Investment accounting for an insurance company – a strange job

My overview of  a job in investment accounting for an insurance company

One of the strangest jobs I had been the manager (director or whatever the title inflation is these days) for investment accounting for OneBeacon insurance company. Insurance accounting is a strange and funny world. The purpose of this post is to tell you a little about what that job entails if you have ever thought of being an investment accounting hero. I would say it is a fun job, but this post is just set your expectations.

  • Here is my resume which illustrates my intimate detailed knowledge of investment accounting. I am by the way available for consulting for implementations of investment accounting software.  If you are a recruiter you can consider placing me and ignore the comments here.

First, it is both thankless and rewarding Why? It does not have the flash or glamour of an investment front office job,  it has the long hours and you are maintaining rather than creating. You are simply making sure the reporting is perfect.  However, it does pay well and it is pretty easy.  It is not rocket science, it is just basic accounting.  Most of the accounting is handled with plug and play software. You might have an odd off security or investment but you can always find a workaround. Also just dealing with investments assets and derivatives has a fascination as it these are the world’s assets on an auction block.

Investment accounting front to backflow example

investment accounting software
The conceptual model is simple, it all depends on how well the trade and investment accounting software speak to each other.

Software examples:

  • Blackrock Aladdin – front end software
  • Bloomberg front end software and data enrichment
  • PAM PFS by Princeton Financial – Back office
  • CAMRA by SS&C – Back office

These are all excellent choices and progressive companies use the above as they have been vetted with years of experience.  Smart leaders use this type of software so they can focus on their core book of business.

The problem in non-progressive back-office financial control situations is, they do not understand how important a unified front to the back system is, do not know how to create it in short time and are not adding value,  just processing.  There is not a lot of room from out of the box thinking unless management is supportive of that.  Further, the investment management team usually have inflated egos therefore, difficult to work with.  Really they have fancy degrees and huge egos, but get returns like everyone else if you average this out in the long-run.  I guess it varies from firm to firm.  So if you do not mind reporting to these types of people the job is pretty easy and most of the people in investment accounting in insurance companies are pretty nice.

The job consists of valuation of investment assets on book value (adjusted cost basis) and comparing them to market value and determining what they really should be stated at based on rules.   You also have to report income as well as transactions. Not hard, the software you set up calculated this for you. You just need to organize everything on your general ledger into accounts minor and major. Again a pretty easy job once everything is all set up.

If your firm is not sophisticated with technology then the job becomes difficult as breaks between the front office, the middle office, and the back office are common.  Regulatory reporting, risk and financial reporting need to to be reconciled.

There is a cottage industry of people who perform this archaic reconciliation and even defend the paradigm to create job security. There are often middle managers who are PowerPoint pros and make their living asking “what are people working on?”.   If you are in a progressive company this is not the case.  My experience at OneBeacon and Metlife was positive for example. I worked for a vendor of investment accounting software and this was also a progressive company.

What is Statutory Accounting

The first oddity you will notice when you work for an insurance company is something called STAT. When I worked in the investment accounting STAT or Statutory Accounting always made my life more difficult. Why? I had to create separate financials for every company on a STAT and GAAP basis.  If I did not use SS&Cs CAMRA it would have been almost impossible.  But with CAMRA the STAT basis was calculated with ease just enter the cost and other data from an asset and it would calculate the BV (book value).

What is STAT accounting?  It is a more conservative accounting method than GAAP.  GAAP tends to overstate cost and liabilities while on the other hand understate income and assets.

The reality of Statutory insurance Accounting

Every asset has a GAAP and STAT value, STAT being a more cautious valuation. The valuations are such because the states want to make sure that insurers are doing their job and protecting the policyholders in case of losses.  Statutory accounting is particularly important with investment assets.  These assets are where insurance companies store premiums for future use.

The rules of statutory are set by the NAIC or the National Association of Insurance Commissioners.  They also make you buy their manuals and interpretations regulations and GAAP to SAP tables.  These guide books come at a pretty price.

STAT in the future

In the next four years, I think we will see a whole new ball of wax in terms of insurance accounting as Obama has plans to take insurance regulation from the states and move it to a central bureaucracy.

Investment insurance accounting  made easy – use standard reports

I was a consultant for insurance companies all over the US for many years,  I also was a manager and director for other companies.  I used many different software products for investment accounting. Some better than others.  SS&C’s CAMRA was the best.  PAM or Princeton financial in my experience did not have the customers service or the full features CAMRA and SS&C had, but still worked.  I worked with both companies and I would choose SS&C any day of the week for the trust factor and fewer headaches.  Your investment management team and accountants will be happier. But that is up to you, I am just conveying personal experience based on years of using the two systems.

My main piece of advice if you are running an investment accounting department for an insurance company is this, use the standard reports.  Do not get into custom report building or any customization of the system if you can. Why? I have seen more professionals defeated my customization and run up budgets because some ‘big wig’ in the investment or accounting department wanted to see a particular report.  These standard reports are time-tested. they will serve all the required reporting needs. Anything else is usually fluff.  If you have a report writing wizard on site, why not use them, of course.

Banks use CCAR reporting this is another twist to the story but beyond the scope of this discussion

My theory for investing in accounting

My theory of management with investment accounting reporting is, keep it simple.  This is accounting, and the goal of accounting is to report numbers to regulators, it is not the core line of business.  You could argue it is to support management’s decision-making process, but that can be done with most standard investment accounting insurance reports.
Each customization of the system or reporting you do will have to be upgraded and as things changed will have to be maintained.  Investment accounting for insurance companies can be fun if you keep it simple.

But the bottom line insurance accounting jobs are pretty easy and stable and well paid but not very exciting.  There is no rush in accounting. If you are in investment accounting for insurance companies you will have a pretty nice life if you have an existing other life.  Ask me any questions if you like about this type of job.

Are the manager or director level jobs worth it?

More compensation comes with more stress. It’s not easy being a manager unless you have the right people work for you. Most people don’t have a strong work ethic. I trained over ten people in the last ten years; I haven’t seen a really good one. That’s another reason I am doing three people’s job. I don’t mind getting paid $80k being a senior analyst, this way I can spend more time with my children. I can do a senior analyst job easily and I don’t have to manage people and deal with politics. The extra 20-30k is not worth it.

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8 responses to “Investment accounting for an insurance company – a strange job”

  1. John Casey

    Thanks. I’m looking at a job opportunity in that area, and this helped.

    1. Mark Biernat

      There will always be a need for people who know investment accounting.

  2. betty ryan

    I have a client looking for an investment accountant in Denver and they will do a relocation.

    1. Mark Biernat

      If you want to go fishing for investment accountants I think the highest areas of concentration are NYC and Boston as well as CT. However, to get someone to out of these high pay zones is often difficult as you know.
      I flew all over the USA and was at many investment accounting shops and often people found it easier to find a normal accountant and teach them the ABCs of investment accounting, like bond amortization and accruals rather than find a plug and play investment accountant. These are pretty easy concepts to understand unless you have some exotic financial instruments, in which case you just refer to FASB and take ideas from how others are treating the financial instruments.

  3. jayesh

    I would like to know what all are the reports we should be making as part of investment accounting and how that would be useful for business.

    1. Mark Biernat

      Your investment reporting needs depend on the nature of your business.

      If you are a P&C insurance company you need Schedule D yellow books, a Life company Blue books.
      If you are just an investment company, than you need groups of reports falling into performance, analytical and reporting.
      The reporting is internal and external depending if you are a public company. For example, if you are public you need SEC reporting SOX and you need to construct a 10k etc from your general ledger but this all has to tie together from you back office accounting. So you need reconciliation reports.
      Your investment team will focus on performance reporting. That is slicing and dicing the data to see which securities under and over performed compared to their peers. Calculating yields and return on income. Some assets will be derivatives and more complex assets.
      You will need compliance reports.
      Subsidiary reporting
      At a basic level you will need realized and unrealized capital gains, tax reporting or other basis accounting reports.
      You will need cash flow and projects so you know how much cash from investment operations can be used for working capital.
      You will need Ad hoc reports for management.

      Let me know what your investment accounting or reporting needs and I can be more specific. What company is this for or kind of company?

  4. Scott

    Does anyone else in an investment accounting role at an insurance company have software suggestions other than CAMRA or PAM? We currently have PAM and are very disappointed with the customer service and functionality. Thanks for any information that can be provided.

    1. Mark Biernat

      I guess my question is what are you trying to accomplish and how many assets under management? I have consulted at scores of insurance companies for investment accounting software as well as set up front and back offices and run departments myself. The questions is what are the specifics you are looking for and what are these systems not doing what you what it to do?

      PAM and CAMRA are good but many people do not like them as they may not do exactly what you want. So my questions is what do you want it to do and I might help you with the solution. There are other software out there and there are certainly homegrown systems.

      These are all database driven, nothing complex, in the idea but you have to know which files to access and who it works, then you can make it do what you want.

      Is it reporting that is lacking?
      Is it front end trading that it needs to connect with the investment management team?
      Is it a good GL interface?
      Usually it is exotic securities that people have trouble setting up the security masters for and treating.
      Let me know and I can give you some hints.

      Is your portfolio plain vanilla bonds or do you trade heavy?

      Being an investment accounting manager is a hard job. The glory boys traders make a lot and have all kinds of expectations. The CFO wants to see a timely close and demands all kinds of projections. You have to make everything work. Reporting, both external and internal and get those schedule Ds right. After year end it is caught up until summer when you can caught your break.

      Then someone has a series of new projects to embark on and you have to consolidate integrate and spin off companies.

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