Chapter 25 ERA 4.1 & 4.2 Operational and Strategic Risk - D. Mango, G. Venter
Op risk
\(\star\) Basel definition 25.1 and 7 types of op risk
- Contrast with strategic risk
Underlying cause of insurer failure is actually op-risk
- Plan loss ratio example on how optimistic loss ratio propagates forward and \(\star\) 3 different reasons for it
Cycle management and how to improve performance
Requirements from a system performance perspective
\(\star \star\) IP, u/w incentives, market overreaction, owner education
- \(\star\) Agency theory, Op-risk for heavey processes, control self-assessment, KRI, 6 \(\sigma\), and \(\star\) op-risk modeling
Strategic risk
\(\star\) Various definition of strategy 25.5, 25.8, 25.9 and strategic risk 25.6, 25.10, 25.11
- Contrast with op-risk
Various research to date
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- Elements of strategic risk
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- \(\star\) Category of strategic risk 25.1
Scenario planning and the 10 Steps
- Look at the insurance example and the advantages of scenario planning
Expend to several LoBs with dependencies
4 requirements for stochastic scenario planning
\(\star\) Agent based modeling (competitors, customers, regulators)