25.2 Operational Risk to Insurers

Study show that insurer failure are mostly attributed to under reserving and under pricing

Underlying cause of insurer failure is actually op-risk

• e.g. Over accumulation of risk exposure (insufficient initial reserving or premature reserve release) given the asset base

• e.g. Overly optimistic plan loss ratios

Clear that op risk have heavily contributed to insurance impairments and should be explicitly model

• Currently capital charges for premium, reserve, and growth are partially proxies for operational risk