Transferring success

Due to a lack of commercial success, early operational risk transfer products failed to take off. But new insight into the nature of operational risk has had a major impact on risk transfer product innovation, writes Angelos Deftereos

From the early days of the Basel II Capital Accord, the issue of employing risk transfer as a mitigant for operational risk regulatory capital has been the subject of much debate. Even as regulators were still formulating their specifications for compliant risk transfer instruments, the insurance industry and other markets were developing products intended to meet these requirements. Unfortunately, these attempts at innovation were hampered by a general lack of understanding, at a granular level