Out of 125 insurers and reinsurers, only 5% fall into the “excellent” category for their enterprise risk management practices, while 84% are “adequate,” according to Standard & Poor’s, New York.

David Ingram, senior director, insurance ratings for S&P and a speaker at its ERM summit here, explained that ERM is a “tailored process” that differs from one company to another.

He noted that once a company is reviewed, S&P forms an opinion. The opinion is summarized as “adequate,” “strong” or “excellent.”

Those rated “adequate” often have separate risk control processes “for each different risk that never talk to each other,” he said. To become a strong enterprise risk management company, “you need to have an overall vision that at least brings all your risks into the room at one time,” Ingram said.

He added that S&P is also looking for other things, such as clear vision of the company’s overall risk tolerance, including risk-control processes.

“We would expect a strong ERM company to have control processes for some of their risk that will actually give them competitive advantage in an adverse situation,” he said.

Such a company “either would not be exposed to as many of the negative events that occur in its industry, or when those events happen, it would “not suffer as large a loss because they have some preparation for that,” Ingram explained.

What trips up many companies is the ability to do strategic risk management, or overall risk-reward tradeoff. This is something that in the insurance industry “is only practiced by a small fraction,” Ingram said.

Insurers that fall into the “excellent” category are those “that have been strong and have been operating with a strong basis for a long period of time and have well developed platforms that they are continuing to refine,” he noted.

As of Oct. 31, S&P totaled its opinions and found that “the adequate category very much dominated,” Ingram said. It found 3% fell in the “weak” category, 5% in “excellent” and 8% in “strong,” leaving 84% in the “adequate” category.

Examples of “excellent” ERM companies include Genworth, Manulife and USAA, he said.

Those in the “strong” category include Aetna, Hartford, MetLife, Nationwide and Sun Life.

On the positive side of the “adequate” list are those companies that “we think in 1 to 3 years will be moving into the ‘strong’ category because they have most of what it takes to be strong and have shared with us specific plans to develop the pieces they don’t have,” he said. These include Allstate, New York Life, Principal and Prudential.

Mr. Ingram said that some of the companies listed as adequate are silo-based, “and therefore missing the advantages that ERM has to offer.”

He said that one company, Manulife, had a strong ERM program that was instrumental in moving the company to a Triple-A rating last year.