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REDEFINING INVESTMENT

RECONCILIATIONTHE CLEARWATER WAY

“Having our college-degreed accountants perform data entry

functions was not optimal. Outsourcing reconciliation to

Clearwater solved this issue.”

Belana ColquittManager of Investment Accounting

Fidelity National Financial

Reconciliation |clearwateranalytics.com 1

or insurers, accurate and timely data is a fundamental

requirement for investment accounting and reporting. In order to

ensure investment data is accurate and timely, reconciliation is a

critical step in confirming that accounting values are correct before

they are included in financial statements and reports. And while some

reconciliation is better than none, not all reconciliation processes are

created equal. The majority of them don’t go far enough to ensure

investment accounting data is accurate and available in a timely manner.

Whether an insurer relies on their own spreadsheets, or on a

solution provider to assist with investment accounting and

reporting, there are five key reasons why legacy reconciliation

does not deliver accurate and timely investment data—and five

key reasons why Clearwater Analytics’ reconciliation does.

F

| Reconciliation clearwateranalytics.com2

1. Error-Prone Manual Data Entry

Most solutions, whether installed or outsourced,

are still based on manual activity behind the scenes.

Many solutions require insurers or outsourced providers to

manually enter cash, position, and transaction data from their

custody banks or asset managers into spreadsheets or investment

accounting systems. Manually entering data is time consuming and

expensive. Accountants were not hired as, nor want to become, data

processors. Furthermore, manual processes leave room for error,

and the consequences of bad data can be severe. For example, what

starts as a seemingly innocuous miscalculated coupon payment

entered into your accounting system can result in incorrect balance

sheet values for each subsequent report that contains the error. It

can be a time-consuming and expensive exercise to hunt down

the source and correct it. Inefficient processes and solutions tie

up accountants with manual tasks and time-consuming error

resolution, when they should be focused on more important,

strategic projects.

2. Incomplete Security Master Information

The core cash, transaction, and position data that

insurers receive from custodians and asset managers is insufficient

for generating complete accounting information and financial

statements. That’s why many insurers utilize independent data

sources to enrich this core transactional data and fill in missing

data points such as income, yield, price/market value, factors, etc.

However, many insurers only rely on one or two data sources.

In fact, according to the recent Insurance Investment Benchmark

Survey conducted by Clearwater Analytics, insurers only rely on

an average of 1.4 data sources for this critical data.1 And not all

data providers are created equal. For example, some sources are

great for issuer data, while others are good for credit ratings. Still

others are good for broad coverage over a single security class. If

your portfolio has a wide range of security types, but you’re only

relying on a few providers for your security master, you may be

using an incorrect or incomplete source. As a result, inaccurate

or incomplete data can unknowingly end up in your accounting

records. Then when the reconciliation begins, the values being

reconciled back to the custodian are based off of inaccurate security

master and market data.

1 Clearwater Insurance Investment Benchmark Survey Report, July 21, 2014

5 Key Reasons Why They Fall Short

Legacy Reconciliation Processes


3. Infrequent Data Processing

While most custody banks post transactions and

holdings activity at the end of every trading day,

depending on the size and complexity of the portfolio, it’s rare

for most insurers to process this data on a daily basis into their

accounting systems. In fact, many wait until the end of the month to

gather and enter this data. And since they are processing data only

once per month, many companies skip the critical step of validating

the data prior to entering it into their investment accounting

system. When portfolio information is accessed and verified from

the bank infrequently, you don’t know the status of the portfolio in

the intervening periods. Moreover, when the information “batches”

are larger, there’s a higher likelihood of data entry errors, especially

if you or your outsourced provider are keying in data manually.

4. The Dreaded Monthly Reconciliation Process

Even if an insurer receives investment data every

day, that doesn’t mean it’s accurate. There’s a vast

difference between processing data (entering the values into the

system) and reconciling data (verifying that the values are correct).

Insurers who incorporate investment data from their transaction

sources via daily feeds into their accounting systems usually wait

until the end of the month for this data to be reconciled, and for

exceptions to be resolved. In fact, 67% of insurers report that

they only validate their sources on a monthly basis.1 This means

transactions are entered less often and balances are verified less

frequently. Data must also be reconciled in larger “batches,” which

increases the likelihood for error, and can delay the month-end

reporting process. And when reconciliation occurs just once a

month, typically there is only time to reconcile basic data points

such as cash, positions, and transactions, while other data that is

critical to your financial statements goes unchecked.

5. Cumbersome Exception Tracking and Resolution

Regardless of whether an insurer uses an installed

or outsourced investment accounting provider,

exceptions and data discrepancies are typically tracked manually

in separate spreadsheets or databases, and often require insurers

to investigate these exceptions on their own. If you’re tracking and

resolving exceptions on your own, you’re adding an unnecessary

burden on your already overloaded accounting and investment

teams. It’s up to you to consult third-party sources, or work with

a custody bank to identify and correct any values in your system.

Furthermore, if you’re reliant on an outsourced party to track and

resolve exceptions, chances are they’re still being tracked manually

behind the scenes, which means only the most egregious or

noticeable errors are investigated. As a result, errors can still slip

through the cracks and into your financial statements.

Manually entering data is time consuming and expensive. Accountants were not hired as,

nor want to become, data processors.


1. Automated Data Aggregation

Clearwater has transformed a legacy process—based

on the manual transposition of investment data

from the custody source to a separate spreadsheet or investment

accounting software—into an automated process that is efficient

and effortless. Whether a company’s assets are held in custody

accounts with major banks, or in state deposits, Clearwater

reaches out to hundreds of separate financial institutions daily and

automatically extracts holdings data. With no manual processes,

errors caused by mis-keying information are eliminated and

your investment accounting teams are freed up to work on other

important tasks.

2. Complete, Enriched Security Master File

Clearwater incorporates security characteristics and

market data from all leading providers to build a complete security

master. Our detailed data validation, enrichment, and reconciliation

solution compares your investment data against all of these sources

and identifies the best comparative data for each individual security.

The result is data not from a single source, but from the best

source. Furthermore, we build a complete profile of the data you

need for accounting purposes so that your data contains more than

just cash, position, and transaction-level detail; it’s fully formed,

analyzed extensively, and contains all the data necessary for your

core accounting and reporting needs. Plus, it has additional data

points and characteristics that enable you to conduct further

detailed analysis.

3. Daily Data Processing

The Clearwater solution processes data daily.

Once we’ve connected with all of your safekeeping

institutions, we process transactions and holdings activity into the

system every single day. Not only do you gain the benefit of up-to-

date, accurate data, you have access to it daily. You get what you

need for core accounting purposes, including income, amortization,

yield, position, market value, factors, corporate actions, late

payments, general ledger, and more. It’s like having month-end data

and month-end reporting every day of the month, and you always

know the exact status of your portfolio.

5 Key Reasons Why It Is Superior

Clearwater’s Reconciliation Process


Clearwater has transformed a legacy process into an automated one that is

efficient and effortless.

4. Complete, Detailed, and Daily Reconciliation

Clearwater employs a robust, automated, system-to-

custody reconciliation process that occurs daily. Each business day,

Clearwater takes data pulled from custody banks and provides an

initial arithmetic check on the data. Using data characteristics from

third-party sources, Clearwater then independently reconstructs the

portfolio composition to predict portfolio activity, and reconciles

cash, position, and transaction information back to the custody

bank. No other reconciliation process goes to this level of depth

and detail.

Every day, the Clearwater solution automatically checks

and reconciles:

ü Custody positions and cash balances

ü Custody transactions

ü Data consistency, including missing ratings and security

characteristics (e.g., country of domicile, coupon rates,

ultimate parent, NAIC classification codes, etc.)

ü Missing pricing, market value reconciliation, prior day

market price tolerance, and market yield comparisons

ü Income values between Clearwater, custody, and third-party

calculated amounts; coupon rate accuracy, and day count

method accuracy

ü Accounting assumptions, such as purchase yield versus

current yield, and constant yield analysis versus straight

line amortization

ü And much more…

5. Streamlined, Painless Exception Resolution

Clearwater’s Software-as-a-Service (SaaS) technology

streamlines the exception resolution process and ensures that it is

painless —as evidenced by our 98% customer satisfaction rating.

After Clearwater’s proprietary software automatically reconciles all

positions and transactions in every portfolio, exceptions that the

system cannot reconcile are flagged and are individually investigated

by accounting experts dedicated to your account. Clearwater

identifies the true issues, not the numerous false positives that

can hinder your access to accurate and timely investment data.

Clearwater removes the noise, and lets you focus on what really

matters. Exceptions are resolved quickly and accurately, and you

gain more time to devote to more important tasks.


Problem Implication

1. Error-Prone

Manual

Data Entry

Most solutions—whether in-house or outsourced—

are still based on the manual entry of cash, position,

and transaction data from custody banks into

spreadsheets or investment accounting systems.

Manual data entry is prone to error, and

errors can easily propagate downstream

into financial statements and reports.

2. Incomplete

Security Master

Information

Insurers rely on independent data sources to

enrich data received from custodians and asset

managers. Yet they often only use one or two

sources, severely limiting their ability to generate

complete and accurate security master data.

Relying on a limited number of independent

data providers means inaccurate or incomplete

data has the potential to end up in not only the

security master file, but the investment book

of record and financial statements as well.

3. Infrequent

or Batch Data

Processing

Most insurers only process data monthly, and

often skip the critical task of validating the data.

Because up-to-date data isn’t in your system, you don’t

know the true status of your portfolio in the middle of

month. Plus, when you do wait, there’s a higher volume

of data to process, which increases the chances for error.

4. The Dreaded

Monthly

Reconciliation

Process

Even if insurers receive investment data

every day, that does not mean the data is

accurate. There’s a big difference between just

processing data and actually reconciling it.

When the process for reconciling investment data

occurs at the end of the month, you increase the

possibility of introducing bad data while slowing

the time it takes to identify and resolve breaks.

5. Cumbersome

Exception

Tracking and

Resolution

Regardless of whether you use an installed or

outsourced investment accounting provider,

exceptions are typically tracked and resolved

manually in separate spreadsheets or databases.

Identifying, tracking, and resolving exceptions is still

a manual, painstaking process that’s prone to error.

Legacy Reconciliation Processes

A Side-by-Side Comparison


Solution Benefit

1. Automated Data

Aggregation

Clearwater automatically aggregates your

investment data, transforming a traditionally

manual process into one that is effortless.

Errors are reduced and your investment

accounting teams are freed up to

work on other vital tasks.

2. Complete,

Enriched

Security

Master File

Clearwater’s data validation, enrichment, and

reconciliation solution compares your data against

multiple sources to identify the best comparative

data for each individual security in your portfolio.

Your data contains more than just cash,

position, and transaction details. It

includes the data you need for your core

accounting and reporting needs.

3. Daily Data

Processing

With Clearwater, your data is automatically

entered into the accounting system every day.

You know the exact status of

your portfolio every day.

4. Complete,

Detailed,

and Daily

Reconciliation

Each day, Clearwater performs an initial arithmetic check

on custody data. Using data characteristics from third-party

data sources, Clearwater then independently reconstructs

the portfolio composition and reconciles cash, position,

and transaction information back to the custody bank.

Fully reconciled, accurate data is

available each and every day.

5. Streamlined

and Painless

Exception

Resolution

Clearwater’s exception resolution process is automated

and painless. What investment data the system does

not automatically reconcile is investigated and resolved

by a dedicated client services team on your behalf.

Your investment accounting teams no

longer have to labor through the painful

exception resolution process, and are

freed up to work on other activities.

The Reconciliation Process

Clearwater removes the noise, and lets you focus on

what really matters.


Automated Reconciliation Delivers Accurate and Timely Investment Data

Clearwater Analytics has recognized the problems inherent in

traditional reconciliation processes and has developed a superior

solution. Clearwater’s web-based investment accounting and reporting

solution leverages the power of technology and automation, deep

industry knowledge, and access to the very best data sources to create

a daily, detailed, and automated reconciliation process that provides

insurers with accurate and timely investment data every single day.

When it comes to reconciliation, there’s

the legacy way, and then there’s

THE CLEARWATER WAY

©2014 Clearwater Analytics All rights reserved. This material is for informational purposes only. Clearwater makes no warranties, express or implied, in this summary. All technologies described herein are either registered trademarks or trademarks of their respective owners in the United States and/or other countries.09.2014

INQUIRIES208.901.7787 [email protected] [email protected]

WORLDWIDE OFFICESBoise, Idaho New York, New York Edinburgh, U.K.

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