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101010Building Pooling and IBNR

AllocationsMadeline Osit

Beacon Application Services

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Objectives

• Review Allocations functionality and considerations for insurance allocations

• Understand how allocations can be leveraged to automate pooling arrangements and how to identify opportunities for automation

• Understand how allocations can be used to automate IBNR calculations

• Review case studies

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Agenda

• Background• Considerations for Insurance Allocations• Allocations Functionality• Automating Pooling Arrangements

– When to use Allocations for Pooling– Typical Scenarios– Case Studies

• IBNR Allocations– Challenges in automating IBNR allocations/calculations– Configuration and customization– Case Study

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Background

• Insurance accounting presents unique challenges in the need for complex calculations/allocations

• Traditionally have been addressed via spreadsheets with intense manual intervention - sometimes even after PeopleSoft has been implemented

• Allocations presents the opportunity to automate some of these calculations for better precision, reporting and traceability of results

• Challenge is to manage the complexity of these calculations and the volumes they produce, while maintaining controls and traceability

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Background: Types of Allocations

1. Fixed rate expense allocations such as rent based on square footage

2. Overhead allocations to geography/line of business for management and statutory reporting, usually based on premiums, claims or related statistics

3. Automation of pooling arrangements

4. IBNR Calculations

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Considerations for Insurance Allocations

• Thin vs. Thick Ledger• Data Warehouse Strategy

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Considerations for Insurance Allocations

• Volumes– Multi-step allocations to multiple chartfields with

cascading effects and an iterative nature make volumes high and sometimes difficult to predict

• Complexity– Complexity of pooling arrangements/IBNR

calculations determine whether they are suitable for allocations

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Considerations for Insurance Allocations

Solutions:• For very high volumes, a separate ledger(s) can

be used for allocation results and reporting• Summary accounts (with or without an

allocation ledger) can also be used to manage volumes

• Plan for Performance Testing and Tuning well before planned production date

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Allocations Functionality

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Definition - Allocations

The PeopleSoft Allocations functionality is simply a math processor. Using the pages in the Allocation Step Definitions, the inputs and outputs to the mathematical process are defined.

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Overview

• Used to distribute money (or statistical) amounts across any chartfield or combination of chartfields

• Within a business unit or across multiple business units

• Single or multi-step allocations• Can use trees to build allocation specifications• Effective dated for control

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Allocation Terminology

Allocation Type Calculation type for the pool and basis (what type of math)

Pool Source — the amount(s) to be allocated. This amount can come from a ledger or any table, or you can specify a fixed amount.

Basis Rules — How and in what proportion the pool amounts are distributed to the various targets.

Target Destination — where the amounts defined by the pool and basis are allocated.

Offset Entries that balance the targets. These entries usually reflect the clearing of pool amounts as they are applied to the targets.

Amount Fields The mapping of the fields where the pool and basis amounts are allocated to the target and offset.

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Regular vs InterUnit Steps

• Regular Allocation Steps create the Target and Offset Journal Entries in the same Business Unit

• InterUnit Allocation Steps record InterUnit Journal entries – It uses the InterUnit Processer to create multiple journals: one on each Business Unit

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Simple Allocation ExampleOffsetTarget

Dept 1200Acct 640000

$107.14

Dept 1300Acct 640000

$669.64

Dept 1500Acct 640000

$223.21

BasisSq. Ft of Office Space

Dept 1200Acct 993000 1,200 Sq Ft

Dept 1300Acct 993000 7,500 Sq Ft

Dept 1500Acct 993000 2,500 Sq Ft

Total Rent Expenditures

Pool

Dept. 1400Acct. 640000

$1,000.

Dept 1400Acct 640000

(1,000)

• 1,200 Sq Ft is 10.7% of the total footage

• 10.7% of $1,000 is $107.14

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Allocation TypesCopy at a % Copies pool amounts to the target or offset with

possible percentage changes.

Spread Evenly Divides pool amounts equally by the specified basis fields to derive the target amounts. For example, this type can be used to divide the pool equally in thirds among department IDs 0100, 0200 and 0300.

Allocate on Fixed Basis Allocates on a fixed % basis.

Prorata with Record Basis Divides the pool amount among the targets based on amounts determined from the basis record (either actuals or statistical).

Arithmetic Operation Defines the allocation calculation as a mathematical operation between the pool and basis (add, subtract, multiply, divide).

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Output Options

• Journals – supports accruals• Direct Update is also an option, but not

often used

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Automating Pooling Arrangements

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When to Use Allocations for Pooling

• Complexity of rules will dictate whether they can be automated

• Consider the cascading effect of the allocations when assessing volumes

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Typical Scenarios

• Rates are stored in Statistical Accounts• Rates are generally updated annually (and retesting

for performance should be done at that time)• Depending on volumes and control requirements,

determination is made as to whether a separate allocation ledger should be implemented

• In some cases, summary accounts are also required to address volumes

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Case Studies

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IBNR Allocations

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Case Study

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Questions?

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