Approaches to Modeling Operational Risk Capital for Insurance Companies

Transcription

1 Canadian Institute of Actuaries Committee on Research Approaches to Modeling Operational Risk Capital for Insurance Companies as at August 7th, 2013 I. Research Project Overview The Canadian Institute of Actuaries [CIA] Committee on Risk Management and Capital Requirements [CRMCR] wishes to have a research document generated with the following content: An exhaustive and mutually exclusive list of Operational Risks (OR) that affect insurance companies (life, health, P&C, reinsurance, etc), and an analysis of which OR require capital assessment. A process for reviewing and updating the list and associated assessment after the document s creation should also be provided. A summary of methods used to quantify operational risk, and the pros/cons of each approach. While the focus is on life and non-life insurance enterprises, approaches taken in other industries may have relevance to the insurance sector. It is expected that this summary would be based on a search of published literature (academic, regulatory, actuarial, etc). A process for augmenting the summary of methods (e.g. list of publications that may identify further quantification developments) should also be provided. The CRMCR Operational Risk Subcommittee (CORS) is responsible for this initiative. The scheduled completion date is January 31, II. Research Project Schedule A summary schedule of certain key research project milestones, and their associated completion dates, is set out below. Research Project Milestones Completion Dates 1 Release and distribution of RFP August 7, Deadline for submission of expressions of interest in submitting a proposal to CORS chair August 22, 2013 (5:00 pm EDT) 3 Deadline for submission of questions regarding RFP August 30, 2013 (5:00 pm EDT) 4 Deadline for submission of proposals to CORS chair September 13, 2013 (5:00 pm EDT) CRMCR RFP_Operational Risk Page 1 of 6 12:58 PM 7-Aug-13

2 5 Selection of lead proposal by CORS September 27, Approval of lead proposal by Research Committee October 11, Research project contract endorsed by winning respondent ('Researcher') Research Area of Concentration #1 (RAC #1) first draft submission by Researcher to CORS chair October 25, 2013 November 8, 2013 (5:00 pm EDT) 9 RAC #1 draft comments from CORS to Researcher November 15, 2013 (5:00 pm EDT) 10 RAC #2 first draft submission by Researcher to CORS chair November 29, 2013 (5:00 pm EDT) 11 RAC #2 draft comments from CORS to Researcher December 6, 2013 (5:00 pm EDT) 12 RAC #3 first draft submission by Researcher to CORS chair December 20, 2013 (5:00 pm EDT) 13 RAC #3 draft comments from CORS to Researcher January 10, 2014 (5:00 pm EDT) 14 Final draft submission by Researcher to CORS chair January 31, 2014 (5:00 pm EDT) Note that the above dates may be revised to reflect RFP process requirements. III. Research Project Sponsor The analysis of the research project is under the auspices of the Canadian Institute of Actuaries [CIA]. The CIA was incorporated in 1965 by federal statute, and is the national organization of the Canadian actuarial profession with offices located in Ottawa, Ontario. A member driven organization, the CIA is dedicated to serving its publics through the provision, by its members, of actuarial services and related advice of the highest quality. One of the CIA s specific and continuing responsibilities is to foster the advancement of contemporary actuarial practice through relevant research. The CIA s Research Committee is the sponsor of the research project per its mandate. The Research Committee reports directly to the Member Services Council and is responsible for overseeing all research performed within the CIA. It also has the responsibility, but not the exclusive responsibility, of identifying the need for research projects as well as experience and other studies that are of interest to the membership of the CIA and/or the Canadian public and that are likely to be helpful in developing Institute recommendations in matters of public policy. Once an opportunity has been identified, the Research Committee must ensure the execution of the project. The Research Committee may, when necessary to conduct research, create Task Forces and/or sub-committees from all actuarial disciplines or enter into joint ventures with other partners, such as academic institutions or other actuarial organizations. The Research Committee will ensure that all research papers are reviewed and published in accordance with the CIA Guidelines for Submitting Papers, and will periodically review and recommend changes to those CIA Guidelines to the Member Services Council as necessary. The Research Committee recommends allocation of funds for the conduct of selected research projects and studies. The Research Committee s current membership is listed below: CRMCR RFP_Operational Risk Page 2 of 6 12:58 PM 7-Aug-13

3 Dave Dickson, chair Claire Bilodeau Donald Blue Julie Chambers Marc-Oliver Faulkner Benoit Miclette Leonard Pressey Faizel Alladina A. Kim Young Robert Brown Rodney Coelho Candice Hung Diana Pisanu Nikolai Serykh IV. Research Project Management Team The Research Committee will rely on the CRMCR Operational Risk Subcommittee (CORS) to review and evaluate the request for proposal [RFP] submissions, recommend a winning respondent and oversee delivery of the final research paper. The CORS chair is the key contact person for parties interested in this RFP. The CORS s membership is listed below. Glenalan Cameron, chair Marco Fillion Robert Berendsen (CRMCR chair) Andrea Sherry Eric Lemay The CORS s mandate, as it pertains to the RFP process, includes sole responsibility for: i) The review all of the research project proposals received before the submission deadline in concert with members of the CRMCR; ii) Identification of a lead proposal which, in the CORS s view based on the proposals alone, best meets the research project requirements; and iii) Communication of their recommendation regarding the lead proposal to the Research Committee for the Research Committee s approval. Once a winning proposal has been confirmed by the Research Committee, the CORS will contact all of the RFP respondents to confirm the status of their individual submission. Should the CORS determine that no proposal satisfactorily meets the research project requirements, then the Research Committee reserves the right not to award the research project to any of the respondents. All formal correspondence regarding the research project RFP (i.e. written expressions of interest in the RFP, questions about the RFP, and submission of the proposals themselves) must be directed to the CORS chair at the following address: glenalan_cameron@manulife.com CRMCR RFP_Operational Risk Page 3 of 6 12:58 PM 7-Aug-13

4 All questions received regarding the research project, together with the CORS responses, will be promptly communicated to each of the parties who submitted an expression of interest prior to the submission deadline. V. Research Scope The purpose of this section is to outline the basic and essential requirements of the Research Paper (RP). There are three key Research Areas of Concentration (RAC) outlined in the following table. The weights assigned to each RAC indicate their relative importance to CORS, and provide guidance as to expectations of RP content volume for the specific RAC. RAC Description Weight 1 Identification and Categorization 2 Quantification Methods 3 Contrast and Compare A mutually exclusive and collectively exhaustive list of OR that impact insurance companies, and a process for identifying emerging OR Outline of various OR definitions (e.g. different regulatory regimes, such as Europe) Segmentation of OR into those which are quantifiable from a capital context and those that require other treatment, and a process for segmenting future emerging OR A description of different OR capital quantification methods A discussion of implementation considerations, including model calibration methods, methods for reflecting offset due to strength of OR management programs, reporting, etc A bibliography of source documents used, and an outline of publications and other sources which in the future could identify new techniques for quantification A comparison of existing regulatory capital quantification methods (e.g. Basel II, emerging OSFI criteria, latest Solvency II QIS approach, Swiss Solvency Standards, etc.) A comparison of emerging internal model approaches (e.g. company specific rather than regulatory/industry approaches) to OR capital quantification 33% 33% 33% VI. Research Project Requirements The research project will be undertaken according to the terms of a Research Project Agreement, and a Non-Disclosure Agreement, which will be completed by the winning respondent and returned to the CORS chair by the date and time outlined in Section II. In general terms, it is expected that the researcher(s) will collaborate with the CORS regarding the ultimate design of the research project. VII. Proposal Requirements CRMCR RFP_Operational Risk Page 4 of 6 12:58 PM 7-Aug-13

5 There are several necessary requirements for the submission of an effective proposal regarding the Approaches to Modeling Operational Risk Capital for Insurance Companies research project, described as follows: A. Related Documents This RFP document should be reviewed in conjunction with the attached i) sample Research Project Agreement, ii) sample Non-Disclosure Agreement, and iii) CIA Guidelines for Submitting Papers which will collectively define the terms and conditions under which the research project is to be undertaken. B. Expression of Interest Parties considering submission of a proposal for the research project must provide a written expression of interest to the CORS chair by the date and time outlined in Section II. All those providing an expression of interest will thereby be able to receive a copy of all questions and answers relating to the RFP distributed by the CORS prior to the proposal submission deadline. C. Contact Information Both the expression of interest in the RFP, and the research project proposal, must include the name(s) of the researcher(s) and as well as their contact information (i.e. mailing address, daytime telephone number, and address). D. Researcher Qualifications The proposal should be accompanied by the résumé(s) of the researcher(s), indicating how the background, education, and work/research experience and accomplishments of the researcher(s) supports to his/her (their) ability to effectively complete the research project. E. Description of Work and Time Line The proposal should include a clear description of the work that will be performed, including an outline of the time line (including key dates) over which the work will be completed. F. Cost Estimates The cost estimate for the components identified in Section V, including computer time, salaries, etc. Such estimates can be in the form of hourly rates, but in such cases, time estimates should also be included. Any guarantees as to total cost should be given and will be considered in the evaluation of the proposal. While cost will be a factor in the evaluation of the proposal, it will not necessarily be the decisive factor. G. Proposal Submission The proposal must be received by the CORS chair by the date and time outlined in Section II. Receipt of the proposal will be confirmed by the CORS shortly thereafter. A complete listing of the RFP respondents will in due course be sent to all researchers who submitted a proposal. VIII. Research Project Remuneration CRMCR RFP_Operational Risk Page 5 of 6 12:58 PM 7-Aug-13

6 Payment by the CIA of such financial consideration will be contingent upon satisfactory completion of the terms and conditions of the research project by the researcher(s) IX. Ownership of Work Product As a necessary condition of the selection of a particular respondent, the CIA will assume full ownership (i.e. all rights, title, and interest, including copyright and patent) of the ensuing work product. The researcher(s) selected by the Research Committee will be required to sign a formal Research Project Agreement that assigns all such rights irrevocably to the CIA CRMCR RFP_Operational Risk Page 6 of 6 12:58 PM 7-Aug-13