NU Online News Service, Dec. 9, 3:41 p.m. EST

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The financial services industry, including insurance, has madestrides in the two years since the financial crisis to incorporateenterprise risk management into decision-making, Towers Watsonfound in its 2010 ERM survey.

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"FinancialCrisis Puts Spotlight on ERM: An ERM Update on the Global InsuranceIndustry" surveyed 465 chief risk officers, chief financialofficers and chief actuaries in insurance companies around theworld.

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The survey found that seasoned ERM practitioners advanced inmaking ERM part of their decision-making process and in economiccapital modeling, Towers Watson said. Less seasoned ERMpractitioners also continued to strengthen their ERMframeworks.

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But while there is ample evidence of year-over-year progress byinsurers, the industry still faces many challenges. Most insurersrecognize room for improvement in their ERM programs, especiallywith rising investor interest, ever-increasing rating agencyexpectations and looming Solvency II regulatory requirements forEuropean insurers in 2012, the survey found.

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Patricia Guinn, Towers Watson managing director said in anonline interview that ERM is "the framework enabling insurers toidentify sources of potential major losses."

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She noted that factors in successfully imbedding ERM into acompany's everyday operations include clear risk managementorganizational structures and processes and a strong risk cultureand buy-in to the value of ERM throughout all levels ofmanagement.

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Insurers have fared "better than one might think" in thefinancial downturn, she said.

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"Insurers recognize that risk-taking must be well controlled.Most insurers have specified risk limits and, because of thefinancial crisis, have put additional focus on market, credit andoperational risks," she said.

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Those who fared best, she added, were typically companies thathave taken the time to articulate and agree on their overall riskappetite or risk tolerance.

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Insurers continue to make progress imbedding ERM programs withintheir organization, she said, noting that the survey found that ERMis influencing key business decisions of more insurers thanever.

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"For example, a lot of work has been put into developing risktolerance statements since the survey was last conducted in 2008,"she said.

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This year, Ms. Guinn noted that 59 percent of surveyparticipants said they have documented their risk tolerance, upfrom 47 percent in 2008. She pointed out that companies with aformal risk appetite statement were more likely to be satisfiedwith the performance of their ERM capabilities during the financialcrisis than those insurers that had not done this.

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"Many insurers face challenges imbedding ERM in their day to dayoperation, but smaller insurers face the most difficulty," sheadded. "Companies with revenues of more than $10 billion aregenerally further on most aspects of ERM implementation and theysee it as a competitive advantage, with better informed decisionmaking on many business fronts that can lead to betterperformance."

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She concluded, "Insurance executives believe there aresubstantial benefits to be had by imbedding a strong ERM program intheir companies. These include better decision making, lowercapital requirements and competitive advantage."

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