Prudential Standard FSI 4.4 (Operational Risk Capital Requirement)

Question 1

Operational risk

Answer 1

The risk of loss arising from inadequate or failed internal processes, people and systems or from external events.

Operational risk includes legal risk, but excludes risks arising from strategic decisions and reputational risk.

Question 2

How is the operational risk capital requirement calculated for LINKED INSURANCE obligations?

Answer 2

By applying step-wise, decreasing linear risk factors to the volume of Assets Under Management (AUM) in respect of those insurance obligations.

Question 3

How is the operational risk capital requirement calculated for NON-LINKED INSURANCE obligations?

Answer 3

As the maximum of the operational risk capital requirement determined using:
- earned premiums
- technical provisions (excluding the risk margin)
as measures of scale.

Question 4

Limit on the operational risk capital requirement for non-linked insurance obligations

Answer 4

A cap of 30% of the Basic Solvency Capital Requirement (BSCR)

Question 5

GO OVER THE PRUDENTIAL STANDARD

Answer 5

SERIOUSLY. IT’S LIKE 4 PAGES LONG.