Understanding Amortization Methods in Clearwater

Clearwater Analytics supports four primary amortization methods to meet the diverse accounting and reporting needs of our clients. This flexibility helps ensure accurate income recognition, regulatory compliance, and alignment with your investment strategies.

1. Constant Yield (Effective Interest Method)

The Constant Yield method calculates amortization based on the effective interest rate over the life of a security. This method recognizes more income earlier in the life of a premium bond and less later on, matching the economic reality of cash flows.

Use Case:
Ideal for accounting standards such as IFRS and GAAP where yield-based income recognition is required. Often used for fixed-income securities like bonds and MBS.

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2. Straight Line

The Straight Line method spreads the premium or discount evenly over the life of the asset. Each period recognizes the same amortization amount, regardless of cash flow timing.

Use Case:
Commonly used when simplicity and predictability in income recognition are preferred, or for internal management reporting where time-weighted consistency is helpful.

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3. No Amortization

This method disables amortization entirely. The investment is carried at cost, with no adjustments made for premium or discount over time.

Use Case:
Used in situations where amortization is not required or where market value tracking is prioritized (e.g., trading portfolios or short-term instruments held at fair value).

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4. Purchase Credit Impaired (PCI / PCD Assets)

This method supports assets acquired with a significant deterioration in credit quality. Under CECL or IFRS 9, Clearwater provides tools for recognizing expected credit losses and managing these assets through custom amortization schedules.

Use Case:
Designed for institutions managing portfolios that include distressed or restructured debt. This helps align with regulatory guidance on credit-impaired securities and supports accurate reporting of income and allowances.

Note: The Purchase Credit Impaired (PCI) amortization method in Clearwater Analytics is used for assets with significant credit deterioration. If it's not visible, it might be due to your specific asset configuration or because your portfolio doesn't include distressed or restructured debt requiring this method. Clearwater Analytics typically requires you to be on the Clearwater Premium Plan to access this information. Please reach out to Client Services for additional information on configuration, plan information, or questions.

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✅ Why It Matters

Clearwater's support for multiple amortization methods ensures:

• Compliance with global accounting standards

• Accurate, auditable reporting

• Flexibility for diverse investment strategies

• Tailored treatment of complex asset types

If you’re unsure which method applies to your assets, please contact your Client Services representative or refer to our [Accounting Configuration Guide].