Average Cost of Risk Lowest in Decade; Annual Survey by Ernst & Young and the Risk and Insurance Management Society, Inc. -RIMS- Reports Cost of Risk Falls to $5.20 Per $1,000 of Revenues.

Business Editors

NEW YORK--(BUSINESS WIRE)--Dec. 7, 2000

What is the cost of risk? In the United States, just about half a cent on the dollar, and the lowest it has been in a decade, according to the newly released 2000 RIMS Benchmark Survey(R). The survey, which is co-produced annually by RIMS and Ernst & Young LLP, reports a reduction to $5.20 per $1,000 of revenues from last year's level of $5.71, driven both by lower insurance premiums and lower retained losses.

"In spite of the good news about the reduced cost of risk, this trend may soon reverse," says James Gamble, senior manager with Ernst & Young's Business Risk Solutions practice. "Over the past decade, the cost of risk has closely tracked the overall operating ratio for commercial insurers, suggesting that when they do well, they are inclined to reduce premiums. This year insurers' results continue to worsen, which could lead them to increase premiums in the future."

"As a tool, the Benchmark Survey assists risk managers to deal with the tightening marketplace and provides valuable information on deductible levels, limits of liabilities purchased by peers and costs of risk for comparative organizations," says Sue Anne Mitro, RIMS Research Committee vice chair and risk manager for The Hillman Company.

The survey, conducted among 779 organizations in the United States and Canada found:

- While the cost of risk declined in the United States, it rose in Canada.

- The most effective workers' compensation cost control methods reported are
light duty programs, accident prevention and medical bill reviews.

- Mergers and acquisitions of insurance carriers and brokers did not
significantly affect most organizations.

- Most U.S. survey respondents purchase employment practices liability
coverage.

In the United States, the cost of risk for large organizations (those with revenues exceeding $5 billion) dropped eight percent, while the cost for smaller organizations dropped four percent. In general, liability costs, property costs and administrative expenses decreased, while workers' compensation costs increased slightly.

In contrast to the United States, the overall cost of risk for Canadian respondents increased dramatically, rising to $2.88 per $1,000 of revenues up from the previous year's level of $1.74, which had been the lowest in the last 10 years. However, the cost of risk still remained around 10 percent lower than that of U.S. respondents. During the year, property costs more than doubled, possibly caused by insurance companies' reaction to severe ice storms; in addition, liability costs increased by 42 percent.

The cost-of-risk concept includes the costs associated with an organization's risk management functions. In particular, cost-of-risk benchmarks net insurance premiums, retained losses, internal administration, and outside services. Benchmarking is a process by which an organization can compare its performance and practices with those of similar entities.

Ernst & Young, a global leader in professional services, helps clients make financial decisions designed to enhance value. Its 77,000 people in more than 130 countries have the industry and financial experience to provide fresh perspectives on operating successfully in the new economy. Ernst & Young offers traditional audit and tax services, as well as customized services in corporate finance, online security, risk management, the valuation of intangibles and e-business acceleration. In addition, legal services are available in various parts of the world where permitted. A collection of Ernst & Young's latest ideas on the new economy can be found at www.ey.com/thoughtcenter. Ernst & Young refers to the U.S. firm of Ernst & Young LLP and other members of the global Ernst & Young organization.

The Risk and Insurance Management Society, Inc. (RIMS) is a not-for-profit organization dedicated to advancing the practice of risk management, a professional discipline that protects physical, financial and human resources. Founded in 1950, RIMS represents over 4,000 industrial, service, non-profit, charitable, and governmental entities. The Society serves more than 7,500 individuals representing its member companies/organizations in 88 chapters across the United States and Canada. For the latest on risk and insurance management information, please visit www.rims.org.