Nearly two-thirds of insurers and reinsurers have instituted an"adequate" enterprise risk management (ERM) program providing ameasure of their solvency, a rating firm study has found.

According to a new research report from Standard & Poor's inNew York, 62 percent of 78 carriers the firm surveyed have theadequate rating, while 24 percent of the companies have a "strong"ERM plan.

ERM is described by S&P as a "subjective view of aninsurer's or reinsurer's risk management practices, focusing on howits loss tolerance is defined and measured and on the processes itundertakes to ensure that this tolerance is not exceeded."

Among the factors S&P looks at are strategic risk managementprograms, risk and economic capital models that can provide timelyinformation into a carrier's risks, and the overall risk managementculture.

"For most insurers the ERM evaluation has had no impact onratings," said S&P analyst David Ingram.

But for some companies the evaluation provided support for arating decision, and for a few, it has contributed to a favorablerating action, he added.

There is no national regulatory agency or industrywide tradegroup that has established ERM criteria, although the EuropeanUnion's Solvency II criteria are pending.

"Standard & Poor's is filling this void by incorporating ERMcriteria into its ratings," Mr. Ingram said.

ERM tests are not a substitute for determining capital adequacy."Rather, they are a larger measure of how well a company can musterall its resources--financial and otherwise--to understand andmanage the risk it undertakes," Mr. Ingram said.

Good risk management practices do not necessarily translate intolow earnings volatility, the report notes. "We have alreadydeployed these criteria on dozens of different insurers andreinsurers of varying performance and have found only five withweak overall ERM ratings," Mr. Ingram said.