September 29, 2011 – While enterprise risk management (ERM) is becoming increasingly pervasive in business decisions from the top-down, there are still gaps in the P&C industry’s usage, which renders guilty companies vulnerable to market volatility in terms of earnings and capital, according to a report from A.M. Best.
The ratings agency stressed its concern with a couple findings in particular. First, 15 percent of respondents felt they had “no liquidity risk whatsoever,” which could speak poorly to the projected condition of the overall market, and second, there was significant lacking when it came to the companies’ abilities to define their overall tolerance for risk. The report cited at least 90 percent of responses being too broad or general. The inadequate responses included phrases such as “highly conservative,” “primarily low, with some tolerance for medium” and “maintaining a Best’s Capital Adequacy Ratio score of 250.” Meanwhile, sufficient responses specified lines of business and ascribed their “volatility in average expected returns.”
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