North American and Bermudan Insurers Stepping Up ERM Efforts

North American and Bermudan insurance companies received an updated enterprise risk management opinion from Standard & Poor’s Rating Services, the company reports.

S&P describes an insurer's ERM program as a system of processes and practices that aims to measure and manage risk. The article in which the opinions appear, "North American and Bermudan Insurers Continue to Step Up Their Enterprise Risk Management Efforts," notes that S&P’s ERM opinion reflects “our assessment of the strength of an insurer's ERM program.”

"As the financial crisis continued to expose some less effective risk management practices, many insurance companies began strengthening their ERM frameworks," said Standard & Poor's credit analyst Howard Rosen. "This resulted in ERM improvements for some of our rated insurers. Six of the 15 companies that scored weak in 2009 improved to adequate," said Rosen. "We also have observed that insurers are focusing more on ERM in the form of new or improved processes they have implemented to better control tail risks."

Other findings include:

S&P assigned a strong or excellent score for ERM culture to 29 of the 34 companies that went through ERM Level II reviews, which we perform for companies whose complexity requires an in-depth analysis.

Based on the results of our reviews, companies with more complex risk profiles have the most opportunity to strengthen their ERM programs in the areas of emerging and strategic risk management.

Property/casualty insurers appear to be more focused on emerging risk management than life/health insurers.

During 2010, stock prices of companies with strong or better ERM scores continued to outperform those with lower scores.

In 2010, as in 2009, the level of average stock price volatility of companies varied inversely with their ERM scores.

The report is available here to subscribers of RatingsDirect on the Global Credit Portal.

 

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