Research On Operational Risk And Its Management Of China’s Insurance Companies

Operational risk is not an alien concept in the financial industry, but for insurance companies of china, it is frontier to know and manage operational risk. According to the study of A.M.Best, (Best’s insolvency study, U.S Life/Health insurers (1976-2002) and the Best’s insolvency study, property/casualty), it is showed that a number of reasons of bankruptcy of U.S insurers are related to Operational risk, such as:for Life/Health insurers, less than price,22%; related party transaction,20%;rapid expansion,17%;failure investment,14%; business fraud,9%; for property/casualty, less than price and reserve,37.2%; rapid expansion,17.3%;business fraud,8.5%.Basel Committee and European Committee have paid more attention to Operational risk and deepen the research. Compared to the banks and insurance companies in the developed countries, the operational risk management of insurance companies of china is poor. The objective of this paper is to strengthen the capacity of operational risk management in insurance companies of China.The overall idea of this paper:analyzing the definitions, characteristics and causes of operational risk firstly, then analyzing the influence of the New Basel Capital Accord of Basel Committee and the Solvency ii of European Committee, then analyzing the status of insurance companies of China and discussing the possible management of operational risk of insurance companies in China at last.The preface contains the introduction and research background, which is the basis of this whole paper.Chapter 1 is the theoretical analysis. The main content is the definition, characteristics and the reasons of operational risk, In this part, we can get comprehensive information about operational risk.Chapter 2 elaborates the influence of the New Basel Capital Accord of Basel Committee and the Solvency ii of European Committee. All this tips are useful for insurance companies of China to construct the process of operational risk management. Chapter 3 analyses the reality of operational risk and its management. A number of cases are showed in this part, we can get related information, which are both specific and vivid.Chapter 4 is the most important part of this paper. There are 5 sections: general framework, operational risk identification, operational risk measurement, operational risk monitoring and operational risk solution.The main innovations of this paper are as follows:1,the topic of this paper is new, this article focuses on the actual situation of insurance companies of China, based on both theory and practice and tries to build the operational risk process. China’s domestic exploration in this area is still relatively rare at present.2,in the part of theoretical analysis, the definition of operational risk reference to a lot of literature, the causes of operational risk are comprehensive.3,this article considered two international financial committees, it has a wider reference value.4,this article takes the Pacific Insurance Company as an example from the internal perspective, this case is relatively new.5,this article discusses the general framework of operational risk from the perspective of corporate governance and risk management technologies, such a study about insurance companies is rare at present.6,the last chapter of this paper summaries the operational risk identification, measurement, monitoring and solutions comprehensively, it has some practice significance.The main shortcomings of the paper are as follows:1,operational risk management theory is lack of specific guidance in China and the insurance companies do not have enough practical experience, so this paper will inevitably be omissions and limitations.2,because of the lack of operational risk loss data, this paper dose not have empirical analysis and only have a simple use about the method of stress testing and scenario analysis.3,it is still not clear that the solutions mentioned in this paper are useful or not, I hope to have more detailed study in the future.