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Introduction "Standard & Poor's Ratings Services has always strongly emphasized an insurer's risks and how they are managed when forming an opinion of that insurer's financial strength or creditworthiness. Beginning in October 2005, we strengthened our emphasis further when we added a formal evaluation of insurer enterprise risk management (ERM) capabilities to the rating process. Feedback from insurers, reinsurers, and other parties, as well as our own observations, have allowed us to further clarify the criteria, especially for highly complex companies with a vast complement of risks where extensive attention is paid to managing it. This paper is a detailed extension of our October 2005 paper and incorporates what we have learned and answers several questions raised by insurers. We said in October that an important part of a robust ERM process is learning and continual improvement. Learning and continual improvement are integral to a robust ERM evaluation process as well. In framing these enhanced criteria, we do not intend to expand our ERM discussion to include all or even most companies. The level of discussions held to date with most companies' managements and the conclusions reached, guided by October's criteria, are and will remain appropriate. However, for insurers with a diverse portfolio of complex risks, we will use the extended criteria outlined in this paper to better structure and inform the evaluation process. Our evaluation of insurer ERM, as laid out in this report, includes the assessment of Risk Management Culture, Risk Controls, Emerging Risk Management, Risk and Capital Models, and Strategic Risk Management. An insurer's ERM practices can be rated Weak, Adequate, Strong, or Excellent. We incorporate those assessments into our rating process alongside our other rating categories (Competitive Position, Management and Corporate Strategy, Operating Performance, Capital, Liquidity, Investments, and Financial Flexibility). As insurer risk management practices continue to evolve, we will continue to assess our criteria and update it as necessary."

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