Insurance investment portfolios are more diverse and complex than ever. This blog highlights ten critical data checks and controls that an insurer’s investment accounting service provider should perform to ensure a timely and accurate month‑end close, as well as a list of control reports that should be provided as part of the month-end close package.
A robust month‑end close hinges on validating the completeness and accuracy of all investment activity, from trade settlements and cash movements to valuations, accruals and impairments. Service providers should systematically reconcile income and trades, cash, positions and pricing; verify credit ratings; reconcile accruals and market values; analyze earned income trends; validate impairments; and ensure the general ledger fully aligns with core accounting outputs.
Benefits
Embedding these controls into monthly workflows and packaging the resulting control reports ensures speed, transparency and confidence in the close process, eliminates the need for the insurer’s internal staff to perform additional labor-intensive reconciliations and data reviews after receiving the close package, and reduces the need for post-close adjustments.
Key Data Checks and Controls
Review of Aged Income and Unsettled Trades
This review identifies all aged income receivables and tracks them for aging. Cleared, unsettled trades are reconciled by matching internal trade blotters to custodian records to identify any timing breaks, as the IBOR records transactions on trade date and the custodian records transactions on settle date.
Review of Cash Reconciliations to Custodians
This review compares cash balances per custodian statements to general ledger cash accounts, investigating and clearing any reconciling items, such as timing differences, unapplied receipts, non-security cash activity or outstanding wires.Review of Multi‑Party Position/Par Reconciliations
This review reconciles positions and par values across your internal system, custodians and any third‑party asset managers, resolving mismatches in security counts or par amounts before month‑end.Review of Missing/Stale Prices and Price Variances
This review identifies securities with missing or stale market prices. A variance analysis is performed comparing month‑end valuations to prior periods, flagging any movements beyond established thresholds for potential investigation.
Review of Complete NAIC Ratings from the Securities Valuation Office
This review verifies that all securities held in the portfolio have current NAIC rating designations, as published by the NAIC Securities Valuation Office (SVO) or calculated using NAIC ratings breakpoints. For any security lacking an active rating, the assets are investigated to determine if they should be rated, and if so, "Z" designations are used for securities the SVO hasn't directly evaluated. Performing such a rigorous review eliminates the possibility of securities without an NAIC designation receiving the most unfavorable capital treatment from the NAIC during quarterly or annual filings.
Review of Due & Accrued Reconciliations
This review reconciles accrued interest and other accruals (e.g. fees, income) in the general ledger to supporting schedules or invoices, ensuring no significant accrual remains unrecorded or overstated.
Review of Market Value Reconciliations
This review reconciles market values per custodian and portfolio management systems to the general ledger’s reported market value balances, resolving any differences outside allowable tolerance levels.
Review of Month‑over‑Month Earned Income
This review compares earned investment income (realized and accrued) from the current month to the prior month, investigating material fluctuations to detect missed accruals or misclassifications.
Review of Client‑Provided Impairments
This review validates any impairment amounts provided by the insurer or its asset managers against accounting guidance (e.g., AFS debt impairment criteria), reconciling impairment charges to the supporting credit‑loss analyses.
Reconciliation of the General Ledger to Core Accounting Reports
Lastly, this review consists of a mapping reconciliation to ensure that all investment balances in the general ledger agree to trial balances, system‑generated accounting reports, and both summary and detail extracts before finalizing the month-end close.
Additional Control Reports
In addition to the above control checks and reviews, your accounting service provider should include the following reports in your month‑end close package, to provide transparency and support for each of the above checks:
By embedding these controls and assembling the corresponding reports each month, an insurer’s investment accounting service provider can deliver a streamlined, transparent and reliable month‑end close.
As a best practice, SS&C’s team of tenured, dedicated insurance investment accounting professionals performs a rigorous and thorough review of these controls and checks each month, reviewing the detailed control reports as part of the standard month-end close process for each and every insurance client. In addition, through SS&C’s Singularity platform, insurance clients can run and download these turnkey control reports directly without having to construct them using offline spreadsheets. This reduces the time and effort required by your internal staff to produce and review the reports each month.
To learn more about how SS&C can help improve your month-end close process, please contact us today.