‘Global Supply Chain’ Mgmt. -FinanceSAP American Insurance ForumNovember 2007Dr Juergen Ott

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Agenda

Allianz Group… at a glance

CFO Function- Vision - Challenges- Our answer

‚Global Supply Chain‘ for Finance- The journey- Status- Outlook

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Allianz at a glance (1/5) One of the leading Financial Services Providers

Global PlayerFunded on 1890, with 116 years of experience in Insurance Servicesrepresented in approx. 70 countriesover 1.200 legal entities worldwide

More than 75 million customers

Approx. 166‘000 employees worldwide

Core Business Non-Life InsuranceLife and Health InsuranceAsset Management &Banking ...

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Performance 2006

Allianz at a glance (2/5)

EUR +/- (rounded)

Premiums 91.1 bn - 1%

Total revenues 101.1 bn +/- 0%

Operating Profit 10.4 bn + 30%

Net income 7 bn + 60%

Shareholder equity 50.5 bn + 30%

Market capitalization 74 bn* + 30%

No. of shareholders ~427.000*

*updated

('06 over ’05)

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Allianz at a glance (3/5) Our Board and Management Structure*

* Until year-end 2007, new structure effective from January 2008 including Oliver Bäte as COO not yet available

CEO

M. DiekmannH1 - Chairmanof the Board of Management

FunctionsH. PerletH2 - Controlling, Reporting, Risk

Regions Programs

G. RupprechtH4 - GermanyInsurance

W. ZedeliusH8 - Growth MarketsInsurance

Labor Director

E. CucchianiH5 - Europe 1Insurance

C. BoothH9 - Anglo Broker MarketsInsurance

P/C Sustainability, OTP

J.-P. ThierryH6 - Europe 2Insurance

H. WalterH10 - Banking

Life Sustainability, Credit, Assistance

J. CarendiH7 - NAFTAInsurance

J. FaberH11 - Asset Management

Customer Focus

Reinsurance

P. AchleitnerH3 - Finance

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Allianz at a glance (4/5) Our Strategy: Tapping into the strengths of our global Group

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Allianz at a glance (5/5)Our People: All together a colorful, medium-sized city

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VisionWe want to be a best practice CFO function, trusted and recognized for its competence and excellence.

MissionWe build the methodologies, processes and talent pool to providetimely and reliable financial data and analyses in order to satisfy the needs of our customers:

Optimal support of management decision makingTransparent and relevant information to the market and regulators

We define and adhere to strict integrity standards.

H2/ CFO function: Our ‘Vision & Mission’

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… away from a … towards

The changing role of a today’s CFO

- Coordinating groupwide iniatives- Process ownership and inward transparency- Synchronizing external and internal

communication- Risk Management and Corporate Governance- Analytical support for field operations

(e.g. pricing)

‘Chief Accountant’ Partnering with the Business:

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Finance capability has increased but issues persist …

External pressure: Moving targets & increasing complexity

Digesting the elephant – integrating regulatory, risk and finance reporting– integrating reporting and analytics/ business intelligence

Dealing with concerns on information quality and stewardshipFurther industry consolidationStrategic challenges: Value creation and risk management embedded in

day-to-day business processes

… and require strategic solutions in order to keep up with the increasing cost and upheaval of global regulation

By 2005 9.000 listed companies in Europe had to publish IFRS consolidated accounts – next to local GAAP, tax accounts and management reportingUS GAAP will move closer to IFRS (‘Global Accounting Standard’) but only over the coming yearsRegulatory reporting for financial service companies is growing at highest speed (e.g. SOX, Basel II, Solvency II)

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Internal reaction: ‘Finance Transformation’…

1 2 31992-1996 1997-2002 since 2002

‘Laying the foundation‘– Allianz AG as Management

Holding (role)– ‘RoE‘ steering approach– Internal reporting governance

‘materiality‘‘duty of information‘‘nothing is wrong‘‘comparability‘

– 1st MIS roll-out– Quarterly Reporting incl.

Forecasting– Strategic and mid-term

planning

Performance based Group Controlling

– EVA, risk capital allocation

Consistency of internal & external reporting:

– IFRS– US Listing

Corporate Governance– Compliance Standards– German Corporate

Governance – SOX (per 2005/2006)

Risk Management– Financial conglomerate– Limit systems– Inconsistent Accounting

Standards (Asset/Liability)

Quality Management– R R R as guiding principles

(reliable, relevant, ‘real time‘ data)

– SOX maintenance

Complexity Management– Internal ‘Standard setting‘– ‘Global Reporting‘ roll-out

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…and ‘Finance Supply Chain’ Managements as our answer

Finance Best Practice sharing across the GroupRe-engineering of accounting/ controlling/ reporting processes

Re-engineering of financial processes in line with best practices Pre-configured, standard Financial Application (‘SAP Template’)Further ‘industrialization’ of closing/ reporting processes

Best Practice Sharing Process & System Harmonization

IAS leading, Multi-GAAP data stream, full posting of IFRSStandard CoA (‘7+3‘ digits)/ Standard Cost AccountingAlgebraically coherent Balanced Scorecard KPIsIntegration of risk and financial reportingRework/ consolidation of core applications/ operational subledgers (if needed)

based on key principles‘Global

Reporting’Initiative

called

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Main elements of our ‘Finance Supply Chain’

Standardized operational CoA/

Master Data

SAP Template Implementation

Continuous Process Improvement & Best

Practice Implementation Group

MDF

Segment MDFs

P&C LifeHealth AM Bank.Group

CoA

Other GC requireme

nts

Include relevant controlling data

Integrate legal and Mgt Reporting (Profit, Risk, Regulatory)

Implement the Template according to central policies.

Enhance process efficiency in line with implementation of Template, standard CoA and Data Governance. Implement all other Best Practice processes accordingly.

Data Financial Applications

Processes

Back-end Integration

Enable the feeder systems to deliver required data in a Multi-GAAP environment.Streamline/ Consolidate Feeder Systems wherever possible.

Back-end integration

Set-up & consolidate the Infrastructure

Set up the technical infrastructure in line with central technical policies. Consolidate wherever possible.

Infrastructure

Systems

Organizational entities

GroupReporting2

GroupReporting2

Sub-Group

Consolidation

Sub-Group

Consolidation

ReportingReportingClosingClosing

GeneralAccounting

(includesstatistics)

GeneralAccounting

(includesstatistics)

Sub-Group

Sub-Group

Reporting

Sub-Group

Reporting GroupConsolidation

GroupConsolidation

Group

Ancillary FinanceAncillary Finance

Forecasting, Budgeting and PlanningForecasting, Budgeting and Planning

Investment, Risk and Tax ReportingInvestment, Risk and Tax Reporting

Master Data Change ManagementMaster Data Change Management

Additional supporting processes overlap key Financial Processes

APAP

AAAA

ARAR

BPSBPS

COCO

New GLNew GLRollup-Ledgers(GL/SL)

Rollup-Ledgers(GL/SL)

MySAPERP 2004 ECC 5.0 MySAPBW 3.5

BWBW

GroupEC-CS

GroupEC-CS

AccountingValidation

Transformation

Planning/FCStatisticalData

Reporting

APAP

AAAA

ARAR

BPSBPS

COCO

New GLNew GLRollup-Ledgers(GL/SL)

Rollup-Ledgers(GL/SL)

MySAPERP 2004 ECC 5.0 MySAPBW 3.5

BWBW

GroupEC-CS

GroupEC-CS

AccountingValidation

Transformation

Planning/FCStatisticalData

Reporting

APAP

AAAA

ARAR

BPSBPS

COCO

New GLNew GLRollup-Ledgers(GL/SL)

Rollup-Ledgers(GL/SL)

MySAPERP 2004 ECC 5.0 MySAPBW 3.5

BWBW

GroupEC-CS

GroupEC-CS

AccountingValidation

Transformation

Planning/FCStatisticalData

Reporting

Backend Integration

Corporate Interface (Internal/External Sources)

Feeder System

BusinessEvent

Financial Methods

IFRS Category

CF Generator

Valuation

Hedging

Multi-GAAP Booking Engine

Posting generation

Aggregation

Posting rules

Error Handling

Data Transfer EAI/ETL

Error Handling

Validation NormalizationAggregation & Standardization

Exchange Area

R/3

Data Storage(Fin. Quality Layer)

Financial DBBusiness

Transaction

Model and/or Historic Database

Operational Systems Market Data Master Data

Pass-through processing if HB1=HB2 or full HB2 data is delivered by FS

Closing due date

Backend Integration

Corporate Interface (Internal/External Sources)

Feeder System

BusinessEvent

Financial Methods

IFRS Category

CF Generator

Valuation

Hedging

Multi-GAAP Booking Engine

Posting generation

Aggregation

Posting rules

Error Handling

Data Transfer EAI/ETL

Error Handling

Validation NormalizationAggregation & Standardization

Exchange Area

R/3

Data Storage(Fin. Quality Layer)

Financial DBBusiness

Transaction

Model and/or Historic Database

Operational Systems Market Data Master Data

Pass-through processing if HB1=HB2 or full HB2 data is delivered by FS

Closing due dateCreate SAP Support Program (SSP) driven by Example -> GRP technical Policies & Guidelines

1. Mission of SSP 4 GRP

Generic SSP

Major effort Minor effort

Processes & Organization

Application Support

Release Strategy

Standards

Vendor Mgmt. Strategy

Product Information Mgmt.

Training Concept

Hosting

Product Strategy

SSP 4 GRP

H4-

GIP

: SSP

for G

RP

Processes & Organization

Application Support

Release Strategy

Standards

Vendor Mgmt. Strategy

Product Information Mgmt.

Training Concept

Hosting

Product Strategy

Operation Case

H4-

GIP

: SSP

for G

RP

Processes & Organization

Application Support

Release Strategy

Standards

Vendor Mgmt. Strategy

Product Information Mgmt.

Training Concept

Hosting

Product Strategy

Operation Case

Processes & Organization

Application Support

Release Strategy

Standards

Vendor Mgmt. Strategy

Product Information Mgmt.

Training Concept

Hosting

Product Strategy

Operation Case

Adjustment to

GRP requirements

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Main ‘Finance Processes’ covered

SAP Standard

Core SAP Template

scope

- Risk aggregation to Report

- Statistics to Report

- Post to Report

- Record to Value to Post

- Cash & Liquidity Management

- Purchase to Pay

- Order to Cash

- Collection and Disbursement

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Key to Success

Proper Master Data Management

- Harmonizing master data; aligning reporting requirements; eliminating overlaps

- Strict and comprehensive change control over reporting requirements

- Bringing quality controls and data enrichments brought forward to data entry point

Eliminating „waste“ (unnecessary IT layers, unused reporting items, process interruptions etc.) through continuous improvement

- Installing ‘end-to-end‘ process/ ‘supply chain management‘ process view

- Benchmarking of quality, speed, productivity and costs

Optimizing overall performance of Finance ‘supply chain‘:

- Standardizing processes based on standard IT applications

- Simplifying operations through consolidating infrastructure, IT applications and functions

What exactly does ‘Industrialisation’ mean?

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Target: Enable ‘straight-through processing’ (STP) …

Common & congruent Master Data (MD) Mgmt.Straight-through (downstream) processing

Data production & deliveryStraight-through (upstream) processing

Local Entities (OEs) Group Center (GC)

Technical and non technical Businesses/ Departments/

Systems

Operational accounting/ controlling Departments/

Systems

GC Departments/ Systems

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Local Entities (OEs) Group Center (GC)

Technical and non technical Business

processes & systems

Operational accounting/ controlling processes &

systems

GC Departments/Systems

Other statistics

GL

BW/BPS

One dimensional mapping

No further processing (e.g. calculation/reconciliation/ enrichment)

Straight-through processing

Multi-GAAPFICO &

Subledgers

MySAP: SAP Template

Group Master Data

DashboardsValue Drivers

Straight-through processing

Standard CoA/Cost Accounting

Value DriverKPIs

Common & Congruent Master Data Management

• Common Accounting & Controlling etc. manuals• Congruent Chart of Accounts (single)• Recurring update cycles aligned with Group

… on the basis of ‘preconfigured’ systems…

Rul

es E

ngin

e

ERP 2005

BW BI 7.x

Group SAP BW/ EC-CS

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Work in progress In preparationStandard Chart of Accounts

- Common Operational CoA - Standard Cost Accounting - Automated UOP Processes (Management Accounting)

- Accounting rules/ Business event library

Value Drivers / Performance Scorecard- RoE Tree/ Bal. Scorecard- Dashboards

Master Data Management & ToolSAP Template

- General Ledger, Subledgers- MIS/ Data warehousing

• Reporting/ BW in the Template (pre-configured reporting cubes)

• Master Data Integration (Actuarial, Risk, Marketing, IT, HR, etc.)

… driven by ‚Finance Best Practices‘

Risk reportingIntegration Actuarial with Financial ReportingTemplate add-ons

- Investment Accounting in the Template (CFM/ FAM)

- Cost Accounting in the Template (CO)

- Planning & Forecasting in the Template (BPS/ BW)

- BI Reporting in the Template (BW/ BI 7.x)

- Standard Rules Engine (Microgen Aptitude; J Rules)

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Overview: Status of the Go-Lives

Bratislava (Wave 3, Slovakia)BelgiumGreeceMondial GroupEuler (Wave 2)AGC&SADAG (Wave 2)AGI USFFIC/AZ Life US/MexicoCornhill + IrelandAZ Korea/SSC Asia/ Middle East

1/2007 1/2008 1/2009

Dresdner Bank (full compliance)AGF (full compliance)

Bratislava (Wave 1)SpainPortugalNetherlandsSwitzerland

Italy (RAS, Subalpina, Lloyd Adriatico)Euler (Wave 1)Bratislava (Wave 2)AZ AustraliaAGI GERADAG (Wave 1)DEGIAZSE

Dresdner Bank (1st implementation)AGF (1st implementation)

1/2005 1/2006

AZ ElementarEuler GermanyAGI GERAZ LebenAGFDresdner Bank

Pilot OEs:

Wave III Roll-out:

Wave II Roll-out:

Wave I Roll-out:

Special cases due to high complexity:

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Motivation/ Challenges for international project teams

What is in for our people?

Baseline: ~7.000 people in “Finance” and ~1000 legal entities to be consolidated (thereof about ~ 600 with own finance operations today)

Cross-country best practice task forces

Bottom-up driven best practices

Group governance

Common principles/ framework

Logistics due to different languages, time zones etc.

Identifying what is common and implementing it

Change management

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What is in for our shareholders?In

vest

men

t

2002 - 2005 2006 – 2008 2008 - …

today Time

Benefits:• Data Governance• Best Practices• SAP Template

Benefits:• Quality of data• Speed of closing• Efficiency gains:

more time spent on analysis instead of transactions

Benefits:• Cost savings • Flexibility• Finance as a ‘utility’

Upfront investment at Group Center/ Pilots

Self-financingRoll-out at OEs

Consolidation into cost-efficient hubs, Shared Service Centers

Finally significant cost savings via consolidation …

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Quick wins

Faster closing/ higher frequency (monthly reporting, rolling forecast, rolling planning)

Higher internal service standards – higher data quality

Identification of internal weaknesses, process inefficiencies (SOX)

Data input for internal/ external benchmarking (Hackett Group)

… but also immediate qualitative benefits

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Central IT development/customizing/production

Roll-out synergies to be realized – Next Steps (1/2)

Today:Central development of Template (H2/HIT) but:

OE individual developments, each OE programming their own ‘’ABAPs’’

OE individual production systems

Issue: Risk of double work/cost despite ofstandard Template:

Template Dev.

(H2/HIT)

local OE dev.systems

local OE prodsystems

… …

…

One Central System Landscape

(H2/HIT)

Template

Tomorrow:Full standardization with one central

environment:

Standardized system (programming/customizing)

Central hosting and maintenance

Reduced total cost of IT:

OE dev.system

OE prod.system

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Roll-out synergies to be realized – Next Steps (2/2)

.

SSC Asia/ Middle East

? SSC GermanySSC Bratislava

? SSC Milan? SSC Paris

SSC America

„One Accounting Center“

Reduced total cost of Finance function

Sponsors’ suggestion:Come back with decision criterias and ‘step-by-step’ migration plan:

Central ‚Finance Transactional‘ Organization

- Which processes to be centralized ?

- ‘One’ SSC or more ?- Location ?- Target cost ratio for

Finance and IT for Fin. !- Timeline, etc

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Our ‘Global Reporting‘ initative stands for

Summary

A new operating model + change in governance

in an attempt to change CFO functions from ‘manufacturing’ towards ‘industrialization’

… but remember: It’s not autotelic – you only aim for a better measurement system at lower costs

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Short- and mid-term horizon

Short-term challenges- integrating financial/ regulatory reporting with Risk & Actuarial analysis/

simulations → ‘Phase II‘ IFRS accounting & Sovency II

By ‘2015‘- Accounting: ‘Global Accounting’ Standard (IFRS ~US GAAP) and common Master

Data (‘XRLM’)?• ‘Real-time’/ ‘event’ accounting → actuals are becoming a public information?!

- Analytics/ Business Intelligence (BI)• customer centric & product life cycle reporting linked to financial reporting• unstructured (e.g. mails) and external data more integrated into management reporting?!

- Finance as a ‘utility’: More buy than make?!• Global ERP delivery outsourced• Reporting production outsourced?!

And ultimately a bit of an outlook