Actuarial body issues best practice for operational risks
Friday, 03 25 2016, Category: Insurance and Reinsurance, Country: United Kingdom
The Institute and Faculty of Actuaries (IFoA) in UK has outlined measures to address the issues of operational risk for banks, insurers and other financial services firms.
According to its report "Good practice guide to setting inputs for operational risk models", scenario analysis was essential in order to properly model operational risks such as loss of data.
Expert judgment was also necessary to determine correlation assumptions given the limitations of correlations derived from historic data.
However, the report warned reliance on scenario analysis and expert judgments would create “significant subjectivity” for operational risk models. “This needs to be controlled by robust and independent review and challenge”.
Source: The Actuary