Client-understanding adds up for State Street

Awards 2014: State Street
Best bank: securities servicing

If you aspire to be securities servicing provider of choice to the insurance industry, it pays to have a firm grasp of what insurers want. This year State Street has demonstrated a sophisticated understanding of insurers' priorities when it comes to investment administration, custodial services, accounting and transparency.

With 30 years' experience in developing solutions for the insurance industry and 200 insurance clients on their books, State Street has a wealth of expertise to draw on. This is just as well considering the complex client briefs they have had to deal with in 2014.

One Europe-based non-life insurer approached the company to help merge its investment data from three underlying legal entities. However, it wanted to do this while retaining visibility on the separate asset pools so as to maintain regulatory reporting on an individual entity basis. State Street's solution was to consolidate the three asset pools onto its own accounting platform: the PAM system. This functions as a one-stop-shop, in State Street's words, for reconciliation, accounting, operations and performance services, as well as functioning as a comprehensive reporting suite.

The consolidation resulted in a client saving of 15% on custody costs and cut the month-end data delivery process from 15 business days to five. The economies of scale gained also freed the client to explore new investment opportunities.

Another client, an Emea-based pension and insurance company, came to State Street with an even more challenging proposition: completely outsourcing its investment administration. The client had been struggling with outdated middle- and back-office systems as well as fragmented investment accounting and valuation processes, which had started to act as a drag on performance. The client also struggled with collateral management processes for OTC and exchange traded derivatives, lacking clarity on whether all daily exposures due to OTC activities were adequately monitored.

State Street's outsourcing solution brought the entire administration under centralised oversight and streamlined portfolio accounting and reporting without infringing on the client's existing investment model. State Street additionally revamped the client's approach to securities lending, allowing them to reuse cash as collateral for margining and OTC derivatives collateral management.

State Street has also been responsive to insurance trends in general. The incoming Solvency II directive throws up numerous challenges for firms, not least how to optimise their asset portfolios under a new capital regime. State Street is providing asset managers with solvency capital requirement calculations for the capital-efficient funds they are developing for insurance company clients.

The firm is also a leading light when it comes to servicing alternative assets. Insurers are increasingly turning to more exotic investments to gain yield in the current low interest rate environment but need guidance in terms of how to value somewhat opaque holdings, such as hedge funds, private equity, and real estate funds, and to unpick the regulation surrounding the alternatives market. State Street boasts a client list 750 names long under its Alternative Investment Funds group.

The company has consistently impressed with bread-and-butter custodial work, too. Its TruView risk analytics tool provides clients with independent pricing information, pricing sensitivities, risk budgeting tools and exposure reporting at various levels of granularity, from the whole portfolio view to individual positions. It also provides full look-through capabilities, including into hedge fund and private equity holdings, and direct integration with State Street's record-keeping services. State Street's global reach has also helped multinational insurance clients share the burden of developing global investment strategies across jurisdictions with differing capital requirements.

Such reach and influence, spanning more than 100 markets, has also brought State Street to the attention of regulators who have called on the company's expertise to discuss the evolution of existing regulation and implications of new supervisory measures. All this makes for a company that is not only active in the insurance world, but active in shaping it too.