Asset Tracking: Automate or Die
Insurance Networking News, June 1, 2009
Like an understudy suddenly thrust into the starring role, the investment portfolios of insurers are suddenly subject to an entirely new level of scrutiny in the age of the toxic asset. To be sure, keeping track of portfolios that are as dynamic as they are large is no mean feat, especially considering the openness and transparency now expected by investors and regulators. Fortunately for insurers, this once labor-intensive process can now be automated with an emerging class of financial management tools that are designed to track assets in a complex and fluid environment. Take a look at why employing these tools may be critical to an insurer's survival.
In the fourth quarter of 2008, Blue Cross & Blue Shield of Minnesota's treasury and investment department was using a homegrown compliance engine and accounting system, and its analysts were laboring in spreadsheets to number-crunch their portfolios. While tedious and time-consuming practices, the firm lacked an investment accounting system with rich data mining capabilities. That's when it decided it needed to make a shift.
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Now, just months after implementing an automated financial asset management tool from Clearwater Analytics, the Eagan, Minn.-based health care insurance provider enjoys a clearer view of its overall portfolio, which consists of 15 separate investment portfolios (or "sub-portfolios") totaling almost $2 billion, according to John Orner, VP of business development of treasury and investments at Blue Cross & Blue Shield of Minnesota, and president and CIO of Capital Asset Care Inc. The technology, called Insurance Analytics, has enabled the carrier to drill down to a particular sector across its portfolios to get a precise sense of its total exposure within that space. It also has ensured that the carrier is in compliance with state regulations and corporate bylaws across all its portfolios.
"The solution was pretty critical to our investment portfolio management," says Orner. "Paperless transmittal of trade activity, real-time importing of that activity, real-time compliance review - those are things that are important to us as we manage funds both internally, and manage external fixed income and equity managers."
AUTOMATED TRACKING
Prodded by a variety of factors, including increasingly complex portfolios, rising costs, stricter regulations, the desire to boost transparency, or a variety of factors, insurers are moving away from the old-school manual analysis of portfolios that was marked by innumerable Excel spreadsheets and burnt-up analysts' hours. Public insurance companies need to report their finances to the Securities and Exchange Commission, and are obligated to comply with Sarbanes-Oxley, particularly with sections 404 and 302, which require that they document the effectiveness of their controls and certify the integrity of their financial statements.
At the same time, a slew of newer regulations, such as those related to extensible business reporting language (XBRL) and other-than-temporary impairment (OTTI) accounting, have either been imposed, or are being finalized. And when the CFO or the board calls its corporate treasury department to find out about the firm's exposure to a certain issue or asset class (like auction-rate securities), it is vital that the investment officer or treasurer quickly provide a good answer. "'I'll get back to you in a couple of days,' just doesn't cut it anymore," says Courtlandt Gates, CEO of Clearwater Analytics, a Boise, Idaho-based Web-based reporting and analytics firm. Automation of the financial reporting process has not only reduced the work time and the risk of resource-strapped insurers, but it has enabled them to focus on value-added activities that help them make better decisions about their portfolios and improve returns.
Injured Workers Insurance Fund (IWIF), a Towson, Md.-based workers' compensation insurance provider, migrated in March from an enterprise portfolio system provided by Wayne, Pa.-based SunGard to an investment management product called iWORKS, in part to allow it to have more open reporting periods. Now it can, for instance, work on year-end data for 2008, which can take months, while inputting January and February 2009 data into the system, so it no longer has to scramble to complete the latter after closing its books for year-end.
With close to 700 line items in its $1.5 billion portfolio spread over eight different managers, IWIF has found greater clarity and agility by using iWORKS.
"Our portfolio has grown substantially over the last 10 years, so it is just getting too onerous for human input on some of these things, especially during the present financial crisis, where credit ratings are changing every four to six hours, so it seems," says David Hinks, fixed income portfolio manager at IWIF. The amount of data he personally has to input has been halved, freeing him up to concentrate on more research.
David Hinks
After leaving behind its in-house solution-one with spreadsheets about 10 sheets deep with pivot tables-IWIF found SunGard's OTTI module to be a "godsend," says Hinks. Previously, the carrier spent hours working on spreadsheets to satisfy an outside auditor who frequently changed the criteria for whether or not the company needed to write down a security. Now when the auditor provides new criteria, IWIF comes up with the new numbers in a mere 60 seconds. "It is just beyond measurement of what [the module] saved us in dollar terms and man hours," says Hinks.
OTTI has emerged as a hot-button issue as insurers struggle with soaring unrealized capital losses and write-downs, and remain susceptible to additional write-downs as their unrealized losses age. While Blue Cross & Blue Shield of Minnesota has not leveraged Clearwater technology for its OTTI 157 activity, which it instead has handled on a one-off basis, it will likely call upon the technology to deal with that and other challenges sometime this year.
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