Taking An Insurer Into The Future

Howard Dalton is a CPA whose career embodies many of the challenges facing practitioners today. After 28 years at a Big Six firm, Dalton left in 1987 to work for a large insurance company. In this position, he is at the forefront of the business’ efforts to diversify internationally and to use technology to simplify procedures.

FOREIGN FOCUS
Dalton is senior vice-president and chief accounting officer of the St. Paul Companies, a multinational property and casualty insurance company with operations in nine countries. Although the company’s presence in most foreign countries is as yet a small one, international expansion is the main goal for the next century. Dalton is responsible for accounting and controls throughout the worldwide organization, including internal and external reporting and taxes.

One formidable task is to ensure that appropriate business and financial controls are in place all across its far-flung operations. “It’s a daunting challenge to maintain the strict financial discipline that we’re used to in the United States,” Dalton says. “We’re very proud of our record in the states of conformity with the law and our spotless record with the Securities and Exchange Commission.” The U.S. operations have accounting policies and procedures that have been in place for a long time, with built-in controls and balances. But he adds that because regulatory environments differ from country to country, it can be difficult to instill consistent discipline in employees worldwide. In addition, finding the right staff overseas can be difficult. In one venture, the parent acquired companies and the incumbents were not up to the company’s standards; a new staff had to be hired.

To ensure that the proper accounting procedures are followed overseas, senior management in the foreign offices are U.S. nationals familiar with the required controls. In addition, American staff and members of the company’s international audit department visit the foreign operations frequently and foreign employees receive policy manuals that outline company requirements. The manuals-which are updated constantly as needed-cover existing procedures on subjects such as transaction authorization and policies on appropriate investments.

Roughly 200 people report to Dalton. There is also an accounting staff of 25 in England. For the time being, overseas operations are relatively small so few problems have arisen, but “we have to be ready and be sure we’re diligent” about ensuring that proper procedures are followed, Dalton says.

Quality operations abroad are particularly important because success overseas is crucial to the company’s strategy for the future. This international emphasis is a result of trends in the domestic market. “In the United States, the insurance business is stagnant,” Dalton says. “We’re mostly a commercial insurer and more and more large companies are self-insured. We service claims for them and insure the higher layers of loss, but companies are now self-insuring in the areas where a significant amount of our premiums have been earned. So we’re not able to grow the company based purely on the market prospects in the United States.”

DELIVERING DATA
In the midst of its overseas expansion, the company also is trying to keep its financial systems up-to-date. Dalton is spearheading a major project to upgrade the company’s technology and move it into a data warehouse environment that will constitute its official books and records. The project, which began in 1991, is slated for completion at the end of 1999. When it’s finished, it should be a significant simplification of the company’s accounting procedures, allowing for interactive access to company records. “Regulation is incredible in the insurance industry,” explains Dalton. “You’re required to keep a permanent record of every policy ever written and every loss ever paid, so we have enormous sequential files with all these data. As a result, it takes forever to get information. But once we get into a warehouse environment, it will be much easier.” The new system will allow users to access a specific policy rather than performing a linear search through historical records.

Dalton believes the effort to modify the financial systems is the most important thing he’s done in this job. “I spend more time on that than on anything else. I have a wonderful staff, so the day-to-day operations work beautifully. However, I need to involve myself in building this data warehouse because there are so many high-level decisions to be made and so much cooperation required from other levels of the company.”

Another concern for Dalton is the regulatory change facing the company. The business now is regulated by 50 states, each with its own sets of accounting rules. Dalton is active in an industry group that works with regulators to codify these accounting rules, which would make extensive changes in the way the company files regulatory-as opposed to SEC-statements. The new document, Codification of Statutory Accounting Principles , will have accounting procedures that are consistent in all 50 states, rather than those that are “prescribed or permitted” separately in each. The revisions will include a rule that allows companies to account for deferred taxes in their regulatory financial statements. This and other departures from current practice will require retraining some of Dalton’s staff. He believes the new procedures probably will complicate his staff’s work. Despite the inherent problems when regulations vary by state, “we’ve lived with these statutory rules for so long-and now we’ll be faced with new ones.”

A FRESH CAREER
After only 10 years at the 144-year-old company, Dalton still considers himself a newcomer, although the insurer was his client at KPMG Peat Marwick. He recalls a wonderful experience during his tenure at Peat Marwick, but says that when he retired from the firm and joined the company, “it was like starting out of college, it was so refreshing.” He has experienced a career renewal in his move from public accounting to industry. “Being on the inside is a lot different from being on the outside,” he says. He particularly enjoys being in on the decision making rather than simply acting as a external counselor. He highly recommends his career path to other CPAs. “If you have what it takes to succeed in public accounting, take that as far as you can, but leave yourself some time at the end to do something different.”