Trained in Risk

The CFO of USAA draws on her experience as an actuary to keep the financial-services firm out of harm's way.

Kristi Matus brings a different orientation to the CFO’s office. Formerly the chief operating officer of a bank, Matus took a position in 2002 as an actuary developing life-insurance products at USAA, a financial-services company serving the armed forces. The role suited Matus, who has a degree in applied mathematics. But so does the CFO spot, a position she was promoted to in January 2008.

Matus helped the company produce its best year ever in 2009, with revenue of $17.6 billion and net income of $3 billion, up from $12.9 billion in revenue and $423 million in profits in 2008. During the financial crisis, the firm was helped by being member-owned and by the fact that it exclusively serves military personnel, military retirees, and their families. The loss rates in its bank lending unit run about one-third of the industry average, for example, and a flight to quality in consumer deposits clearly benefited the firm’s balance sheet. A tech-savvy clientele (courtesy of its military training) also keeps customer-service costs down.

But Matus’s actuarial background also helped USAA during the crisis, particularly by disposing her to take the long view when other financial-market participants were panicking over falling asset prices and disappearing liquidity. Today she continues to monitor a boatload of risks, with asset management, insurance, and banking units in the company’s portfolio. CFO sat down with Matus recently to discuss her background and how USAA weathered the financial crisis so well. An edited version of the interview follows.

How does having an actuarial background affect your thinking as CFO?

When you’re a life-insurance actuary, every decision you make has a 30-year tail. You have to think about what’s going to happen next quarter and next year, but you can’t make a decision without thinking about what is it going to look like in 30 years or having some sense of how that’s going to model. Also, the actuarial role puts you in a situation many times where you’re the coordinator or the moderator between sales and finance. So as you set prices for products, how do you trade off between profitability or margin on the individual product versus the volume that could be generated? As you run those models early in your actuarial career, you really understand the bottom-line financial impacts of day-to-day business decisions.

CFO of USAA

What have been your greatest challenges as finance chief?
The environment of uncertainty. Navigating through the financial crisis, through what we would call “the fog of war,” was challenging. For example, at the end of 2008, bond spreads widened way out, which severely impacted our fixed-income portfolio. Do you panic like everyone else and try to ditch these holdings, or are you confident in the decisions that you made? We felt pretty confident, so we held. As bond spreads came back in, we were able to recapture those unrealized losses.

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