I know this is long, but worth your time to read. I met with Brent to maker sure he was fully informed of our plans to recognize revenue connected with Jim Bouillion's Corporate Risk Management activities. Brent agrees with all of the below and I am proceeding with booking each deal for Q$ as described. It means a plus to gross margin in MPR of just under $2 million for Q4. This does not include the double trigger or any value from Doug Jone's muni deal if it comes off this quarter.  In addition, I'll be taking a negative charge (reduction) in expense for the quarter of just over $1 million, recooping all of our peaker expenses plus a little of our own direct time and expense.

Any questions please give me a call and I'd be happy to go into more detail.

Per

 -----Original Message-----
From: 	Sekse, Per  
Sent:	Tuesday, October 30, 2001 10:31 AM
To:	Price, Brent A.
Cc:	Williams, Karin; Bouillion, James L.; Davis, Jonathan; Sekse, Per
Subject:	Accounting of Portfolio Management Revenue for Insurance Risk Markets activities

Brent, I thought it would be helpful to supply some background for our meeting today at 1:30PM. My objective is to make sure you are fully up to speed on what we are doing, the accounting treatment we are using, and Corp's position on it all.

A little background. Since January, I have been working with Jim Bouillion's Corporate Risk Management team to create trading revenue through the proactive management of our corporate insurance needs --- what we are now calling Portfolio Management Revenue and booking to the MPR. Two examples of this which we pushed through in the 3Q follow below:

A.	1 transaction booked trading our political risk insurance book for total value of $716,000. Received risk sharing premium by modifying deductible, stop loss limits, 	coverage diversification and country diversification covered	under OPIC and with our commercial coverage and risk retention in our Vermont captive. P&L Reported:

	Reported MPR		$  716,000

B.	1 transaction booked for Hainan, China for total value of $ 406,000. Cancelled original stand alone insurance	policy with limited currency convertibility coverage and 	reissued coverage through Enron Re for lower premium, saving business unit $75,000, and better coverage. Reinsured Enron Re through commercial program and
	netted $406,000. P&L Reported:

	Reported MPR		$  406,000


For the 4Q we have a number of similar transactions going through. The fundamental business change I'm trying to implement is to have each Enron business unit pay market prices for their insurance cover, leaving IRM's Corporate Risk Management team the incentive to capture insurance risk trading revenues by dynamically managing the risk on an aggregated basis. Historically, any work Jim's team did was considered expense reduction and was simply refunded to Corp or directly to the business units. I consider this risk management activity to be no different than any commodity trading book at Enron where the risk manager (trader) keeps the value they create by trading efficiently in the market. Our market just happens to be insurance and our bid/offer spread is the difference between insurance and reinsurance premiums. These transactions are an effort to test the concept and push the system. 

The transactions we expect to push through in Q4 are:

C.	1 transaction to be booked as the second instalment of "A" above. The OPIC risk sharing premium was split into two payments over 3Q and 4Q.

	To be reported to MPR	$700,000

D.	1 transaction to be booked in our property insurance book. It is connected with EES's acquisition of Limbach. The market price for their insurance coverage is $400,000 which is being charged to them.  By placing the property asset physical damage coverage in the property program, we get automatic coverage for new acquisitions (up to certain values). The insurance market only charges when significant values are added or if the asset acquired is of a different nature than the mix already in the portfolio, for example, the paper mill acquisitions have generated a charge.

	To be reported to MPR	$400,000

E.	1 transaction to be booked capturing the value of our property coverage with Aegis and Energy Insurance Mutual. The insurance coverage essentially has a dividend option built into it based on Aegis's or EIM's overall loss experience during the year. These dividends are like going long options on loss experience and were captured by Corporate Risk Management's selection of dividend generating markets to write the coverage. (AEGIS also writes one of the broadest policy forms in the market and is very competitive on price.) 
	To be reported to MPR	$893,000

In addition. there is 1 transaction related to the sale of ENA assets (the Peakers) which normally would not have resulted in a property insurance refund. Jim's team negotiated with the underwriters and won a concession to recognize a reduction in premium midway through the year. The property program is an umbrella facility which gives us flexibility to move assets in and out of the program subject to the total value of the property and classification (hence the income recognized in "D"). We couldn't come up with a good defence for why this should be treated as revenue so we decided to take it in as a negative expense and avoid possible questions down the road. The total value we'll credit to expenses will be approx. $1.012 million. In addition, our group had over $600,000 of peaker transaction expenses that we were not reimbursed for when the insurance market transaction we were pursuing had to be cancelled after the sale of the assets.  

Karen has had a number of conversations with the Enron Corp acctg group. They do not have issues with the portfolio mgmt revenue as it is still below their materiality scope, somewhere around $5 million.
Hope this helps set the stage for our discussion this afternoon.
Per