Actuaries and Operational Risk Management

We set out desirable skills for such individuals as well as areas that actuaries might get more involved with in the future. We explore how operational risk fits into insurer own risk and solvency assessments and pension fund own risk assessments. We also explore ways of capturing the wisdom of experts, quantitative techniques commonly applied to operational risk measurement and management, stress testing disciplines, how best to cope with limited data and how best to set operational risk appetite and limits and we comment on operational resilience and risk culture.

1. INTRODUCTION 

1.1 The purpose of this paper is to survey skills and techniques that actuaries currently bring to the field of operational risk management and how these might develop further in the future. It is the authors’ belief that actuarial techniques and training and the professional ethos of actuaries makes actuaries with suitable industry experience well-placed to assist in this area. 

1.2 The paper has three main sections. In Section 2 we set out the disciplines and techniques that are (or could be) used in operational risk management (and likely near-term trends in these disciplines). We illustrate these by reference to those most applicable to insurance companies, thus in effect articulating the roles, responsibilities and skill-sets that might apply to an individual operational risk manager for such an organisation. Section 3 brings out the merits of multi-disciplinary implementation of these activities but also highlights how individuals with actuarial skill-sets and expertise are particularly well suited to assist in several of the targeted discipline areas. Section 4 broadens the discussion to other industries and economic sectors.

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