Any parameterization according to monthly, quarterly, and annual yields or “to-date”

key figures


40%

60%

30%

70%

Benchmark Definition and Assignment

Example of a possible assignment variantNUS

NDX

DAX

MDAX

Stocks

US

Stocks

GER

Stocks total

60%

40%

Basis benchmarks Composite benchmarks

IndexFX rateReference interest ratePortfolio (hierarchy node)

Weighted combinations of existing basis and other composite benchmarks

Benchmark


Portfolio Analyzer –

Performance Calculation and Benchmarking


SAP Limit Management Fulfills Various Customer Requirements

Limits with trading focus

Online limit check during entry of transactionsWarning if limit utilization reaches a critical pointWorkflow if limit is exceededEntered as an absolute amountNo risk key figures

Downstream limit controllingCan be structured flexibly with portfolio hierarchiesAbsolute and relative limits are possibleLimitation of NPV or risk key figuresBatch – processing in the results database

Limit management


Limit Management: Example of Different Limit Types

Transaction

100,000,000.--No exceedanceFree limit: 98,000,000.--

10,000,000.--No exceedanceFree limit:8,000,000.--

2,000,000.--No exceedanceWarning due to critical limitFree limit: 0.--

1,000,000.--Limit exceedance- 1,000,000.--LoggingWorkflow

Net present value Nominal

Company code Company code/

business partner

CoCode/BP/

asset class

CoCode/BP/ACSmith

AttributionAnrechnung

Fixed-termdeposit2,000,000.--Deutsche BankTrader: Smith

Attribution

Limit types

Limits


Limit Exposures


SAP Limit Management Considers Group Relationships in Limit Attribution


Limit definition:50m--20%30%EURPH2

node 1PH2

node 11Fair valueFair value

Lower absol. limit

Upper absol. limit

Lower limit %

Upper limit %

CurrencyDenom-

inator nodeNumerator

nodeDenom-

inatorNumerator

Derivatives

FV, VaR, …

All assets FV, VaR, TWRR, book value, …

Fix-int. secur.

FV, VaR, …

DE CH CHDE

Stocks

FV, VaR, …

CHDE

Industry

FV, VaR, …

Fixed-interest securities

FV, VaR, TWRR, book value, …

Government

FV, VaR, …

Municipal

FV, VaR, …

11 12 13

1

With the Portfolio Hierarchy, Even Complex Limits Can Be Mapped to Risk Key Figures

Limit description1. The proportion of government bonds in the portfolio should be

between 20% and 30%.

2. This proportion should never be less than 50m EUR.

node11 PH2,

!!

node1 PH2,

node11 PH2,!

FV50m AND 0.3FVFV

0.2 ≤≤≤Limit

formula:

1

11 12 13

Portfolio hierarchy 1 Highest node:

All assets

Further levels:

Asset class, country

Portfolio hierarchy 2 Highest node:

Fixed-interest securities

Further levels:

Issuer class


1.

Introduction to Analyzers1.1 Market Risk Analysis1.2 Performance Calculation and Benchmarking1.3 Limit Management

2.

New Developments in Financial Asset Management

Agenda


Preview: SAP Enhancement Package 4 for SAP ERP Insurance

Financial Asset ManagementEnd-to-end hedge management process to eliminate market price risks of securities

New financial instruments: forward securities transactions

New correspondence monitor for end-to-end process support for the MT300 and MT500 series

Business functionsFIN_TRM_INS_HN:

Hedge management for FAM

FIN_TRM_LR_FI_AN_2:

Hedge and exposure management for commodities, SWIFT, forward securities transactions


Hedge Management Process for FAM

Hedged item: Stock in local currency

Hedge transaction:

Forward stock transaction

Effectiveness method:

Dollar offset method

Mapping of the life cycle of a hedging relationship of designation, dedesignation, effectiveness measurement, and documentation

Accounting in accordance with IFRS

Fair value hedge


Forward Securities Transactions

Definition: A forward securities transaction is a transaction for

which the price is determined when the contract is concluded, but contract performance takes place at a later date.

New product type: 740 forward securities transactions

Mapping of the entire product life cycle, from entry of the transaction to early delivery and delivery on due date

Delivery types: cash settlement or physical delivery

Accounting in accordance with various accounting regulations


Settlement Process I

New correspondence monitor for initiating and managing correspondence in relation to settlement

Outbound correspondence types: Deliver free (MT542)Deliver against payment (MT543) Receive free (MT540)Receive against payment (MT541)

Inbound correspondence types:Deliver free confirmation (MT546)Delivery against payment confirmation (MT547)Receive free confirmation (MT544)Receive against payment confirmation (MT545)Settlement status and processing advice (MT548)


Settlement Process II

Flexible output channels: SWIFTFax

Master data management for determining settlement instructions

Monitoring using status concept with correspondence object

Supporting processes:Securities account reconciliation

© SAP 2008 / SAP International Forum for Insurance / ©

SAP 2007 / Page 23

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This presentation is not subject to your license agreement or any other agreement with SAP. SAP has no obligation to pursue any course of business outlined in this presentation or to develop or release any functionality mentioned in this presentation. This presentation and SAP's strategy and possible future developments are subject to change and may be changed by SAP at any time for any reason without notice. This document is provided without a warranty of any kind, either express or implied, including but not limited to, the implied warranties of merchantability, fitness for a particular purpose, or non-infringement. SAP assumes no responsibility for errors or omissions in this document, except if such damages were caused by SAP intentionally or grossly negligent.


Thank you!

Christian KupperRegional Product Management InsuranceSAP EMEA

Hasso-Plattner-Ring 769190 Walldorf, Germany

T

+49 6227 7-41282M

+49 160 88 96 301E

[email protected]://www.sap.com/insurance

Julia SchäferSolution Management Financial Asset ManagementIBU Insurance

Dietmar-Hopp-Allee 1669190 Walldorf, Germany

T

+49 6227 7-61068F

+49 6227 78-41017E

[email protected]://www.sap.com/insurance

http://www.sap.com/insurance

http://www.sap.com/insurance


SAP INTERNATIONAL FORUM FOR INSURANCE

After the event, the presentations will be available at: www.sap.com/community/insurance2008


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