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Trend in Stable Value Systems and Operations: Electronic Fund Statements

Over the past several years, several discretionary GIC managers have begun requesting issuers of stable value contracts to provide electronic data on a monthly basis as a replacement for paper fund statements that communicate changes in contract value.

How It Works

Issuers provide a data file which has a consistent structure from month to month. The data typically provided includes beginning and ending balances, interest credited and a summary of each cash flow under the contract during the reporting period. This information is extracted from the issuer's computer system, transmitted to the manager electronically and then imported into the manager's portfolio management system. The manager then has the ability to run detailed reports identifying which contracts have deviations from expectations provided from their own systems.

Actual Experiences

Suzanne Inmon has responsibility for implementing an electronic fund balance initiative at PRIMCO Capital Management in Louisville, Kentucky. She reports that issuers have approached PRIMCO's request for this data very enthusiastically. The issuers recognize that they will enjoy significant cost savings over the lives of their contracts due to the elimination of the paper stock, printing, insertion and mailing costs previously required for the monthly preparation of paper fund statements. She estimates that receiving this data feed from approximately 12 major issuers has cut PRIMCO's statement review time by 85%.

Fidelity Investment's stable value management group has been receiving monthly electronic data transmission feeds of contract information for about four years. They currently have seven issuers participating and another is about to join on.

The feeds from the current issuers arrive by the fifth business day of a month with the prior month's data, providing information on about 70% of their stable value contracts. The feeds allows for automatic monthly reconciliation with their contract portfolio management system. That system then feeds the daily stable value fund interest accrual information for each plan to their participant record-keeping operation.

Some Thoughts

Currently there are several different data formats being used in the stable value industry. It may make good sense to attempt to standardize this format. Perhaps a Stable Value Investment Association supported format would increase the awareness across the industry. Once this standardized format is adopted, others may choose to integrate this capability into their systems knowing that major issues have already been ironed out.

Plan sponsors, trustees and record-keeping organizations which receive GIC balance information in order to report values to plan participants could also benefit from these data feeds.

Due to the large number of these organizations compared to GIC managers, it may make sense for issuers to report this information in a standardized format to a central location. Perhaps the most appropriate hub would be a security pricing service such as Bloomberg. There each contract could be issued a unique identifier similar to a CUSIP. From the pricing service, the balance and cash flow data could be retrieved and fed into any system including a trustee's holdings valuation system. By making stable value contracts' values available like other fixed income instruments, we as an industry may be able to remove some of the administrative complication that surrounds stable value products and make them more user-friendly.

I would be interested in readers' views and insights on this topic. Please e-mail me at: Terry.Finan@jnli.com

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