Capital Access International

Capital Access Uncovers Significant Securities Holdings Reporting Errors by U.S. Insurance Companies

MURRAY HILL, N.J., Aug. 6 /PRNewswire/ -- Capital Access International reported that its release to clients last week of first quarter 2001 U.S. insurance company bond holdings data was delayed due to the discovery of significant errors made by numerous U.S. insurance companies in reporting year-end 2000 portfolio holdings. The reporting errors, estimated to be in the hundreds of billions of dollars, were uncovered during an annual portfolio-by-portfolio review and crosscheck of the year-end insurance company Schedule D bondholdings data conducted by Capital Access. The errors appear to be the result of changes in the electronic filing formats mandated last year by the National Association of Insurance Commissioners (NAIC).

``The significance of these previously unreported holdings errors is staggering,'' stated David D. Farrington, chairman and chief executive officer of Capital Access. ``Such incorrect filings resulted in gross overstatements of the security holdings of certain insurance companies and the significant understatement of the holdings of other insurance companies. For example, the electronically-filed year-end 2000 report for Prudential Insurance Co. of America contained nearly 2,000 incorrectly formatted positions, which resulted in a $20 billion understatement in the electronic filing of the actual fixed- income holdings of this major investor,'' reported Farrington.

According to Farrington, ``To our knowledge, no other provider of fixed- income bondholdings data has discovered nor corrected the erroneous filings. While this process delayed our subsequent release of first quarter 2001 insurance company holdings data, our discovery of the erroneous filings and the extensive corrective actions taken ensured that our clients avoided costly mistakes and wasted efforts that result from use of incorrect source data.''

Farrington further stated, ``This situation should throw up a huge warning sign to market participants that rely upon data vendors that pass through inadequately reviewed filings to their customers. Our years of experience clearly show that, despite the mandate requiring electronic submission of filings, human errors as well as programming errors continue to occur, annually accounting for billions of dollars in inaccurately reported securities holdings. Only painstaking and rigorously applied data quality processes and procedures can ensure consistently high quality data and market intelligence of the greatest utility.''

According to Michael Ruvo, executive vice president -- global operations for Capital Access, ``The reporting regulations of the NAIC require U.S. insurance companies to report their actual securities holdings positions once per year, at each year-end. However, NAIC regulations require that quarterly filings comprise only changes in positions of each security in the portfolio since the last report date. Therefore, it's imperative to confirm an accurate baseline at each year-end for every security position in each reported portfolio. If the year-end baseline holdings positions are inaccurate, then all holdings positions subsequently calculated from the quarterly change reports will be incorrect going forward throughout the year. The inaccuracy of the data will only worsen as the year proceeds. The year-end reconciliation which we routinely undertake ensures that our subscribers -- and only our subscribers -- consistently receive the most accurate insurance company holdings available.''

Ruvo explained that NAIC-mandated changes to the year-end and quarterly filing specifications were put into effect with the year-end 2000 report. The specification changes resulted in necessary modifications to the annual and quarterly electronic filing software produced by a number of vendors and supplied to U.S. insurance companies for filing the required reports. ``It appears that, in some cases, the report format modifications were improperly implemented, resulting in the shift of certain key data items into incorrect fields. In numerous cases, the shifting of data resulted in the grossly misleading denotation of a holding position as a complete sell-off of the position,'' he said.

For example, the electronic filing of Mercury Casualty Company denoted more than 300 municipal bonds as sold out positions. In fact, as confirmed by the hard copy December 31, 2000 Schedule D filing for this insurance company, the company held positions in those 300 issues totaling more than $383 million. Ruvo noted, ``The incorrectly formatted electronic filing for Mercury Casualty Company incorrectly understated the municipal holdings of this insurance company by more than 66%.''

``Fortunately, the meticulous electronic and manual data cross-checks used by Capital Access brought the extensive filing errors to light, enabling our data quality team to move expeditiously to correct the errors before release to our subscribers.''

In May, Capital Access International initiated the release of the corrected year-end portfolio holdings for more than 4,000 U.S. insurance companies. Following a final verification of all positions in each of the more than 4,000 year-end filings, Capital Access last week released first quarter 2001 holdings for insurance companies. The updated data is available via eMAXX(SM) -- Capital Access' powerful market data intelligence system as well as through the company's other bondholdings data services.

About Capital Access International: Capital Access, (http://www.capital-access.com), a leading provider of market intelligence on the global securities markets, was founded in 1989 to support the information needs of broker/dealers, underwriters and debt issuers worldwide. The company's renowned, proprietary FINCOM(SM) database of investor profiles, bondholdings and transaction data is used by more participants in the fixed-income market than any service of its kind. The company's popular Internet service, eMAXX, is used by more than 2,500 participants in the fixed-income securities markets including issuers, rating agencies, credit insurers and consultants along with institutional sales people, traders, investment bankers and marketers to manage sales and trading opportunities, and to retrieve information on bonds and bond buying firms around the world. The firm also produces reports and surveys on trends in the fixed-income marketplace. Capital Access International is headquartered in Murray Hill, New Jersey and maintains a research and sales office in London.

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