CFOs held to higher standard: profitability is job #1.

The turbulent economic and regulatory environments that are putting additional pressures on insurance companies' chief executive officers are affecting their chief financial officers, too. CFOs are feeling responsible for greater duties and have shifted to become more focused on profitability, according to an Ernst & Young survey.

CFOs once concentrated exclusively on managing company finances, but now insurance CFOs face a broader array of issues and expanded responsibilities. Comparing two surveys, one conducted in 2003 and one in 1989, Ernst & Young found profitability is by far the issue on which CFOs expected to focus most of their attention in 2004, with 81% saying profitability, underwriting and investments will be their main focus. In contrast, only 17% of CFOs regarded profitability as their top priority in 1989, when tax changes and regulatory reform were the issues of most concern to CFOs.

"Back then, profitability was a little bit easier to come by," said Dan Oakley, director of knowledge and thought leadership at Ernst &Young. "There were higher investment yields at the time, so to some extent, insurers might have been living off their equity portfolios."

Also at that time, California was considering a vote on Proposition 103, which required insurers' rates to be approved by the state government, Oakley said.

"The attention given to Prop 103 in California was probably exaggerated for that particular time of the survey. The tax changes and reforms in Prop 103 were definitely issues of the moment; I'm not sure they lasted very long," Oakley said.

Although accounting continues to be the primary training ground for today's insurance CFOs--almost half of those surveyed have an accounting background--an actuarial back ground is more common today than in 1989. About 22% of CFOs surveyed in 2003 had an actuarial background, compared with only 6% in 1989.

"What we detected is CFOs are becoming more experienced on the products side," Oakley said. "In the past, what insurance companies needed was someone to take care of the monies that were brought in by the other groups. CFOs now need to worry about the costs and liabilities that are associated with the monies being brought in. They have a wider scope and a wider awareness of the profitability of business being written."

The survey also found that CFOs are spending more time and attention on investors and audit committees. When asked how much of their time is spent addressing the concerns of their audit committees and boards of directors, CFOs said the time has doubled to 12%, from 6%. In addition, CFOs spend 15% of their time on analysts and investors, up from 11% in 1989.

"Underwriting sins are much more exposed, given the lower investment yields today, so CFOs, who you might say are charged with protecting the bottom line of the whole company, need to spend more time with underwriting profitability than they might have 15 years ago," Oakley said.

The 2003 survey included CFOs from 36 major life and property/casualty companies.

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