The Next Generation Numbers Game
As market and regulatory conditions change, so too do portfolio management systems issues. Having said goodbye to the high-flying '90s, insurance carriers now appear to have renewed their focus on the basics: how to guarantee control over financial transactions, how to reduce costs and how to ensure the accuracy of both incoming and outgoing data. Or, as one vendor puts it rather dramatically: "The goal now is to keep the CFO out of jail."
The combination of new reporting and auditing requirements related to the 2002 Sarbanes-Oxley Act (SOX) and zero tolerance for any public perception that might put corporate integrity in question means that "Insurance companies are no longer willing to tolerate reputational risks for having sloppy systems on the back-end," according to TowerGroup (Needham, Mass.) analyst Tim Lind. Instead, they are looking for what Lind describes as "operational excellence," in terms of procedures, compliance and the execution and settlement of trades.
From a systems perspective, insurers are focusing on integrated financial solutions from single vendors with a renewed interest in application service provider (ASP) and outsourced solutions. "The trend toward system and vendor consolidation," says Linde Hartley, senior vice president, investment products, SunGard Insurance Systems (Miami; an operating unit of SunGard), "is being driven not only by regulatory and compliance concerns, but is the result of the continuing effects of mergers and acquisitions in the insurance industry."
TowerGroup's Lind agrees: "On the heels of significant merger and acquisition activity in the '90s, companies are now trying to rationalize the technology, consolidate processes and create a standard," he says. "Asset managers want to get away from multiple platforms, whether these platforms had been used for managing different geographies, asset classes or companies."
In June, Swiss Re (Zurich; CHF 169.7 billion in total assets) completed a migration from multiple portfolio accounting systems to a single global installation of DST International's (DSTi; New York and Boston) HiPortfolio to manage its proprietary asset portfolio globally. John Sweeney, CEO and president of Swiss Re Asset Management, America, says, "HiPortfolio serves our requirements and supports a timely global consolidation with a single installation at our center in Zurich, Switzerland."
The DSTi/Swiss Re project went live in the U.S. and Canada in 2003 and includes installations in Zurich, London, Dublin, Amsterdam, Munich, Rome, Bermuda, Johannesburg, Hong Kong and Melbourne. DSTi HiPortfolio supports a suite of investment offerings, straight through processing and data mining. "Swiss Re's global back-office functions and trade confirmations are run through HiPortfolio and HiMessenger," according to Mike Winn, DSTi's group managing director.
Hartford Investment Management Company (HIMCO; Hartford; more than $25 billion in assets) is also exploring the benefits of consolidated systems and databases. "We've culled together business functions into a central system for compliance, risk analytics, credit management, portfolio management, trade and order management, settlement, cash publishing, and SWIFT communication to streamline and automate processes," says Phill Giancarlo, HIMCO's information technology manager. Having made early investments in systems to comply with a changing regulatory climate, HIMCO "feels positive about the changes we've made, not only because of compliance issues, but because we have improved our ability to deliver good and accurate information in a timely fashion."
By running two databases - a central processing database and a separate data warehouse to support reporting and backup functions - Giancarlo believes HIMCO has created a system that addresses the concerns of both regulators and portfolio managers. He explains that "the data warehouse gives regulators the point-in-time snapshot views they want, and the processing database gives traders the day-over-day views they need." HIMCO's system also limits the number of data touch points and has rules built in to continuously monitor trade compliance.
Part of the overall process improvement enabled by the consolidated systems approach has been the ability to bring more accurate and timely qualitative, as well as quantitative, information to the trader's desktop. "In the past, we could only get particular types of data, but now we are seeing more vendors in this space. And our efforts to be top quartile, avoid losses and remain ahead of the pack - we feel getting accurate information in our investment professionals' hands quickly is key," Giancarlo says.
Portfolio managers at HIMCO have two to four monitors on their desks, running browser- and Java-based applets that deliver a range of tools, including real-time market data feeds and an information dashboard for viewing the trade order process in real time. "Our users can see everything moving simultaneously," Giancarlo says.
Help on the Way
An increasing interest in ASP and outsourced solutions from vendors appears to be another part of the trend toward system and vendor consolidation. According to SunGard's Hartley, "Over the last three years, ASP solutions have been the fastest growing segment of our businesses." He attributes this growth to "an increasing separation of IT and business functions and an increasing sensitivity to the need for system backup and disaster recovery."
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