ORIC and the regulatory landscape

ORIC has been launched partly as a response to new regulations. The UK Financial Services Authority (FSA) and Solvency II, the EU Directive, both consider operational risk when defining solvency requirements for insurers.

The FSA is supportive of this industry-led initiative on operational risk and is showing a keen interest in the future development and expansion of the consortium. FSA also views ORIC as useful industry-wide initiative to improve completeness of firm data > FSA DP08/4: The path to Solvency II, Sep '08

The consortium participates actively in regulatory initiatives to represent ORIC members and promote good risk management practices across the industry. For example, we maintain close dialogue with the FSA on a number of areas and sit on its ISG Operational Risk Expert Group, which discusses topics linked to the UK supervision of insurance companies and issues raised by the EU Solvency II Directive. For example, feedback from the Solvency II QIS 4 exercise indicates that the most common categorization of risk events is through the ORIC framework > CEIOPS: QIS4 Summary results and main messages, Oct '08  &   FSA UK country report: The QIS4 for Solvency II, Dec '08

Importance of external loss data

Quantifying appropriate capital requirements for operational risk remains a challenge for many insurers. This is because internal data on operational losses are often limited and biased. An external source of loss information not only provides evidence for the robust assessment of capital requirements for operational risk. Consortium data also offer an adequate benchmark against which a company’s individual loss experience and risk-management approach can be compared.

At the EU level, the Committee of European Insurance and Occupational Pensions Supervisors (CEIOPS) has recently set up an Internal Models Group to take forward the work on internal models within Solvency II. CEIOPS is also developing detailed advice on implementation measures around operational risk. Against this backdrop, ORIC continues co-operating with CEIOPS to ensure its database helps insurance companies foster their modelling capability in anticipation of internal model approval.