NEW YORK--Out of 125 insurers and reinsurers, only 5 percentfall into the "excellent" category for their enterprise riskmanagement practices, while 84 percent are "adequate," according toStandard & Poor's.

David Ingram, senior director, insurance ratings, for Standard& Poor's, and a speaker at S&P's ERM summit here, explainedthat ERM is a "tailored process" that differs from one company toanother.

He noted that once a company is reviewed, S&P forms anopinion. The opinion is summarized in one word as "adequate,""strong" or "excellent."

Those rated "adequate," he said, often have separate riskcontrol processes "for each different risk that never talk to eachother." To become a strong enterprise risk management company, "inour opinion, you need to have an overall vision that at leastbrings all your risks into the room at one time," Mr. Ingramsaid.

He added that S&P is also looking for other things, such asclear vision of the company's overall risk tolerance, the"so-called risk profile and better than average" risk controlprocesses.

"We would expect a strong ERM company to have control processesfor some of their risk that will actually give them competitiveadvantage in an adverse situation," he said.

Such a company, Mr. Ingram explained, "either would not beexposed to as many of the negative events that occur in itsindustry, or when those events happen, it would "not suffer aslarge a loss because they have some preparation for that."

What trips up many companies is the ability to do strategic riskmanagement, or overall risk-reward tradeoff. This is something thatin the insurance industry "is only practiced by a small fraction,"Mr. Ingram said.

Insurers that fall into the "excellent" category are those "thathave been strong and have been operating with a strong basis for along period of time and have well-developed platforms that they arecontinuing to refine," he noted.

Mr. Ingram explained that as of Oct. 31 S&P totaled itsopinions and found that "the adequate category very muchdominated." Three percent fell in the "weak" category, 5 percent inthe "excellent" category and 8 percent in the "strong" category,leaving 84 percent in the "adequate" category.

He acknowledged that the "massive" adequate category is notuniform, and forms a continuum. At one end are the weakercompanies, "that just barely have control structures in place,"while at the other end of the spectrum are companies "in the middleof major development projects enhancing their ERMcapabilities."

Examples of "excellent" ERM companies include Genworth,Manulife, Partner Re, Renaissance Re, Travelers and USAA, hesaid.

Those in the "strong" category include ACE, Aetna, BerkshireHathaway, Chubb, Endurance, Hartford, MetLife, Nationwide,Platinum, Progressive and Sun Life.

On the positive side of the "adequate" list are those companiesthat "we think in one to three years will be moving into the'strong' category because they have most of what it takes to bestrong and have shared with us specific plans to develop the piecesthey don't have," he said. These include Allstate, Ameriprise, AxisCapital, New York Life, Principal, Prudential and XL Capital.

Mr. Ingram said that some of the companies listed as adequateare silo-based, "and therefore missing the advantages that ERM hasto offer."

He said that one company, Manulife, had a strong ERM programthat was instrumental in moving the company to a "triple-A" ratinglast year.

ERM is an evolutionary process, Mr. Ingram noted, and ascompanies continue to enhance their ERM programs, S&P enhancesits ERM rating processes.

"This two-year journey we've been on was started with publishingbroad criteria," he said. Six months later S&P published anenhanced document with more specific details. "We published ourfindings of ERM, and we keep explaining and improving our processas it moves along," Mr. Ingram said.