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Hello,
I don't understand the Battle Card where we are asked to describe the impact of unregistered reinsurance on MCT operational risk.
Why do we say that operational risk depends on insurance risk and credit risk ?
If you look at the formula for Operational Risk it is:
Min[0.3(I+C+M) , 0.085(I+C+M) + ..... (additional items that are not relevant to your question)]
I = MCT Insurance Risk C = MCT Credit Risk M = MCT Market Risk
By nature of the formula as any of these 3 risks goes up our operational risk will go up.
Unregistered reinsurance is part of insurance risk. As it goes up our Insurance Risk goes up which drives operational risk up as well.
Thank you !
Comments
If you look at the formula for Operational Risk it is:
Min[0.3(I+C+M) , 0.085(I+C+M) + ..... (additional items that are not relevant to your question)]
I = MCT Insurance Risk
C = MCT Credit Risk
M = MCT Market Risk
By nature of the formula as any of these 3 risks goes up our operational risk will go up.
Unregistered reinsurance is part of insurance risk. As it goes up our Insurance Risk goes up which drives operational risk up as well.
Thank you !