GOE Allocation Presentation
-
Upload
douglas-magill-mba-cpcu-cfa -
Category
Documents
-
view
69 -
download
2
Transcript of GOE Allocation Presentation
1
Latin American & Caribbean GOE Allocation ModelSean Clifford – Controller Latin American RegionDouglas Magill – Latin American Controls Team
June 6, 2012
2
Agenda
Current State Objectives Benefits Cost Drivers Compensation vs. Non-Compensation Expense Categories Allocating Compensation Expenses Checks & Balances Demo Challenges
3
Current State of GOE Allocation 33+ Entities with their own methods of allocation. Examples:
- Somewhat sophisticated- Very Basic GPW/Headcount- Use of 3rd party vendor- Subject to manual reclassifications
Direct and Indirect charges to minor lines. Directly impacts of pricing. Misallocation of resources.
4
Objectives of the new GOE Allocation Model
Standardized Transparent Fair Logical Automated and Easy to Use Flexible
‘Establish an active Business Performance Management Model at all levels of the organization to enable Management to make informed tactical & strategic decisions which improve business results’ Source: Six Core Finance Initiatives (R. Schimek) – Capital Management & Business Performance
5
Benefits of new GOE Allocation Model
Profit Centers must assume ownership for costs Clear appreciation of all supports costs necessary to support the business Greater focus on the business to drive down costs rather than influencing how those costs are allocated Greater level of confidence that expenses are factored into product pricing Facilitates more accurate ROE and ROC calculations Gives greater justification for potential divestment strategies
Cost Reductions Expense between countries should be more comparable Drives process improvements and best practices Leverage economies of scale
Reporting More informative Reduces level of manual effort required to calculate and report monthly GOE allocations via MOR and Expense By Cat
6
Cost Drivers Metrics used by minor line of business.
- Foreign General Results1. GPW2. NPW3. NLI4. NPE
- CL106 (Claims)1. Claims Count (Sum of open reserve count and closed claims cases)2. Claims Count Weighted3. Closed Claims4. Salvage and Subrogation Count4. GLI
- Policy Transaction Count Report from Operations1. Policy Transaction Count Unweighted2. Policy Transaction Count Weighted
-. FAC Count-. Headcount (To the fraction)-. Operating Minor Lines-. Manual Entry
1. Number of Direct Marketing Campaigns2. Floor Space3. Engineering Surveys
30+ hybrid drivers derived from above Statistics
7
Metrics Entry PageCost Drivers / Minor Lines
Aviation LineCasualty Auto
Excess Casualty
General Liability
Workers Compensation
Floor Space Occupied 0.00 8.40 1.30 8.40 0.00
Engineering Cost Driver 0.00 0.00 0.00 0.00 0.00
Marketing Campaigns Per LOB 0.00 0.00 0.00 0.00 0.00
GPW FGen $0 $1,053 $330 $766 $0
GPW FGen Except Global Market $0 $1,053 $330 $766 $0
Commercial Lines FGen GPW $0 $1,053 $330 $766 $0
Commercial Lines except Global Market FGen GPW $0 $1,053 $330 $766 $0
Consumer Lines FGen GPW
NPW FGen $0 $1,050 $219 $660 $0
Commercial Lines FGen NPW $0 $1,050 $219 $660 $0
Consumer Lines FGen NPW
NLI FGen $0 $568 $0 $0 $0
Commercial NLI FGen $0 $568 $0 $0 $0
Consumer NLI FGen
GLI0.00
1,780,082,687.06
496,919,421.72
1,077,529,795.07 0.00
Commercial GLI0.00
1,780,082,687.06
496,919,421.72
1,077,529,795.07 0.00
8
Metrics Percentage PageCost Drivers / Minor Lines
Aviation LineCasualty Auto
Excess Casualty
General Liability
Workers Compensation
Floor Space Occupied 0.00% 0.35% 0.05% 0.35% 0.00%
Engineering Cost Driver 0.00% 0.00% 0.00% 0.00% 0.00%
Marketing Campaigns Per LOB 0.00% 0.00% 0.00% 0.00% 0.00%
GPW FGen 0.00% 1.97% 0.62% 1.44% 0.00%
GPW FGen Except Global Market 0.00% 2.28% 0.72% 1.66% 0.00%
Commercial Lines FGen GPW 0.00% 2.87% 0.90% 2.09% 0.00%
Commercial Lines except Global Market FGen GPW 0.00% 3.57% 1.12% 2.60% 0.00%
Consumer Lines FGen GPW
NPW FGen 0.00% 3.09% 0.65% 1.95% 0.00%
Commercial Lines FGen NPW 0.00% 5.55% 1.16% 3.49% 0.00%
Consumer Lines FGen NPW
NLI FGen 0.00% 4.16% 0.00% 0.00% 0.00%
Commercial NLI FGen 0.00% 7.55% 0.00% 0.00% 0.00%
Consumer NLI FGen
GLI 0.00% 3.50% 0.98% 2.12% 0.00%
Commercial GLI 0.00% 4.30% 1.20% 2.60% 0.00%
9
Compensation vs. Non-Compensation Expense Categories
Expense categories and the % of overall expenses they represent in Latin America for 2010
Salary & Comp – 60% Consultancy – 8% Rent – 7% Insurance Taxes, Licenses and Fees – 4% Data Processing – 3.8% Amortization of Mass Marketing – 3% Communication – 3% Advertising – 2.5% Depreciation – 1.7% Travel – 2% Office Supplies – 2% Other Costs - 2% Amortization of EDP Projects - 1%
10
Compensation Expense from Payroll File Allocation
Payroll File
PC (Direct) or SC Indirect
Choose Major Line
Program imports data from payroll deciding whether an employee works for a Profit Center or Service Center
Choose Service Center
Choose Minor Line
After major line is chosen a
minor line within major line must be chosen. The “All Minor Lines
within Major Line” option can
be chosen as well.
If “All Minor Lines within major line” option is chosen program will
allocate to all minor lines within major line via 50%
GPW 50% policy transaction count
weighted
All Minor Lines within Major Line
Minor Line 1 Minor Line 2
Minor Line
Choose % of Employee time
An allocation of the
employees time between 0 and 100%
must be allocated to the major/minor line
combination
Import
direct
Direct
Direct
Direct Direct
Indirect
Choose Activity
Indirect
Major Line or Cost Driver
If Major Line is chosen a minor line has to be
chosen or the “All Minor lines within major line” option must be chosen
Minor LineMajor Line (All minor Lines within
Major Line), expense will be allocated to all minor lines via the
cost driver associated with the Service Center employee works for.
Choose % of Employee Time
A Cost Driver is chosen that is
associated with the employees
activity that allocated to
aplicable minor line
Minor Line 1 Minor Line 2
All Aplicable Minor Lines
Indirect
IndirectIndirect
IndirectIndirect
Indirect
Indirect
Indirect
11
Profit Center Employee Allocation Page
Employee Profit Center Minor Line 1 Percent % Profit Center Minor Line 2 Percent
%
Employee 1 Accident and HealthAll Accident and Health 100%
Employee 2Accident and Health
All Accident and Health
100%
Employee 3 Accident and HealthAll Accident and Health 100%
Employee 4 Accident and HealthAll Accident and Health 100%
Employee 5 Accident and HealthAll Accident and Health 100%
sin nombre Accident and HealthAll Accident and Health 100%
Employee 6 Accident and Health Direct to Consumer 81% Financial Lines Loyalty 4%
Employee 7 Accident and Health Direct to Consumer 70% Accident and Health Group PA 20%
Employee 8 Accident and Health Direct to Consumer 81% Financial Lines Loyalty 4%
Employee 9 Accident and Health Direct to Consumer 81% Financial Lines Loyalty 4%
Sales Employee Accident and Health Direct to Consumer 81% SBS AIG Combined 7%
12
Service Center Employee Allocation Page
Employee Service Center 1 Activity 1 Cost Driver / Direct Profit Center 1 Direct Minor
Line 1Percent %
Employee 1Administration Administering
x 30 Percent By Operating Minor Lines and 70 Percent based on Headcount
50%
Employee 2Administration Administering
x 30 Percent By Operating Minor Lines and 70 Percent based on Headcount
100%
Employee 3Administration Administering
x 30 Percent By Operating Minor Lines and 70 Percent Based on Policy Transaction Count Weighted
100%
Employee 4Administration Administering
x 30 Percent By Operating Minor Lines and 70 Percent Based on Policy Transaction Count Weighted
100%
Employee 5Claims
Claims Handling and Adjusting Direct Accident and Health
Direct to Consumer
45%
Employee 6Claims
Claims Handling and Adjusting Direct Personal Lines
Extended Warranty
33%
13
General Ledger with
GOE Breakout
Indirect or Direct
Expense?
Minor Line or Major Line?
Minor Line Major Line
SC or Exp Cat
Minor Line 1 Minor Line 2
General Expense by Category
Minor Lines
Service Center
Minor Lines
Import
Direct Indirect
DirectDirect
Direct
Direct
Indirect Indirect
IndirectIndirect
Non-Salary Expense by Category Allocation Decision Tree
Allocate to all minor lines within major lines via the cost driver
associated with the expense
category
Allocate expense to a service center
or to an expense by
category bucket
Use Cost Driver
associated with expense category to
allocate to all minor lines and Service
Center
Allocate to all applicable
minor lines via the cost driver
associated with the
Service Center
Indirect
14
Profit CentersDirect
Marketing Campaign Expenses
Advertising Expense Non
DM
Total Advertising
Cost
Accident and Health Total $66,574,723 $1,405,000 $72,076,008
Direct to Consumer $66,574,723 $66,574,723
Individual Travel $1,405,000 $5,501,285
Life $0
Voluntary Employee Benefits $0
All Accident and Health $0
Aviation Total $0 $0 $0
Aviation Line $0
Service Centers Advertising
Cost to Service Centers
Executive $17,832,922 $17,832,922
Finance and Accounting $0
Human Resources $0
Legal $0
Other $1,868,172 $1,868,172
Company Wide Total Unallocated
General $0
Total: $146,036,408 $23,092,577 $173,225,270
15
GOE Allocation Flow Chart – Non Salary
Trial Balance with Direct
GOE breakout
Direct to a LOB (Minor Line) General Cost by
Category bucketMajor Line (Profit
Center)
Service Centers
IndirectIndirectDirectDirect
All LOBs (Minor Lines) within Major
Line (PC)Direct
Allocate to all LOBs under major line via
cost driver associated with expense category
from which cost originates
Headquarter Expenses (No Reallocation)
Other Costs (20-20-20-20-20)
Consultancy (20-20-20-20-20)
Insurance (20-20-20-
20-20)
Advertising(20-20-20-
20-20)
Tax Fee Lic (20-20-20-20-
20)
Amort of PL DM Costs (Direct to Personal Lines)
Intercompany (20-20-20-20-
20)
Amort of A&H DM Costs
(Direct to DTC LOB)
FFE (Headcount)
Office Supplies
(Headcount)
Communication (Headcount)
Data Processing (30% Operating
LOB, 35% Headcount, 35%
Policy Trans Count Unweighted)
Rent (Floor Space)
Other Personnel
(Headcount)
EDP (30% Operating LOB, 35% Headcount,
35% Policy Trans Count Unweighted)
Travel (Headcount)
Actuarial (20-20-20-20-20)
Administration (20-20-20-20-20)
Claims (Claims Cases)
Finance and Accounting (20-
20-20-20-20)
CSU and CSG (Policy Trans Count
Weighted)
Engineering (Engineering Cost
Driver)
Compliance (20-20-20-20-20)
DTC (Campaigns per LOB)
Other (20-20-20-20-20)
Reinsurance (30% Operating LOB and 70% FAC Count)
Legal (20-20-20-20-20)
IT and Operations (30% Operating LOB, 35%
Headcount, 35% Policy Trans Count Unweighted)
Sales (GPW excluding Global Market)
Executive (20-20-20-20-20-20)
Human Resources (Headcount)
All LOBs (Minor Lines)
Parent Service Fees (20-20-20-
20-20)
Mgmt & Other Fee Income (20-20-20-
20-20)
16
Checks & BalancesPayroll Import File = Sum of GL Salary Expense AccountsEvery employee must allocate 100% of his/her activity to a profit center or support departmentPayroll Import deletes employees not in payroll and forces the 100% allocation of new employees prior to runningSalary Data hidden, protected and encryptedAll Cost Drivers must = 100%Model will alert when all newly created cost centers or GL expense accounts are not mapped Mapping of Local General Ledger Accounts to Expense By Category determines allocation driver bucket
17
Cost Center / Minor Line Total Direct Costs Total Indirect CostsTotal FGEN GOE
Results
Percentage of FGEN GOE
Results
Accident and Health $1,109,750,301 $331,937,111 $1,540,672,246 38.08%
Direct to Consumer $1,003,597,511.74 $193,627,303.58 $1,272,217,255 31.44%
Group PA $35,580,772.25 $55,186,770.72 $97,965,284 2.42%
Group Travel $20,134,725.14 $16,419,039.01 $40,031,697 0.99%
Individual Personal Accident $5,443,774.29 $499,306.25 $6,020,390 0.15%
Individual Travel $34,946,220.47 $52,367,039.50 $98,224,733 2.43%
Life$0.00 $0 0.00%
Voluntary Employee Benefits $10,047,296.87 $13,837,652.38 $26,212,886 0.65%
Aviation $4,022,919 $0 $4,022,919 0.10%
Aviation Line$4,022,919.00 $4,022,919 0.10%
Casualty $84,954,658 $83,787,411 $191,507,996 4.73%Casualty Auto $47,717,793.67 $47,524,604.11 $109,319,566 2.70%
Excess Casualty $11,704,340.94 $13,269,050.52 $27,867,439 0.69%
General Liability $25,532,523.03 $22,993,756.84 $54,320,991 1.34%
Workers Compensation$0 0.00%
Total GOE Results
18
Cost Center / Minor LineDirect Data
Processing CostsIndirect Data
Processing Costs Total DP ResultsPercentage of DP
Results
Accident and Health $59,783,539 $41,958,059 $101,741,598 30.68%
Direct to Consumer $51,878,632.31 $21,638,312.58 $73,516,945 22.17%
Group PA $1,779,069.86 $8,167,530.75 $9,946,601 3.00%
Group Travel $1,657,391.09 $2,275,544.96 $3,932,936 1.19%
Individual Personal Accident $141,140.00 $80,679.29 $221,819 0.07%
Individual Travel $3,840,920.13 $7,398,651.81 $11,239,572 3.39%
Life$0.00 $0 0.00%
Voluntary Employee Benefits $486,385.61 $2,397,339.51 $2,883,725 0.87%
Aviation $0 $0 $0 0.00%
Aviation Line$0 0.00%
Casualty $4,971,175 $11,243,202 $16,214,377 4.89%Casualty Auto $1,631,898.00 $6,402,334.35 $8,034,232 2.42%
Excess Casualty $1,581,470.00 $1,928,616.57 $3,510,087 1.06%
General Liability $1,757,807.00 $2,912,250.73 $4,670,058 1.41%
Expense by Category Results
19
Service Center / Activity Driver Direct Costs Indirect Costs
Total Property Line
Percentage of Property Line
Percentage of Overall Cost
Category
Actuarial $0 $0 $0 0.00% 0.00%
Actuarial Duties$0 0.00% 0.00%
Administration $0 $585,316 $585,316 0.16% 6.16%
Administering$585,316 $585,316 0.16% 6.16%
Claims $7,566,809 $188,373 $7,755,181 2.17% 5.70%Claims Handling and
Adjusting $33,151 $188,373 $221,523 0.06% 0.45%
Manage Claims Department$7,533,658 $7,533,658 2.11% 8.64%
Salvage and Subrogation Processing $0 0.00% 0.00%
Compliance $0 $1,511,727 $1,511,727 0.42% 10.72%
Comp. Audit and Reporting$1,511,727 $1,511,727 0.42% 10.72%
Property Minor Line GOE Results
20
ChallengesBuy-in of PCMsTrainingAccess to PayrollDiffering source files to be imported (Payroll, Trial Balances, CL106,Policy Transaction Count, FAC Count)Maintenance of MappingsExcel 2003 and 2007 compatibility issues. Time Sheets
21
Q&A