S&P Sees Improved Insurer Enterprise Risk Management in 2008

March 25, 2008

Standard & Poor’s Ratings Services said that 2008 could see an overall improvement in insurance-industry enterprise risk management (ERM) scores.

The firm says a 2006 review of the ERM practices of rated companies showed several dozen companies developing systems to support better ERM practices.

“We predicted that 10-15 of those companies could receive improved ERM opinions in 2007,” said Standard & Poor’s credit analyst David Ingram. “As it turned out, seven of them did.”

Standard & Poor’s completed 274 ERM evaluations in 2007. The results showed that most insurers had adequate ERM programs in 2007.

Those firms that develop strong/excellent strategic risk management processes as well as strong/excellent risk controls, and that therefore have strong and excellent overall scores, should have lower losses relative to long-term average income in adverse times and especially in extremely bad times.

S&P reports its outlook in an article titled “ERM Development In The Insurance Sector Could Gain Strength In 2008” and published on its RatingsDirect Web site.

The article discusses ERM practices around the world, noting differences in practices and attitudes in different regions. It also details insurers’ attitudes regarding the components of ERM, including risk controls, risk-management culture, strategic risk management, and more.

In addition the article gives a point-by-point synopsis of Standard & Poor’s process for evaluating ERM in 2008 and lists the key risks and concerns that will receive extra attention in rating insurers’ ERM.

“The experiences of 2007 and early 2008 have shown that ERM is an important discipline that will continue to be key for the financial health of insurers,” said Ingram. “It is against this backdrop that Standard & Poor’s will continue to enhance its evaluation of insurers’ ERM capabilities as a fundamental part of our credit analyses.”

Source: S&P’s RatingsDirect

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