Paul Brehm, Vice President and Chief Corporate Actuary at The St. Paul, says P&C RAROC will help his company build on its leading role in commercial property-liability insurance, non-life reinsurance and specialty insurance. "We've already learned a lot about our risk exposures from this new approach - where we can take on more risk, and where we can take on risk in a different form so that it increases our returns," he says.

Brehm stated that the P&C RAROC framework could be used at a corporate level - in M&A, setting investment policy, in establishing a capital strategy, or in business portfolio management - or at a business unit level in planning and pricing. Brehm, an actuary for 18 years, says that, "the insurance industry is years behind banking in terms of measuring risk-adjusted returns, so adopting ERisk's tried and proven methodologies will keep our company well ahead of the curve."

The P&C RAROC framework uses world-class analytics that help companies determine how much capital they require, and identify which activities and products are making money on a risk-adjusted basis. Clients will soon also be able to outsource many of their ongoing enterprise wide and capital calculations to an ERisk application service provider.

"My guess is that ERisk's approach will become the accepted way of modeling risk-adjusted returns in the P&C insurance sector", says Brehm. "In a very few years it will be considered as negative by ratings agencies, regulators and stakeholders if an insurance company cannot allocate capital in a defensible way."

Brehm's views reflect those of some leading insurance industry analysts, who say the insurance industry is significantly over-capitalized, which depresses rates and eventually returns for stakeholders. They reckon companies that understand risk-adjusted pricing and decision-making will have a competitive edge as the insurance industry restructures itself over the next few years. In January, A.M. Best Co. - a leading information provider to the industry - identified better management of capital and the creation of stakeholder value as one of its Top Ten Trends for 2001.

ERisk's Peter Nakada commented that The St. Paul is benefiting from the "bruised knuckles" of the banking industry in developing a robust analytical approach to equity capital allocation. "Thanks to the banking industry's ten-year investment in testing out this approach, the P&C RAROC tool can help actuaries translate their deep knowledge of insurance risk into state-of-the-art capital management in only a few months," says Nakada. He points out that the approach is complementary to the simulation-based approaches to risk used presently in the insurance industry for financial analysis, but that it is better suited to capital allocation decisions and, as an analytical technique, has many practical advantages.

About The St. Paul

The St. Paul Companies, Inc., headquartered in Saint Paul, Minn., provides commercial property-liability insurance and nonlife reinsurance worldwide. The St. Paul reported 2000 revenues of more than US$8.6 billion and total assets of US$41.1 billion, and is ranked No. 204 on the Fortune 500 list of largest U.S. companies (ranked by 1999 revenue).

About ERisk

ERisk is a full-service provider of strategic risk management solutions including ASP-based analytics, risk transfer advisory, and consulting services. ERisk's P&C RAROC offering has been developed in partnership with Risk Management Solutions (RMS), the premiere provider of risk management software and consulting services for insurance and other financial services companies. ERisk sponsors a growing community of over 12,000 risk professional via its web portal at www.erisk.com. For more information regarding our ERM Analytics software, please contact Peter Nakada at 212-819-0170 or pnakada@erisk.com.

About RMS

Risk Management Solutions is the world's leading vendor of products and services for the quantification and management of property catastrophe, natural hazard, and complex business risks. RMS clients include leading insurers, reinsurers, industrial corporations, governments, and financial institutions. RMS offerings include risk assessment models, software products to access the models, and consulting services. These solutions are tailored to meet client requirements and can include a combination of software and model licensing, and professional services.

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