S&P ERM Criteria to be Released Soon

A recent article in Treasury & Risk Magazine discusses the incorporation of ERM reviews in credit ratings by Standard & Poors.  These reviews have been a part of ratings reviews in the financial services industry, but now are being extended to non-financial companies.  Criteria for these reviews will be released soon as discussed in the excerpt below.

“Most companies these days recognize the value of risk management,” says Dale Hall, vice president and chief actuary at Bloomington, Ill., insurer Country Financial. But he says for a lot of them, it’s still mostly in the “should do” category.  Steve Dreyer, an S&P managing director who heads the ERM global integration project, says, “This is something we’re doing very deliberately and carefully.”

The plan is not for some kind of “big bang,” Dreyer says. Rather, S&P’s analysts, in the normal process of their reviews, are talking with corporate managers about risk management and developing criteria and a methodology, which will be published before ERM ratings are actually offered. “We’re getting the lay of the land,” he says. The target date for publishing the criteria to be used for risk management ratings is the third quarter of 2009.

Is your company prepared for these reviews?  If not, Wheelhouse Advisors can help.  To learn more, visit www.WheelhouseAdvisors.com.

Ready or Not, Here They Come

This year more companies will be subjected to an Enterprise Risk Management ("ERM") review by credit rating agencies such as Standard & Poor's as a result of newly implemented credit rating methodologies.  The lack of a solid ERM program could translate into higher credit costs for those companies who have not embraced the discipline. Here's some guidance from a recent article in The Metropolitan Corporate Counsel.

Steps To Prepare For S&P's Risk Discussion

The following are some steps that nonfinancial companies should consider to better prepare for discussions with S&P analysts: 

1. Form an interdisciplinary ERM credit team to roll up risk-assessment data on the organization's risk-management culture and strategy from across the enterprise, and analyze the impact of the data on the creditworthiness of the enterprise.  


2. Leverage ERM-type analyses already implemented, for example, Sarbanes-Oxley financial-control risk analysis and compliance risk assessment. 


3. Evaluate the current state of the risk-management culture.  


4. Demonstrate how ERM affects strategic planning. S&P has listed several strategic processes affected by risk and risk-management analysis, including capital budgeting, strategic asset allocation, acquisitions and divestitures, performance management, and incentive compensation. 

ERM Benefits Beyond Enhanced Credit Rating 

Finally, a robust ERM process will yield benefits far beyond credit-rating enhancement. An effective ERM process will: 

1. reduce operational and compliance surprises by providing early warning of impending corporate threats; 


2. enable companies to identify and correct control deficiencies, thereby permitting process improvements, before they result in operational failures or are discovered by regulators;  


3. enable the reduction of penalties and fines in the event of a compliance failure through self-reporting and restitution; 


4. improve the decision-making process through greater awareness of risks and mitigating strategies;


5. and improve capital allocation across business units because risk information will facilitate weighing expected returns against the risks inherent in undertaking a business opportunity.

Is your company ready?  If not, Wheelhouse Advisors can help with cost-effective solutions.  Visit www.WheelhouseAdvisors.com to learn more.