CEO SURVEY:
ENTERPRISE RISK
MANAgEMENT
Bermuda Re/insurance
Enterprise risk management comes under the spotlight as
senior Bermuda re/insurance executives report their views.
The buzzphrase of the year in the re/insurance sector is ‘enterprise
The questions we asked the Bermuda executives were:
risk management’, referred to by acronym as ERM, although it’s not
• Will the focus on ERM improve underwriting standards?
pronounced that way. The prime mover in this direction has been
Standard & Poor’s, which has made ERM a central element in the • Has your company always taken an enterprise-wide view of risk
assessment and granting of its ratings. management?
None of the companies on which the burden of instituting the ERM • Have good ERM practices been adopted consistently throughout the
process has fallen have complained about it. It would be impossible reinsurance industry?
to fault the idea of insisting on a risk assessment process among, of
This is what they had to say. . .
all companies, those selling risk management. It might be considered
noteworthy that not all companies have passed the ERM test with flying

colours yet, but it is a truism that the cobbler always goes without shoes.
Todd Fonner, senior vice president, chief risk officer and chief
S&P has ensured that, sooner or later, re/insurers will be suitably shod.
investment officer, RenaissanceRe Holdings Ltd.
ERM is not a magic bullet, however. Merely working through the
In answer to the first question, ERM should improve underwriting
process may not be enough, just as those who intend to jump out of
standards. ERM starts with the idea that people understand the risks
aeroplanes would do well not just to have a parachute, but also not to
they’re taking. Any underwriting process, including ERM, should
leave it on the kitchen table as they set off for the airport. provide an analysis of the risk being undertaken.
No one would suggest that having an ERM process means never having The challenge is whether ERM will ultimately result in better balance
to say you’re sorry. Making a list and checking it twice might work for sheets, which is a separate question. Without an enterprise-wide view,
Santa Claus, but it wouldn’t be enough for financial service providers. the ultimate outcome can be too much correlation in the portfolio,
Time will improve the nature of the process and the degree to which it and we’ve all seen what happens when the correlation in a portfolio is
is understood. Until then, ERM is a big step in the right direction. poorly understood.
Bermuda Re/insurance . November 2008 19
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