With a glint in her eyes and a smirk sliding across her face, Judy Lindenmayer recalled a professional crossroads she reached nine years ago.

She was interviewing for the risk manager's position at Boston-based FMR Corp., better known as Fidelity Investments. Fidelity's FMR Co. subsidiary provides investment advisory, management and shareholder services to the nation's largest pool of mutual funds.

By all accounts, the highly energetic and plain-dealing Ms. Lindenmayer loves a good challenge, whether she is on the giving or receiving end. So she had some doubts about the appeal of Fidelity's risk management position.

"During the course of the interview, and I laugh about this today, I wondered if I'd feel challenged working for a mutual fund complex," she recollected.

"I soon found out I needn't have worried about that."

That is because the far-flung Fidelity is much more than a mutual fund complex, with its Boston World Trade Center, computer software development, credit card, executive livery service, executive search firm, hotel, life insurance company, publishing, retail art gallery, stockbrokerage, telecommunications and trust operations, among others.

Fidelity's various business interests were not quite that expansive in 1988, but they were well on their way.

From the day Ms. Lindenmayer took over what was then a 9-month-old risk management department that did not even keep copies of its insurance policies on site, through her current cutting-edge risk management projects, she has been tested.

"She's balancing the core business and operational challenges of being a financial institution with the professional liability issues and being the biggest in the mutual fund business," observed Anne Blodget, a vp with Aon Risk Services Inc. of Massachusetts in Boston.

Then the Fidelity Capital group of companies, which are not involved in the mutual fund operation, "has some real basic issues, like workers comp," Ms. Blodget noted.

"She'll pick up one phone call and have to deal with a mutual fund. The next phone call, she will have to deal with the hotel that's under construction and how well the construction site is gated.

"That repeats itself overseas with FIL," Ms. Blodget noted, referring to Bermuda-based mutual fund complex Fidelity International Ltd. FIL is independent from Fidelity, though both have some common ownership. Ms. Lindenmayer, on a consulting basis, serves as FIL's part-time risk manager.

But, Fidelity has its own foreign-based operations as well, and Ms. Lindenmayer must manage their risks, pointed out Bill Williamson, another vp at Aon Risk Services.

Ms. Lindenmayer said her toughest challenge may be "having to think like Ned Johnson," Fidelity's "visionary" chairman and chief executive officer, who has diversified Fidelity greatly since he took over the company's reins from his father a quarter century ago.

"He feels comfortable doing new things," said Ms. Lindenmayer, who last year was promoted to vp-Fidelity insurance and risk management. That goes for more than Fidelity's business ventures. Mr. Johnson and Ms. Lindenmayer brainstorm two or three times a year about new directions risk management could take.

And, it has taken quite a few new twists and turns at Fidelity.

One of the most notable is the financial insurance product she negotiated that covers previously uninsurable risks.

Under the coverage Ms. Lindenmayer nailed down last fall, Fidelity now is protected, for example, against the potential financial havoc that a rogue securities trader could wreak-a lesson British bank Barings P.L.C. painfully learned in its 1995 downfall (BI, March 6, 1995).

That's just one example of Fidelity's broadened protection under that coverage. Assembling an extensive list of others is not possible because the coverage is not limited to scheduled perils. Indeed, it is limited by only a handful of exclusions.

Ms. Lindenmayer and her staff of seven, to whom she routinely provides the opportunity to handle major projects, have strengthened Fidelity's risk protection in many other ways, as well.

They have, among other things:

Developed two separate integrated, or concentric, programs-one each for FMR Co. and FMR Corp.-that consolidate their respective bond and professional coverages. Both have dramatically expanded coverage and cut insurance costs.

Moved Fidelity's retained casualty risk into a new pooling arrangement designed to provide Fidelity's captive insurer tax-advantageous third-party business as well as even more stable loss variability.

Developed another captive that would protect Fidelity's money market mutual funds if par value in any one of them drops below $1 per share and the fund steps in to keep its shareholders' positions whole. Fidelity is awaiting approval from securities regulators, but tax regulators already have green-lighted the captive.

Developed a construction wrap-up insurance program with unusually low per loss and total project loss retentions.

"She has taken risk management from a defensive position to an offensive one," observed Brian Kawamoto, one of Ms. Lindenmayer's brokers. Her department is "not just a cost center," said Mr. Kawamoto, an executive vp at Aon Risk Services Cos. Inc. in San Francisco.

Those and other accomplishments have earned Ms. Lindenmayer the 1997 Business Insurance Risk Manager of the Year Award.

The 1997 award marks the 20th annual presentation of the honor and its first official recognition by the Risk & Insurance Management Society Inc.

For Ms. Lindenmayer, the fourth woman to receive the award, it comes 28 years after she was drafted into the risk management profession by her boss at bedding company Sealy Inc. in Chicago. Sealy's then-changing business interests were pulling her boss into new areas of responsibilities. As a result, he coaxed Ms. Lindenmayer, then a personnel manager, into taking over responsibility for purchasing the company's property/casualty insurance-an alien task to her at that time (see story, page 105).

The measures available to protect companies against risk have come a long way since then, as has Ms. Lindenmayer.

Case in point: Fidelity's new three-year financial insurance program, which protects the company against previously uninsurable risks. The program, which went into effect Sept. 30, 1996, is the first phase of a work in progress that perhaps by year's end also will provide Fidelity broad catastrophe coverage.

Hand in glove with that greater protection is a cleaner balance sheet, noted Gerald Lieberman, a senior vp and chief financial officer for Fidelity.

"It gives us more freedom, quite frankly, with our balance sheet," because it frees up capital and reserves that had been allocated to previously uninsurable risks.

"The last thing you want to do is protect risk on the balance sheet itself. It's much like hedging risk in corporate finance," he said. "It's really exciting for us."

The multiyear policy period is a recurring feature throughout Fidelity's risk-financing portfolio-and it is an important one, Ms. Lindenmayer said.

"With the way our industry is changing, everybody has to grab pieces of time wherever they can. For risk managers to go through the annual hazing process of renewal on every piece of coverage does a disservice to them and to their employers."

In describing the broad protection that the first phase of the coverage provides Fidelity, Ms. Lindenmayer and Mr. Kawamoto said it is best portrayed by itemizing the relatively few exposures it does not cover. And, most of the excluded risks are covered by other risk-financing arrangements. Those excluded risks are: automobile; employee liability; customer losses resulting from stock market fluctuations; losses excess of Securities Investor Protection Corp. coverage, a government program that insures stock market investors against losses resulting from stockbroker insolvency; pollution; first-party political risk; war; workers compensation; and property.

Fidelity walked into the project willing to accept those exclusions because it figured it probably would not be able to hash out a risk-financing program that covers all insurable and all uninsurable risks, Ms. Lindenmayer explained. "So, we said let's carve out the things we're not concerned about. Anything else is covered."

But, the policy does not schedule those covered risks. "It's almost the opposite," Mr. Kawamoto said. "None of us is smart enough to think about all the things that can happen," and those are the risks the policy covers, he said.

Ms. Lindenmayer and Mr. Kawamoto, though, have some thoughts about the previously uninsurable exposures that now are covered.

Foremost in their minds are the losses that a rogue securities trader can generate.

Nick Leeson, a futures trader for Barings who now is imprisoned in Singapore, was responsible for more than $1.3 billion in losses that landed the British bank in liquidation. While Barings had bankers blanket bond coverage, that protection was not triggered because the rogue trader was not enriched by his unauthorized securities trading.

Additionally, the insurance would cover Fidelity against losses arising from the computer millennium problem, according to Mr. Kawamoto. "This is not (specifically) designed to cover it, but it will cover it," he said.

"It's clearly catastrophe sleep insurance" he said.

Over a 15-month period beginning in 1995, Ms. Lindenmayer hammered out the financial insurance product with Aon Risk Services and American International Group Inc., the lone insurer involved in the project.

The broad, multiyear coverage incorporates elements of finite risk insurance and capital market functions.

"But, it's not an off-the-shelf event," Mr. Kawamoto stressed. "It's not just another finite risk product. It went through many mutations. It's truly best categorized as a financial insurance product."

"It's really cutting-edge stuff in risk management," said Ms. Lindenmayer's supervisor, John D. Crumrine, vp and corporate treasurer at Fidelity. "Judy is great at pulling and pushing into this area."

AIG, though, has structured some programs like this one for other companies, according to Robert Omahne, executive vp of AIG Risk Finance, a division of AIG of New York.

Fidelity and AIG are partners for a part of this program, but there also is strict risk transfer in the program, said Ms. Lindenmayer, Mr. Kawamoto and Mr. Omahne.

For losses stemming from previously uninsurable risks, there is a $100,000 deductible of sorts.

But, the financial insurance product is structured in such a way that Fidelity does not have a regular insurance policy under which there is a definable deductible and the insurer pays for losses after that deductible is met. To a certain extent, Fidelity and AIG will share the losses or, if losses are minimal, the returns on the portion of the premium that is used to establish an experience account for Fidelity.

The coverage does multiple duty by also serving as excess insurance above $100 million of coverage and as difference-in-conditions insurance.

It sits excess of-among other coverages-the integrated, or concentric, risk program that consolidates FMR Corp.'s bond and professional coverages (see related story).

It serves as DIC coverage over Fidelity's other insurance, except property, workers compensation, automobile and the SIPC coverage.

And, often, the financial insurance does not exclude risks barred in the underlying coverage.

The financial insurance is only the first phase of an ambitious plan to line up $1 billion of catastrophe coverage, which Ms. Lindenmayer hopes to complete by next year.

Mr. Johnson, Fidelity's chairman, sparked the whole process in 1995 after Ms. Lindenmayer unveiled her plans for the concentric risk programs.

They began talking about where Fidelity was headed and "what kinds of questions we all ask a lot that keep you up at night," she explained. "While we are confident that our control and compliance activities are keeping pace with the rapid pace of the company, we all worry something is going to sneak through."

Mr. Johnson told her he wanted $1 billion of catastrophe coverage and that he would be willing to have Fidelity carry a $100 million deductible.

Ms. Lindenmayer was charged with finding the coverage.

Recalling a presentation she had heard Mr. Kawamoto make at a Massachusetts Chapter of RIMS meeting, she turned to him for help.

They then identified the markets they wanted to approach.

"You can imagine the reaction we got when we said we wanted a policy that covered everything except a few things," she said.

Five insurers expressed interest in the whole concept, but only two were interested in the financial insurance piece, which Fidelity concentrated on first.

Those that were interested had concerns about the risks that triggered Fidelity's search.

"We talked to them individually and collected their concerns," Ms. Lindenmayer said.

She then set up meetings for the underwriters to address their concerns with the people who ran the business.

For example, they were taken to the trading floor at the Boston World Trade Center.

"Our company is extremely advanced when it comes to technology," spending $200 million to $300 million a year on advancements, she said. "It's a great story to tell the underwriters."

For example, if a trader attempts to execute an unauthorized transaction, "he gets flamed," which is a warning that appears in the form of a graphic of flames on the trader's computer screen.

At the same time, the computer sends a warning message to the compliance group, and a representative heads to the trading floor to review the activity.

"That all happens before the trade is made. That's very unusual," Ms. Lindenmayer said.

The underwriters also talked with Fidelity's chief risk officer, James C. Lam, a Fidelity vp who focuses on the corporation's financial risks. He had conducted a global risk review from which he discerned the risks, risk-evaluation procedures, key risk-control measures and total losses at Fidelity's operating companies and corporate departments.

Mr. Omahne said AIG won the coverage for a few reasons, including the flexibility of coverage AIG offered and the structure of the program.

"But it's not just the funding that makes the deal go for us. We're a risk-taker, so there is a substantial amount of risk transfer in the program," Mr. Omahne said.

In addition, AIG had worked with Fidelity before, so it was experienced in dealing with its types of claims.

Neither Ms. Lindenmayer nor Mr. Omahne attribute to the enduring soft property/casualty insurance market her ability to craft this protection or AIG's willingness to offer it.

"I think some underwriters are forward thinkers about what they can do to keep all that money from going to the alternative market," Ms. Lindenmayer said. "They should get more than a pat on the back for all of that forward thinking."

"I firmly believe this is the way insurance will be done for many companies in the future," Mr. Omahne said. "Many companies, like Fidelity, are perfectly capable of assuming risk but want catastrophic or shock-loss coverage" plus the preferential tax and accounting treatment.

"I quite frankly believe it's not a function of the soft market."

"It has interesting implications not only for our company but for the insurance industry as well," said Mr. Crumrine, Fidelity's treasurer.

For Fidelity, though, it is an evolving program, Ms. Lindenmayer said.

"Limits will go up from here. My charge is to protect the company's catastrophic risks," she said.

"I think it's going to be a very powerful tool."

Regarding the catastrophe coverage Fidelity is trying to line up, Mr. Lieberman, Fidelity's CFO, said, "We can't find anyone else who's done it," though Fidelity knows of a few other companies that are trying to pull together a similar program.

Fidelity officials are not commenting now about how they are trying to structure the catastrophe portion of the program. But, Mr. Lieberman has an idea why others have not done something similar before.

"I think you have to sit back and think about insurance in an unconventional way." Part of that process is "coming up with the financial techniques to minimize risk and its cost."

Mr. Lieberman lauded Ms. Lindenmayer for her efforts to fashion a risk-financing program that frees up a chunk of Fidelity's capital.

She was able to pull it off because of her experience, her ability to translate financial and insurance terms into a common, understandable language, her knowledge about how the insurance industry thinks, and her outstanding networking ability within the U.S. and the London markets, he said.

"She's a real seasoned pro."