Out of 125 insurers and reinsurers, only 5 percent fall into the"excellent" category when it comes to the quality of theirenterprise risk management practices, while 84 percent are"adequate," according to Standard & Poor's.

David Ingram, senior director of insurance ratings for Standard& Poor's and a speaker at S&P's ERM summit last month inNew York, explained that ERM is a "tailored process" that differsfrom one company to another.

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

Those rated "adequate," he explained, often have separaterisk-control processes "for each different risk that never talk toeach other."

To become a strong enterprise risk management company, "in ouropinion, you need to have an overall vision that at least bringsall your risks into the room at one time," according to Mr.Ingram.

He added that S&P is also looking at other factors, such aswhether there is a clear vision of the company's overall risktolerance, the "so-called risk profile," and "better than average"risk control processes.

"We would expect a strong ERM company to have control processesfor some of its risk that will actually give it a competitiveadvantage in an adverse situation," he said. Such a company eitherwould not be exposed to as many of the negative events that occurin its industry, or when those events happen, it would "not sufferas large a loss because [it has] some preparation for that."

What trips up many companies is the inability to do strategicrisk management, or make an overall risk-reward tradeoff. This issomething that in the insurance industry, "is only practiced by asmall fraction," he said.

Insurers that fall into the "excellent" category are those "thathave been strong and have been operating with a strong [ERM] basisfor a long period of time and have well-developed platforms theyare continuing to refine," he noted.

Mr. Ingram explained that as of Oct. 31, 2007, S&P totaledits opinions and found that "the adequate category very muchdominated."

Three percent fell in the "weak" category, 5 percent in the"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 weaker companies"that just barely have control structures in place," while at theother end of the spectrum are companies "in the middle of majordevelopment projects enhancing their ERM capabilities."

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

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, Axis Capital, New York Life,Principal, Prudential and XL Capital, he noted.

Mr. Ingram said some of the companies listed as adequate aresilo-based, "and therefore missing the advantages that ERM has tooffer."

He said that one company--Manulife--had a strong ERM programthat was instrumental in moving the carrier's rating to "triple-A"last 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 released 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.