Tue 10 Oct 2023 - Operational risk is one of the most difficult risks to model. It is a large and diverse category covering anything from cyber losses to mis-selling fines; and from processing errors to HR issues. Data is usually lacking, particularly for low frequency, high impact losses, and consequently, there can be a heavy reliance on expert judgement.
This paper seeks to help actuaries and other risk professionals tasked with the challenge of validating models of operational risks. It covers the loss distribution and scenario-based approaches most commonly used to model operational risks, as well as Bayesian Networks.
It aims to give a comprehensive yet practical guide to how one may validate each of these and provide assurance that the model is appropriate for a firm's operational risk profile.
You can watch the recording of this webinar on the IFoA's Virtual Learning Environment (VLE). Watch recording.
Validating Operational Risk Models (584 KB PDF)
Patrick Kelliher is a Fellow of the Institute and Faculty of Actuaries with over 30 years’ experience of financial services, predominantly in UK life insurance. Since 2003 he has specialised in risk management, first with Scottish Widows and later as Head of Market Risk and ALM for Aegon UK before starting up Crystal Risk Consulting Ltd. in 2011.
Patrick is a Chartered Enterprise Risk Actuary (CERA) and a member of a number of actuarial profession risk management working parties. He has produced papers and articles on a wide range of risk topics including risk classification, operational risk, liquidity risk and the differences between bank and life insurance risks.
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