CAL/ FEDSURE INTEGRATION

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CAL/ FEDSURE INTEGRATION
23 NOVEMBER 2001
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Presentation Outline

• Philosophy Martijn Appelo
• Products and Valuation Martijn Appelo
• Integration Progress Hennie Nortje
• System Conversion Hennie Reyneke
• Accounting and Investments Andrew Birrell

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Looking Back

• An agreement was reached with Fedsure on
• 24 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

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What we found

• 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

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Physical Locations
Cape Town Johannesburg Other Systems
Programmers Programmers Accounts Management
Department Call Centre Department Branches
Various Head Office
Staff
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Initial Decisions

• Investment administration to IAM
• Close new business
• Cost is priority
• CAL Process
• Systems
• Location

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Life Assurance Company Activities

• New business
• Monthly administration
• Periodic administration - statutory returns
• Investment functions
• Internal administration - staff
• - location

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Life Assurance Company
Example Monthly administration - Collect
premiums - Allocate premiums - Accounting -
Investments - Policy alterations - Policy
benefits - Policy charges - Reassurance -
Record keeping
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Life Assurance Company
Functionality required Shortfalls Completeness of
computerised systems - Fedsure - Norwich -
Capital Alliance Life
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Functionality Shortfall and Importance
Values Very High Commission Medium
Multiple investment funds Low Investment
switches Lower Escalation methodology
Medium Reassurance Low Loans High
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Business Decisions
Priorities 1. Conversion - Cost 2. Service
Levels - Cost 3. Investment returns -
Outsourced 4. Policy retention - Result
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Business Decisions

• Systems
• Conversion first
• Solve existing system issues after conversion
• Perspective
• Systems
• Products
• Data clean-up

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Completeness of Computerised System

• Fedsure, Norwich, CAL
• Policy administration
• Accounting
• Investment accounting
• Matching exercise (policy/ investment)
• Actuarial interface
• Analysis of surplus

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Fedsure Policies in Force
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Fedsure Ancillary Benefits
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Norwich Policies in Force
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Norwich Ancillary Benefits
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Product Perspective
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Product Process

• Product specifications - outsource SAAC
• Team 4 actuaries
• 4 senior students
• 2 junior students
• 3 CAL staff

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Product Process

• Reconciliations
• - VIP
• - Prophet
• - Administration system
• Data checks - unknown commitments
• Administration - CAL
• Completion date - February 2002
• System conversion is independent

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Integration Progress
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Presentation Outline

• Model for success
• Integration objectives
• Risks
• Integration team
• Achievements to date
• Feedback on Service Level Agreements
• System conversion

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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

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CALs 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

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Risks

• Inherited backlogs
• Not achieving Service Level Agreements
• Market perceptions
• People integration
• Manage expectations
• Meet timetable deadlines
• Pace of integration

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The Integration Team
Elize ONeil
Colin Brazer
Enver Dickson
Laurel Towler
Ernest Pereira
Hennie Reyneke
Championed by Martijn Appelo Lead by Hennie Nortje
Brenda Mills
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Integration Process

• To date the integration process
• has exceeded expectations
• Achievements thus far....

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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

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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

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Skills Knowledge Transfer

• Authorisation processes revised
• Induction courses facilitated
• Call centre multiskilling commenced
• Buddy system adopted

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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

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Process Integration

• Business process review completed
• Volume estimate established
• Standard times for activities identified
• Business process requirements

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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

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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
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Staff Communication

• Whatzup - a weekly newsletter
• Taxi Talk - the official integration news piece

Whatzup
Taxi Talk
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Other Communication

• Editorials
• Visits and workshops to intermediaries
• Blast faxes
• Policyholder communication

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Brief Summary - Achievements to date
November
August
September
October
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Feedback on Fedsure Service Level Agreements
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Feedback on CAL Service Level Agreements
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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

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Work in Queues
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System Conversion
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Presentation Outline

• Vision
• Objectives
• Fedsure ILD systems
• CAL systems
• Fedsure source ? CAL target
• General conversion approach
• Risks
• Project plan
• Project feedback

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Vision

• Reduce annual IT costs
• per Fedsure ILD policy
• by 75

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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

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Fedsure ILD Systems
Lazarus Norwich policy administration
Saturn Fedsure policy administration
FANS Fedsure annuities administration
VIP Valuations
Aims Commission administration
Masterpiece General Ledger
FADS Document and letter printing
Internet Marketing and client/broker enquiries
Eastman Kodak Workflow and images
Data warehouse Copy of all Saturn/Lazarus/Fans
data
Clues Client enquiries (Call centre)
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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/Internet R3.7M
• Other R7.7M
• Depreciation R16.7M
• VIP minimal
• TOTAL R61.9M

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CAL ILD Systems

• Sun - CAL policy administration
• Hyphen - Annuities
• - Payment and Collection
• Oculus - Images
• Internet - Enquiries
• Accountability - General ledger
• Prophet - Valuation

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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

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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 commence
• after conversion

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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

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Risks - Feedback
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Project Plan
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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

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Accounting and Investments
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Accounting and Investments

• Both the
• accounting and investment processes
• in Fedsure ILD and Norwich
• are considered unsatisfactory,
• and substantial changes are required

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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

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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)

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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

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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)

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Progress to date - Accounts

• We have teams cleaning up historic
  reconciliations.
• Progress to date

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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

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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

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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

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Previously

• Product level portfolio allocation to
• Equities
• Bonds
• Cash
• International
• etc.
• Transactions at a portfolio level

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Now
Product 2
Product 1
Equities Block
Bonds Block
Cash Block
etc.
Transactions at a building block level
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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

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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