The IAFE’s Operational Risk Committee Releases
White Paper on Operational Risk and Insurance

The Operational Risk Committee of the IAFE announced today the release of its white paper on Operational Risk and Insurance. The report is based on a panel discussion on operational risk and insurance that the IAFE Operational Risk Committee (ORC) recently hosted in New York.

The white paper explores the growing connection between operational risk and insurance, and discusses the heightened interest of market participants in this subject.

The paper reports 4 key findings:

1.Operational risk and insurance functions are increasingly working together to build more optimal risk strategies in financial institutions.
2.The growing alignment of operational risk and insurance is prompted by the proposed Basel II Capital Accord and the greater emphasis on economic capital.
3.The insurance industry is seeing increased demand for new insurance products to cover operational risk.
4.New demand for innovative insurance products will drive efforts by firms to evaluate operational risk and to engage in additional benchmarking activity.

Nevertheless, while there has been considerable progress on these and other issues, there is much work ahead for both the financial services industry and the underwriters.

The participants in the IAFE panel discussion that served as the foundation of this white paper were: Penny Cagan, Fitch Risk and Co-Chair of the IAFE ORC; Corbette Doyle, AON Financial Institutions Alliance Group; Charles Fishkin, Fidelity Investments and Co-Chair of the IAFE ORC; Peter Holmes, Independent Operational Risk Advisor; Monique Miller, Caxton Associates and Co-Chair of the IAFE ORC; Dan Mudge, Fitch Risk; Sean O’Malley, AIG; and Ted Pitt.

The IAFE’s Operational Risk Committee was formed in 2000 with the mission to promote dialogue among members and the broader risk management community to further understanding, share best practices and promote industry standards regarding operational risk. The committee is composed of individuals with a range of backgrounds, including dealers, end-users, industry advisors, operational risk specialists, technologists, regulators, scholars and others. Members serve on the Operational Risk Committee in their individual capacities as opposed to as representatives of their respective employers or organizational affiliations.

The IAFE ORC White Paper on Operational Risk and Insurance can be viewed on the IAFE’s web site, www.iafe.org.

About the IAFE:
The IAFE is the not-for-profit professional society dedicated to fostering the profession of quantitative finance by providing platforms for the discussion of cutting-edge and pivotal issues in the field. Founded in 1992, the IAFE is composed of individual academics and practitioners from banks, broker dealers, hedge funds, pension funds, asset management firms, technology firms, regulatory bodies, accounting, consulting and law firms, and universities across the globe.

For more information on the Operational Risk Committee or the IAFE, please contact the director at (212) 317-7479 or main.iafe.org.