101010
Building Pooling and IBNR
Allocations
Madeline Osit
Beacon Application Services
QuestDirect.org
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
•
•
•
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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
Pool
Basis
Target
Offset
Amount Fields
Calculation type for the pool and basis (what type of
math)
Source — the amount(s) to be allocated. This amount
can come from a ledger or any table, or you can specify a
fixed amount.
Rules — How and in what proportion the pool amounts
are distributed to the various targets.
Destination — where the amounts defined by the pool
and basis are allocated.
Entries that balance the targets. These entries usually
reflect the clearing of pool amounts as they are applied to
the targets.
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 Example
Pool
Basis
Total Rent
Expenditures
Sq. Ft of Office Space
Dept. 1400
Acct. 640000
$1,000.
Target
Offset
•
1,200 Sq Ft is 10.7% of the total footage
•
10.7% of $1,000 is $107.14
Dept 1200
Acct 993000
1,200 Sq Ft
Dept 1300
Acct 993000
7,500 Sq Ft
Dept 1200
Acct 640000
$107.14
Dept 1300
Acct 640000
$669.64
Dept 1500
Acct 993000
2,500 Sq Ft
Dept 1500
Acct 640000
$223.21
Dept 1400
Acct 640000
(1,000)
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Allocation Types
Copy 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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