WHAT are the risks in the stock market, what might happen to the economy, how long might I live? These sorts of questions are now compulsory for insurers, and increasingly at the heart of financial thinking for pension funds and for individuals.

But back in 2000, there was little interest in the company that had set itself up in a tiny office in an unfashionable street in Edinburgh with a mission to answer them.

Andrew Barrie and John Hibbert, working with a handful of staff, could not understand why the economic modelling and risk management consultancy they had started in Forth Street in 1995, leaving highly-paid jobs in an investment bank, had not taken off.

Then came Equitable Life, endowments, without-profits, splitcapital trusts, precipice bonds, and a UK regulator transformed from mild-mannered meddler into Superman.

Suddenly, Barrie & Hibbert was the insurance industry version of what everyone wants. It began to licence its own software, mushroom in size, and leave huge professional firms trailing in its wake.

This month, it became what Goldman Sachs wants too, when one of the planet's financial goldchips took a 35-per cent stake in the company, leaving its founders still in control, but now able to take on the world.

In their smart office in the shadow of Standard Life's headquarters (a recent upgrade from Melville Street) , they are continuing a partnership begun over 20 years ago in the analytical hothouse that was Wood Mackenzie in Edinburgh. Some breaks ensued, but they were reunited at WoodMac under NatWest's ownership in the early 1990s.

"One of the reasons we left was that it was an organisation that didn't really know what it wanted from my piece of the business, " says Hibbert, the modelling software guru who is the brains behind the company's ESG - economic scenario generator - now used by 70-per cent of major insurers in the UK and 60-per cent in Europe. "It was very striking when we set the business up how it was possible for the first time in years to achieve things very easily. The common theme running through all of the work we did from a very early stage was trying to take modern, market risk management disciplines, and apply them for our clients - investment managers, insurers, pension funds, and the product development arms of large financial institutions. At the time we felt these industries had fallen behind parts of the banking industry in taking best practice advice."

And they were right. "For the first few years we did lots of interesting work . . . and went from two people and a desk in Forth Street to five or six people - the business didn't grow quickly."

But the products developed by the financial industry with no apparent need for risk-management rocket science built in, including final salary pensions, were about to implode. "They were based on assumptions that markets would behave in a certain way - as long as they moved upwards it would all be fine, " Hibbert says. "When we got the bear market that shouldn't really have surprised anyone, returns looked very poor."

After Equitable Life, the quiet corner that had been modelling the effects of guaranteed annuity rates, for instance, was quiet no more. "We did some work for one of the Scottish life offices using these modern risk management approaches, which gave them a few nasty surprises, " Hibbert adds discreetly. "That drove us into some interesting areas for developing software."

Barrie, former ace derivatives analyst who takes the chief executive role, continues the story. "The big driver came when the FSA decided that the approach to reserving for capital that was being used by the insurance industry was inappropriate and introduced the "realistic" balance sheet - all of a sudden the work we were doing became mainstream. The FSA was putting quite dramatic deadlines on our clients, and the new capital management calculations had to be in place very quickly."

The software used to underpin the consultancy had become so sexy that the growing roster of clients wanted access to it. "We had to move from a consultancy company to a software company, " (though consultancy still brings in half the revenue).

Hibbert recalls: We had suffered in the past from not being a large firm, if it was a choice between using Deloittes and using three people sitting in Melville Street.

But what clients cared about was quality of product. Because we had been doing this sort of work for six or seven years we had already done most of the work and gone down most of the blind alleys and made many of the mistakes."

As word got round that the ESG was the holy grail, major new clients led by Munich Re and Aviva beat a path to Melville Street, and over a period of 18 months most of the industry's big fish were netted.

"More than 90-per cent of our client sales came from referrals rather than a sales team, " Barrie says. His partner adds: "Because we didn't have a sales team."

The bigger firms who failed to beat them are now joining instead, with Watson Wyatt the first consulting firm offering the licensed ESG rather than an inhouse model. Staff have grown to nearly 40, and the firm is now targeting North America and Asia insurance, as well as the UK pensions industry and retail funds market.

"Defined contribution pension schemes, and the demise of withprofits where the risk was borne by the office, means individuals are being asked to take on more risk and understand the risks they are taking, " Barrie says. "These whole approaches we are taking are now being effectively transferred to other sections of the market."

The B&H subsidiary, decisionsdecisions, provides the illustrations of risk in long-term savings products now being used by many financial advisers, thanks to distribution via insurers. Hibbert adds: "In the past advisers have got themselves into trouble by not having a clear process for their recommendations, and that creates part of the motivation. But questions like 'how poor am I going to be when I stop working' do hinge on the behaviour of financial markets over the next 20 or 30 years."

Past predatory approaches to B&H were rejected, says Barrie. "It became clear that several people could see how we could help their business but actually none of them were really interested in the business for itself. We always knew we could control it ourselves." The partners still hold more than 50-per cent, though staff equity is likely to increase.

For Barrie, stepping off is unthinkable. "People keep on talking to you about what your exit strategy is, but that implies some sort of finality, and we don't see why it should not go on forever, building infrastructure, building management team, building products."

Hibbert says: "We left an investment bank because we wanted to work for ourselves, for our own business, and we have achieved that up to a point . . . the business has grown, and having got ourselves into that nice position why give it all up?"

He is just back from a muchneeded six-month break following the heady growth years, and adds: "There is only so much golf you can play."