Majority of North American (re)insurers have “adequate” ERM programs

Eighty-three per cent out of the 274 global insurance and reinsurance groups evaluated in Standard & Poor’s 2007 scorecard had “adequate” ERM programs.Further, S&P’s noted in its 2007 scorecard, only 11 of the organizations had improved over their 2006 Standard & Poor’s ERM scorecard rating. Roughly 3% of the companies surveyed actually saw their grade worsen, S&P’s said in its report, ‘ERM Development in the Insurance Sector Could Gain Strength in 2008.’ Ten firms jumped from an “adequate” to “strong” rating following further reviews and development of the ERM programs; one firm was upgraded to adequate from weak following improvements in its risk governance and controls over catastrophe risk.But a number of companies received lower scores following a more detailed second review of their ERM practices, S&P’s said, adding that 34 of the firms were being rated for the first time.(Re)insurance organizations domiciled in Bermuda received the highest number of “strong” or “excellent” ratings, while the majority of North American groups received an “adequate” grade.In Canada and the U.S., S&P’s reported seeing a “growing trend toward prudent risk management with p&c insurers and reinsurers.”S&P’s went on to predict an acceleration of the price deterioration rate. At the same time, the ratings agency said, the cyclical downturn will be milder because most insurers have improved their management information systems and have better aligned underwriters’ incentives with long-term profitable growth.Despite the moderate softening of the North American market, reinsurers have held the line on price decreases, the report continues. So far, effects of the subprime crisis have been minimal, “but because of the possibility of subprime-related litigation, some of these companies could be exposed to losses stemming from underwriting professional liability coverage, and the full effect of such suits might not be clear until late this year or beyond.”