Quantifying Operational Risk in Life Insurance Companies. Developed by the Life Operational Risk Working Party

2007 ◽  
Vol 13 (2) ◽  
pp. 257-337 ◽  
Author(s):  
N. C. Dexter ◽  
C. L. Ford ◽  
P. C. Jakhria ◽  
P. O. J. Kelliher ◽  
D. McCall ◽  
...  
Keyword(s):  
Risk Management ◽  
Life Insurance ◽  
Best Practice ◽  
Early Stage ◽  
Working Party ◽  
Operational Risk ◽  
Capital Requirements ◽  
Senior Management ◽  
Insurance Companies ◽  
Stage Of Development

ABSTRACTThis paper overviews a practical approach to the assessment of operational risk in life insurance companies. It considers how actuaries, working in conjunction with risk management professionals and senior management, can develop a framework to assess the capital requirements relating to operational risk, taking into account the capital requirements of other risks and their interaction.This paper recognises that we do not live in an ideal world, and that a lot of the data which one might want for operational risk assessment are not, and in some cases never will be, available. Consequently, the approach outlined in this paper takes into account the fact that management and assessment of operational risk is at an early stage of development in the life industry. In addition, it outlines some of the areas where development is necessary or desirable in the coming years.There is a section on the operational risks against which it is appropriate to hold capital. As this is a new area for insurance companies, and given the governance requirements for Individual Capital Assessments, it is important to explain the results effectively to senior management. Therefore, a brief review of techniques for reporting the results of the assessment is provided.The paper concludes with some thoughts on how operational risk management can be embedded more in the business, and then considers what future work will help develop the framework. To echo the thoughts of the authors of the general insurance paper on this topic (Tripp et al., 2004), we hope that the paper will sow seeds for the development of best practice in dealing with operational risk, and will raise the awareness and increase the interest of actuaries in this emerging topic.This paper represents the views of the individuals in the working party, and not necessarily the views of their employers or the Actuarial Profession.

scholarly journals A review of Solvency II: Has it met its objectives?

2018 ◽  
Vol 23 ◽  
Author(s):  
R. A. Rae ◽  
A. Barrett ◽  
D. Brooks ◽  
M. A. Chotai ◽  
A. J. Pelkiewicz ◽  
...  
Keyword(s):  
Risk Management ◽  
Financial Stability ◽  
Working Party ◽  
Solvency Ii ◽  
Capital Requirements ◽  
Insurance Companies ◽  
Original Design ◽  
Risk Margin ◽  
The Impact ◽  
Market Consistency

AbstractSolvency II is currently one of the most sophisticated insurance regulatory regimes in the world. It is built around the principles of market consistency and embedding strong risk management and governance within insurance companies. For business with long-term guarantees, the original basis produced outcomes that were unacceptable to the member states. The original design was amended through Omnibus II. The working party has looked back at the outcome of the final regulation and comments on how well Solvency II has fared, principally from a UK perspective, relative to its initial goals of improved consumer protection, harmonisation, effective risk management and financial stability. We review Pillar 1’s market consistent valuation (including the risk margin and transitional measures) as well as the capital requirements (including internal models). We look at the impact this has on asset and liability management, pro-cyclicality and product design. We look at Pillars 2 and 3 in respect of the Own Risk and Solvency Assessment, liquidity and disclosure. Finally, we stand back and look at harmonisation and the implications of Brexit. In summary we conclude that Solvency II represents a huge improvement over Solvency I although it has not fully achieved the goals it aspired to. There are acknowledged shortfalls and imperfections where adjustments to Solvency II are likely. There remain other concerns around pro-cyclicality, and the appropriateness of market consistency is still open to criticism. It is hoped that the paper and the discussion that goes with it provide an insight into where Solvency II has taken European Insurance regulation and the directions in which it could evolve.

scholarly journals Improving the success of InsurTech opportunities

2018 ◽  
Vol 23 ◽  
Author(s):  
D. Bruce ◽  
C. Avis ◽  
M. Byrne ◽  
V. Gosrani ◽  
Z. Lim ◽  
...  
Keyword(s):  
Risk Management ◽  
Early Stage ◽  
Insurance Industry ◽  
Full Range ◽  
Working Party ◽  
Insurance Companies ◽  
Business Decisions ◽  
Risk Appetite ◽  
Practical Guidance ◽  
Management Issues

AbstractThe Working Party has produced this report in order to prompt readers to engage at an early stage in InsurTech projects, through considering (i) the full range of risks associated with InsurTech developments, (ii) the lifecycle of an InsurTech venture and how any risk considerations may vary over this lifecycle and (iii) the extent to which InsurTech ventures align with risk strategy and risk appetite.The report contains practical guidance for actuaries, risk professionals, insurance companies and their Boards on these considerations, and can be used to facilitate appropriate questioning, to help ensure that InsurTech-related business decisions are fully cognisant of the risk management issues and to help ensure the success of projects.The Working Party developed this guidance having carried out an industry survey on a number of risk management topics relating to InsurTech, as well as having carried out interviews with a number of relevant senior stakeholders across the insurance industry, in order to better understand current sentiment and how risk management plays a part when considering opportunities in InsurTech. The Working Party views on the findings from these activities are summarised in the report.

Quantifying Operational Risk in General Insurance Companies. Developed by a Giro Working Party

2004 ◽  
Vol 10 (5) ◽  
pp. 919-1012 ◽  
Author(s):  
Michael Howard Tripp ◽  
H. L. Bradley ◽  
R. Devitt ◽  
G. C. Orros ◽  
G. L. Overton ◽  
...  
Keyword(s):  
Performance Management ◽  
Best Practice ◽  
Financial Analysis ◽  
Belief Systems ◽  
Working Party ◽  
Operational Risk ◽  
Value Theory ◽  
Risk Indicators ◽  
Insurance Companies ◽  
The Impact

ABSTRACTThe paper overviews the application of existing actuarial techniques to operational risk. It considers how, working in conjunction with other experts, actuaries can develop a new framework to monitor/review, establish context, identify, understand and decide what to do in terms of the management and mitigation of operational risk. It suggests categorisations of risk to help analyses and proposes how new risk indicators may be needed, in conjunction with more normal quantification approaches.Using a case study, it explores the application of stress and scenario testing, statistical curve fitting (including the application of extreme value theory), causal (Bayesian) modelling and the extension of dynamic financial analysis to include operational risk. It suggests there is no one correct approach and that the choice of parameters and modelling assumptions is critical. It lists a number of other techniques for future consideration.There is a section about how ‘soft issues’ including dominance risk, the impact of belief systems and culture, the focus of performance management systems and the psychology of organisations affect operational risk. An approach to rating the people aspects of risk in parallel with quantification may help give a better overall assessment of risk and improve the understanding for capital implications.The paper concludes with a brief review of implications for reporting and considers what future work will help develop the actuarial contribution. It is hoped the paper will sow seeds for the development of best practice in dealing with operational risk and increase the interest of actuaries in this emerging new topic.

scholarly journals Mechanisms of Protection from Interest Rate Risk with Reference to the Life Insurance Market in Montenegro

2018 ◽  
Vol 7 (1) ◽  
pp. 17-42
Author(s):  
Milijana Novović Burić ◽  
Vladimir Kašćelan ◽  
Milivoje Radović ◽  
Ana Lalević Filipović
Keyword(s):  
Risk Management ◽  
Interest Rate ◽  
Life Insurance ◽  
Financial Management ◽  
Financial Stability ◽  
Interest Rate Risk ◽  
Economic Security ◽  
Insurance Market ◽  
Insurance Companies ◽  
Rate Risk

Abstract Insurance companies are facing major challenges that point to the need for control process and risk management. Risk management in insurance has a direct impact on solvency, economic security, and overall financial stability of insurance companies. It is very important for insurance companies to adequately calculate risks to which they are exposed. Asset liability management (ALM), as an integrated approach to financial management, requires simultaneous decision-making about categories and values of assets and liabilities in order to establish the optimum volume and the ratio of assets and liabilities, with the understanding of complexity of the financial market in which financial institutions operate. ALM focuses on a significant number of risks, whereby the emphasis in this paper will be on interest rate risk which indicates potential losses that may reflect in a lower interest margin, a lower value of assets or both, in terms of changes in interest rates. In the above context, the aim of this paper is to show how to protect from interest rate changes and how these changes influence the insurance market in Montenegro, both from the theoretical and the practical point of view. The authors consider this to be an interesting and very important topic, especially because the life insurance market in Montenegro is underdeveloped and subject to fluctuations. Also, taking into account the fact that Montenegro is a country that has been making serious efforts to join the EU, it is expected that insurance companies in Montenegro will strengthen their financial position in the market even using the ALM traditional techniques, which is shown in this paper.

scholarly journals Risk Management Support and Organizational Performance: The Role of Enterprise Risk Management as Mediator

2017 ◽  
Vol 2 (2) ◽  
pp. 43
Author(s):  
Azreen Roslan ◽  
Nur Diyana Yusoff ◽  
Hayati Mohd Dahan
Keyword(s):  
Risk Management ◽  
Organizational Performance ◽  
Best Practice ◽  
Enterprise Risk Management ◽  
Senior Management ◽  
Mediating Effect ◽  
Management Support ◽  
Enterprise Risk ◽  
Economic Reality

Risk is inherent in all parts of the organization and if it is not efficiently managed by the senior management it will affect the confidence and expectations of the stakeholders. Enterprise Risk Management (ERM) is said as a best practice technique to evaluate and manage all these risks in this new economic reality. Therefore, organizations practicing ERM are more prepared in managing the feasible threats. In fact, there is a general consensus by scholars and researchers that organizations practicing ERM will improve the organizational performance. However, empirical evidence regarding this matter is still considered scarce. As such, the purpose of this paper is to investigate the mediating effect of ERM on risk management support and organizational performance among public listed companies.

scholarly journals Approaches in research on flood risk perception and their importance in flood risk management: a review

2021 ◽  
Author(s):  
Ewa Lechowska
Keyword(s):  
Risk Management ◽  
Risk Perception ◽  
Flood Risk ◽  
Early Stage ◽  
Flood Risk Management ◽  
Constructivist Approach ◽  
Stage Of Development ◽  
Information Research ◽  
Constructivist Approaches ◽  
Flood Risk Perception

AbstractThe study of flood risk perception factors can be considered by using different paradigms. In an attempt to understand risk perception, two basic paradigms can be distinguished: rationalist and constructivist. The rationalist approach tends to focus on modeling, characterizing, and predicting behavioral results regarding various threats. According to the constructivist paradigm, threats are perceived as socially constructed. This review paper aims to assess the importance of the rationalist and constructivist approaches in research on flood risk perception and flood risk management more broadly by answering the questions: (1) Which paradigm dominates the research of flood risk perception?, (2) What is the relationship between rationalistic and constructivistic factors (e.g., stimulation, weakening, strengthening, etc.)?, (3) which factors are more effective in moderating attitudes toward flood risk? The paper concludes by pointing out the desired direction of research on flood risk perception from the perspective of improving flood risk management. In contemporary empirical works managing the perception of flood risk, a rationalistic approach that psychometrically searches for cognitive models dominates. Often, statistically obtained dependencies are mutually exclusive. Studies on perception that apply the constructivist approach are in an early stage of development, nevertheless providing consistent results. They indicate that the social, political, cultural, religious, and historical contexts shape the perception of flood risk. On the basis of the aforementioned information, research on flood risk in a constructivist approach should be expanded, as it provides a clear, often underappreciated catalog of contextual factors shaping risk perception and, importantly, simultaneously moderating the influence of rationalist factors on flood risk perception.

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