Basel paper outlines way forward for op risk insurers

The Basel Committee on Banking Supervision released a paper in August outlining what the insurance industry must do to design op risk transfer products, including insurance and capital markets products.

Although the hurdles the committee is setting for the development of op risk products are considered quite high, industry observers say such stringent benchmarks are necessary because op risk insurance will effectively be behaving as a capital substitute.

In its third consultative paper (CP3) on Basel II, the Committee allows op risk insurance to be used to reduce overall op risk capital levels, but with a number of conditions.

Victor Dowd, associate director in the strategic business

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