Operational risk management: practical implications for the South African insurance industry

Abstract

Like its European counterparts, the South African insurance industry is moving towards its own risk-based regulatory regime, Solvency Assessment and Management (SAM). As a result greater focus is being placed on the appreciation of risks facing firms, of which operational risk forms a significant part. This paper aims to review operational risks as they pertain to South African insurers, both in internal risk-management practices and for the purposes of regulatory compliance. It presents principles and initiatives that have the potential to assist insurers in their identification and management of operational risks. A framework for the management of operational risk is discussed, as is the use of operational-loss data in this framework. Through an industry survey, this paper assesses perceptions towards operational risk, as well as views on the SAM regulations for the calculation of operational risk capital. Furthermore, high-level feasibility of an industry-wide operational-risk consortium database is studied.

Keywords: Operational risk; Risk management framework; Solvency Assessment and Management; Operational Risk Consortium; ORIC; Risk Event Database; RED