hi the question asks what are the op risks wrt moving from pim to im which is basically changing the op risk from sf to an int model. it says in the solution "for the annuity business this will include inadequate analysis of in force business" what does this mean and where it refers to?
Hi This is referred to within the Operational risk section of the Core Reading (see Chapter 22 Section 5). This could refer to not including sufficient data in analysis or not using the appropriate experience, etc. Thanks Em
I don’t fully understand this question. How come the consideration of operation risks will change when the company changes a partial internal model to a full one? Is this in the course notes?
The question states that the company's partial internal model is such that it uses an internal model for all risks other than operational risk, for which it uses the standard formula. The question is therefore asking about how your assessment of operational risk would change once you were doing it under the internal model (which, as stated in the Core Reading (CR), needs to allow for the company's own view of its operational risks) rather than under the standard formula (SF). The SF operational risk module is described in the CR as being 'relatively simple, being based on percentages of earned premiums and technical provisions'. So it doesn't take into consideration the specific op risks that the company would consider itself to be exposed to. So yes, it's basically there!
