S&P: the impact of enterprise risk management on reinsurers’ ratings

Within the Standard & Poor’s global reinsurers’ rating universe, Enterprise Risk Management (ERM) is emerging as one of the strongest indicators of an entity’s ability to deliver an appropriate cross-cycle risk-adjusted return. According to S&P analysts Christopher Myers, Rob Jones and Thomas Upton, ERM is expected to be a key driver for reinsurer ratings over the medium term. When evaluating ERM capabilities, Standard & Poor’s primarily looks at how an insurer’s management defines the firm’s loss tolerance and how it ensures that it keeps within that loss tolerance. The agency also focuses on the degree to which the management accounts for risk and return for risk taking in setting corporate direction and in strategic decision-making. S&P says its evaluation of a firm’s ERM is primarily a subjective view of the quality of management practices. The agency’s focus is on seeking evidence that ERM practices are being carried out in a systematic and consistent way. Practices should help control future losses predictably and lead to an optimal risk/reward structure for the insurer’s businesses. These practices are then compared to the company’s risks and compared with practices at peer companies with similar risks