There are pros and cons to USAA’s status as a financial services company that markets itself exclusively to the country’s 60 million active-duty military personnel, veterans and their families. Given ever-expanding federal spending on things military and a seemingly endless string of conflicts, USAA has been able to ride out the nation’s periodic downturns, including the latest deep dive, fairly unscathed. But the challenge is making all of its services accessible to customers who may be in North Carolina or New Jersey one day and deployed in a remote valley of Afghanistan the next.
As CFO, Matus also oversees the San Antonio-based company’s chief risk officer and chief investment officer, and spends a lot of her time pondering the “what ifs” facing USAA and how to deal with them. She stepped into the CFO role in 2008 just ahead of the big financial crisis, after running USAA’s life insurance unit, so she’s had plenty of opportunity to do just that.
USAA, with $17.9 billion in 2010 revenue, is not just an insurance company, but also a full-service retail bank, an investment service, a wealth management service and a mutual fund manager. Matus worked during the crisis not just to keep USSA solvent, but growing. The company didn’t participate in the TARP program, and “never lost its financial strength,” Matus says.
“In fact, our net worth actually grew by 30% between 2008 and 2010, which is important because as a private company, our only source of funding is our net worth,” she adds.
The key to getting through hard times and anticipating the problems ahead, she says, is a risk management approach that draws on the company’s military connections.
“We’ve taken a page from the military,” says Matus, who is not a veteran. “For every major event, the military has a plan on the shelf ready to go, and we try to do that too, so that when there’s a crisis, people have already thought about it and know what we need to do.”
Here’s how it works: “We talk about what might happen that could really cause us pain, and then we look at how our balance sheet would look with each scenario,” she says. “Then we develop a solution.”
As an example, Matus mentions the possibility that U.S. inflation spikes as a result of the government’s borrowing. “Say we had extreme inflation,” she says. “Well, that would affect our investment portfolio, because we’re heavily invested in fixed income. Also, it would affect our auto and home insurance claims, because everything would be more expensive to repair.” Matus says she would hedge the fixed-income investments and look at ways to keep claims costs down, perhaps by hedging some of the losses.
“We actually lay it all out on a board,” she says, “just the way the military might do.”
Because of heavy storm damage claims recently and evidence that the severity of storms is rising, Matus has increased the company’s reserves against claims, setting aside enough to cover “two back-to-back, once-in-500-year storms, she says, noting that Hurricane Katrina “was not even a once-in-500-year storm.”
Another concern: Regulatory changes that have already tripled USAA’s compliance costs, but could, if managed properly, give the company a competitive advantage, Matus says. For example, as the government moves to eliminate debit card charges to retailers, many banks are cutting back on debit cards, but USAA is sticking with them and asking its customers what features they like most.
One huge risk that Matus doesn’t spend much time strategizing about: The possibility that peace breaks out, bringing with it a huge downsizing of the nation’s military.
“I’m not too worried about that happening,” she says.
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