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ERM important to protect competitive advantage


May 23, 2006   by Canadian Underwriter


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Insurers operating without effective risk management programs may lose their competitive position or become exposed to “unacceptable losses,” according Standard & Poor’s Ratings Services.
S & P’s notes that there is no national regulatory agency or industry-wide trade group that has established ERM criteria, though the European Union’s Solvency II criteria are currently pending. Standard & Poor’s is filling this void by incorporating ERM criteria into its ratings.
Beginning in the fall of 2005, S & P’s began using enterprise risk management (ERM) criteria in its insurance ratings to systematically reflect an insurer’s risk management. The incorporation of this new rating criteria, as noted in the article “Six Months After Rollout, Enterprise Risk Management Of 78 Major Insurers Evaluated,” monitored the ability of insurers to manage risk and financial volatility.
“Insurers believe that this is good for the industry,” David Ingram, an ERM director at S & P’s, says. “Companies are trying to keep within a targeted range of volatility with regard to their financial results.”
According to the report, which cites results of ERM rating criteria used on 78 major rated insurers and reinsurers in Europe and North America, U.S. companies are especially interested in this new benchmark.
The ERM evaluation had no effect on the ratings of most insurers according to S & P’s. Only five companies were rated ‘weak’ out of the 78 companies exposed to S & P’s ERM criteria.
Some insurers garnered important support for the rating decision from the evaluation. In addition, some insurers found the new criteria evaluation contributed to a favorable rating action.


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