CAL/ FEDSURE INTEGRATION
23 NOVEMBER 2001
Presentation Outline
• Philosophy Martijn Appelo
• Products and Valuation Martijn Appelo
• Integration Progress Hennie Nortje• System Conversion Hennie
Reyneke• Accounting and Investments Andrew
Birrell
Looking Back
An agreement was reached with Fedsure on24 August The agreement is effective from 31 May 2001
Terms• CAL has reinsured individual life policies
underwritten by Fedsure ILD • CAL assumes responsibility for the
administration of the policies covered in the reinsurance agreement
• Investec 29% shareholder in CAL
New Business Cost : R2 400 - R4 400
Renewal Cost : R 460 - R 250
Systems : Policy Administration - Fedsure ILD / Norwich
Business Processes - Fedsure ILD / Norwich
Large number of isolated projects
What we found
Physical Locations
Cape Town Johannesburg Other
Systems Programmers Programmers
Accounts Management Department
Call Centre Department
Branches Various
Head Office Staff
Initial Decisions
• Investment administration to IAM
• Close new business
• Cost is priority
• CAL : Process
: Systems
: Location
Life Assurance Company Activities
• New business• Monthly administration• Periodic administration - statutory returns• Investment functions• Internal administration - staff
- location
Life Assurance Company
Example: Monthly administration:
- Collect premiums
- Allocate premiums
- Accounting
- Investments
- Policy alterations
- Policy benefits
- Policy charges
- Reassurance
- Record keeping
Life Assurance Company
Functionality required
Shortfalls
Completeness of computerised systems:
- Fedsure
- Norwich
- Capital Alliance Life
Functionality Shortfall and Importance
Values : Very High
Commission : Medium
Multiple investment funds : Low
Investment switches : Lower
Escalation methodology : Medium
Reassurance : Low
Loans : High
Business Decisions
Priorities:
1. Conversion - Cost
2. Service Levels - Cost
3. Investment returns - Outsourced
4. Policy retention - Result
Business Decisions
Systems:
• Conversion first
• Solve existing system issues after conversion
Perspective:
• Systems
• Products
• Data clean-up
Completeness of Computerised System
Fedsure, Norwich, CAL:
• Policy administration
• Accounting
• Investment accounting
• Matching exercise (policy/ investment)
• Actuarial interface
• Analysis of surplus
Fedsure Policies in Force
ProductCategory
SubProducts
Policies In-Force
FedsureNamibiaPolicies
Annuity 7 1,144 100
Debility 5 11,741 746
Disability 1 354 0
Endowment 60 110,649 3,295
RA 8 42,355 0
Term Assurance 1 1,594 0
Whole Life 30 120,337 3,608
TOTAL 112 288,174 7,748
Fedsure Ancillary Benefits
Benefit TypeSub
ProductsPolicies in
forceContinuation Option 1 1GIB 9 5,837Lump sum accident death 1 1,007Lump sum accident death andinjury
1 6,379
Lump sum accident injury 1 14Lump sum debility 3 31,024Lump sum disability 5 52,415Lump sum dread disease …………. 4 27,155
TOTAL 34 154,340
Norwich Policies in Force
ProductCategory
SubProducts
PoliciesIn-Force
Annuity 15 7,225Disability 9 1,480Endowment 160 134,289RA 48 25,101Term Assurance 10 486Whole Life 32 37,995
TOTAL 274 206,576
Norwich Ancillary Benefits
Ancillary Benefit CategorySub
ProductsPolicies in
forceLump sum injury 1 133Lump sum HIV 1 175Cover escalation 8 1475
Waiver disability 2 1739
Waiver death 2 1920Daily hospital 16 2495Lump sum accident 2 3554GIB……………………………… 12 5885
TOTAL 116 213730
Product Perspective
Fedlife Norwich
Liability Element Liability Element R'b Code R'b Code
Universal 1,6 352 5,3 663
Unit Linked 1,1 174
Conventional 0,2 445 0,4 326
Annuities 2,2 37 0,6 43
SinglePremiums
1,4
Product Process
• Product specifications - outsource SAAC
• Team: 4 actuaries
4 senior students
2 junior students
3 CAL staff
Product Process
• Reconciliations
- VIP
- Prophet
- Administration system
• Data checks - unknown commitments
• Administration - CAL
• Completion date - February 2002
• System conversion is independent
Integration Progress
Presentation Outline
• Model for success• Integration objectives• Risks• Integration team• Achievements to date• Feedback on Service Level
Agreements• System conversion
Model for Success
• Mergers frequently fail to meet their objectives
Essential steps to ensuring successful integration:
• Sound due diligence• Ensure staff feel secure throughout• Build trust in management• All staff to share a compelling vision• Integrate and streamline systems and
processes
CAL’s Integration Objectives
• Integrate staff• Integrate systems• Business retention• Communicate• Optimise intellectual knowledge• Reduce costs• Relocate staff• Seamless transition for policyholders• Achieve complete integration in 15 months
Risks
• Inherited backlogs• Not achieving Service Level Agreements • Market perceptions• People integration• Manage expectations• Meet timetable deadlines• Pace of integration
The Integration Team
Championed by Martijn AppeloChampioned by Martijn AppeloLead by Hennie NortjeLead by Hennie Nortje
Elize O’Neil
Colin Brazer
Enver Dickson
Laurel Towler
Ernest Pereira
Hennie Reyneke
Brenda Mills
Physical
IT Infrastructure
Skill & knowledge
People
Process
Systems
Communications
To date the integration process has exceeded expectations
Achievements thus far.……...
Integration Process
Physical Integration
• CAL business units relocated• Refurbishment of CAL building• Additional staff parking secured• Office environment established• PABX / switchboard equipment upgraded• Fedsure staff relocated to CAL building
IT Infrastructure
• IT capacity planned• Fedsure system access implemented from
CAL network• User workstations installed• New servers implemented for email,
network, imaging, fax and line of business systems
• New storage area network implemented
Skills & Knowledge Transfer
• Authorisation processes revised• Induction courses facilitated • Call centre multiskilling commenced
• Buddy system adopted
People Integration
• Announcement of new EXCO structure• Announcement of management structure• Management integration seminar held• Employment offers finalised • Organisation structures finalised• Divisional teambuilding sessions held• Fedsure staff loaded on CAL payroll• Restructuring and redundancies finalised• Culture survey and forums conducted
Process Integration
• Business process review completed• Volume estimate established• Standard times for activities identified• Business process requirements
Systems Conversion
• System conversion teams finalised• Responsibilities per team defined• High level systems analysis completed• Annuity system conversion completed• System conversion detailed plan completed• Time table agreed
Staff Communication
• TAXI campaign - created the opportunity for staff to actively participate in the integration….
….further enhancing a feeling of security and comfort amongst staff
TAXI
ENGINE
EOOM
Staff Communication
• Whatzup - a weekly newsletter• Taxi Talk - the official integration
news piece
Taxi Talk
Other Communication
• Editorials • Visits and workshops to intermediaries• Blast faxes
• Policyholder communication
August
Announcementof new structure
Reinsurance agreement signed
Integration teamin place
High level plan for system
conversion
System processes identified
Taxi communicationvehicle in progress
September
Implementation ofnew servers
Relocation ofCAL business units
Intermediaries workshops
Culture surveys& forums conducted
Induction programintroduced
October November
Brief Summary - Achievements to date
Employment offers
Conversion ofannuity system
Refurbishment
IT infrastructure
Physical integration
Surveys & forumsconducted
Staff restructuring & redundancies
Systems conversion plan
Office movescomplete
Item ServiceLevel
AchievementAugust 2001
%
AchievementNovember 2001
%Scanning Current 0% 100%Registered mail Current 0% 100%Refunds 5 days 5% 100%Cancellations 5 days 5% 100%Tax certificates 5 days 5% 100%Complex alterations 10 days 80% 100%Maturities 4 days 0% 100%Death claims 15 days 0% 80%Surrenders 5 days 0% 60%Values 20 days 80% 80%Call abandon rate 5% 4% 8%
Feedback on Fedsure Service Level Agreements
Item ServiceLevel
AchievementNovember 2001
100%Scanning Current 100%Registered mail Current 100%Refunds 2 days 100%Cancellations 2 days 100%Tax certificates 2 days 100%Complex alterations 5 days 100%Maturities 2 days 100%Death claims 15 days 100%Surrenders 2 days 100%Values 2 days 100%Call abandon rate 5% 3%
Feedback on CAL Service Level Agreements
Difficulties Encountered
• Backlogs inherited• Scanning arrears• Restructuring of silos• Relocation of staff• Data statistics• Staff morale• Double deduction of September premiums • Market value adjuster• Volatile markets
02000400060008000
10000120001400016000
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov
Values Claims
Client services Loans and surrenders
Maturities
Work in Queues
System Conversion
Presentation Outline
• Vision• Objectives• Fedsure ILD systems• CAL systems• Fedsure source CAL target• General conversion approach• Risks• Project plan• Project feedback
Vision
Reduce annual IT costs per Fedsure ILD policy
by 75%
Objectives
• Convert all Fedsure ILD systems to CAL systems before December 2002 - Speed very important
• Business must still meet existing service levels• Reduce Fedsure IT maintenance costs by 75%• Systems must be good not perfect -
manual vs automated• Find short cuts to success • Convert data as-is - do not fix data during
conversion
Fedsure ILD Systems
FADSDocument and letter printing
Clues Client enquiries (Call centre)
Lazarus Norwich policy administration
FANSFedsure annuities administration
Aims Commission administration
Saturn Fedsure policy administration
Eastman KodakWorkflow and images
Data warehouse Copy of all Saturn/Lazarus/Fans data
VIPValuations
Masterpiece General Ledger
InternetMarketing and client/broker enquiries
Fedsure ILD Systems
Annual Costs to run Fedsure ILD systems• Saturn R7.6M• Lazarus R16.9M• Fans/Accounting R3.0M• Aims R2.7M• Workflow R3.6M• Datawarehouse/InternetR3.7M• Other R7.7M• Depreciation R16.7M • VIP minimal
TOTAL R61.9M
CAL ILD Systems
• Sun - CAL policy administration• Hyphen - Annuities
- Payment and Collection• Oculus - Images• Internet - Enquiries• Accountability - General ledger• Prophet - Valuation
Fedsure Source CAL Target
• Saturn Sun / Hyphen• Lazarus Sun / Hyphen• Fans Sun / Hyphen• Aims Sun• Eastman Kodak Sun / Oculus• Fads Fads• Datawarehouse Sun• Clues Sun• VIP Prophet• Masterpiece Accountability• Internet Internet
General Conversion Approach
• 13 Conversion projects• Conversion approach
– High level analysis – Project plan– Detailed analysis– Programming– Testing– Training– Conversion– Verification and audit
• Streamline system processes – will commenceafter conversion
Risks Identified
• Number of CAL technical (IT/Actuarial) resources
• Lazarus product, system and business knowledge
• Caliber implementation• Lack of system specifications• Dependency on a number of key resources• Increase in manual processes• WIP on Saturn/Lazarus at conversion stage• Namibia conversion• Functionality not on target environment
Risks - Feedback
Description Risk ofOccurring
Magnitudeof Risk
1. Number of CAL technical(IT/Actuarial) resources
High High
2. Lazarus product, system andbusiness knowledge
High High
3. Caliber implementation nothappening as scheduled
High Medium
4. Lack of system specifications High Medium5. Losing key resources Medium High6. Increase in manual processes High Medium7. WIP on Saturn/Lazarus at
conversion stageHigh High
8. Namibia Conversion High Low9. Functionality not on target
environmentHigh High
Project Plan
Saving (R'm) O N D J F M A M J J A S O NSaturn 7.6Lazarus 16.9Fans 1.0AIMS 2.7Eastman Kodak 3.6FADS -Prophet -Call Centre 9.0DWH/Internet 3.7Accounting 2.0Other 7.7Depreciation 16.7TOTAL 61.9 (excl. R9M from Call Centre)
2001 2002
Project Feedback
• So far completed– High level analysis– Conversion project plan for all projects– Converted annuities (Fedsure)– Created Saturn file structures on Sun system
• November- milestones– Eastman Kodak conversion– Train 10 Jhb CC staff members– Train 4 Fedsure staff members on Sun system– Values investigation
Accounting and Investments
Accounting and Investments
Both the accounting and investment processes
in Fedsure ILD and Norwich are considered unsatisfactory,
and substantial changes are required
Accounting and Investments
Some of the major challenges
– Fedsure ILD ran +-150 different investment portfolios
– Fedsure (Jhb) and Norwich (CT) accounting areas were never integrated
– No integration of accounting processes into the line of business areas (as per CAL)
– Most accounting processes were manual
Accounting and Investments
Cont.
– Jhb Life staff processed journals, but never pulled the accounts together.
– All cashflows in/out of Fedsure went through the “Net Main Life Fund” bank account i.e. were not allocated to specific portfolios at source. Norwich followed a similar process
– Historical reconciliations that were never cleaned up
(claims, premiums, loans etc)
Progress to date - Accounts
So far
• Relocation of Jhb accounts staff to the CAL building - simplifying the management challenge
• CAL has control of all the ILD bank accounts, and implemented new authorisation processes
• All expenses are now approved via the established CAL processes
• All staff briefed on the CAL philosophy regarding financial controls
Progress to date - Accounts
Cont.
• Staff are now held accountable for producing correct reconciliations
• Reconciliation of investment assets done at CAL• Investec to provide “clean” accounts as at 31
October by 31 December 2001. We are assisting with the process
• We expect to take over the management accounting process from the CT corporate accounting area from January (Nov & Dec management accounts)
Progress to date - Accounts
• We have teams cleaning up historic reconciliations. Progress to date :
Norwich Outstanding Reconciliations
July October
Claims R276m R150m
Loans on out of force policies(to be cleared)
R175m R109m
Unapplied cash loans R77m R48m
Desired outcome - Accounts
• To move accounting processes into the line of business areas - ensure that all accounting entries are correct at source
• Achieve the CAL standards in terms of data– no more than 20 unallocated debit orders at the end of
each month (out of a total of 230 000)– reconcile the line of business systems to the general
ledger every night– have a high degree of comfort with the credibility and
integrity of accounting data– produce management accounts within 3 weeks of month
end - keep a close finger on the pulse of the business
“Reality check”
• Much work to be done • Historical issues: We have a broad knowledge of
issues and have a methodical plan in place• Full implementation of CAL process only once
conversion completed• Complexity in finalising the figures for September
2001 interim report• Expectation that this could extend to March 2002
results - under considerable pressure to finalise figures to acceptable degree of accuracy
• Have warrants from Investec regarding our exposure to reconciliation errors and errors in current assets and liabilities
Progress - Investments
• Investment performance critical to policyholder and shareholder returns.
• Existing Fedsure and Norwich processes were unnecessarily complex
• Have simplified investment process by creating unitised structures (“building blocks”)
• Have reduced 150 portfolios down to 14• Asset managers can now focus on returns per
building block, instead of administration• Simplifies the investment accounting and unit
pricing process at CAL
Previously
• Product level portfolio: allocation to»Equities»Bonds»Cash»International»etc.
• Transactions at a portfolio level
Equities Equities BlockBlock
Bonds Bonds BlockBlock
Cash Cash BlockBlock
Product 2Product 2
etc.
Transactions at a building block level
Now
Product 1Product 1
Progress - Investments
Cont.• Keeping close track of Asset Liability Matching
issues, especially the annuity portfolio• Took on appropriate portfolios• No specific asset concentration risks (2.9% of
Inhold and 3.5% of Saambou in total)• No “strategic” holdings • Relatively high weighting in bonds
Progress - Investments
Cont.
• Still have some small holdings to tidy up• Have unitised the Fedsure property portfolio,
no exposure to individual properties. Participate in the unitised structure with Fedsure Group Benefits and Fedsure shareholders
• Market value of properties determined at 31 May 2001
• Ultimately the proof of the process will be in the medium to long term investment returns