Cap on operational risk margin
What is an example of high-volume/low complexity business? Thank you.
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What is an example of high-volume/low complexity business? Thank you.
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Just looking back at the wording, it is said that "A 30% cap serves to dampen the operational risk margin for companies that have high-volume/low-complexity business with high levels of reinsurance."
First thing I did when I read this sentence was look back at the formula for operational risk margin (before the cap is applied). The operational risk margin will be higher if there is higher growth in GWP, high levels of reinsurance, and high direct written premiums. For companies where these apply, they may hit the cap.
I'd say that an example of such a company could be personal auto or personal property. If the company is growing quickly, say, in a given state, they may see higher growth in GWP and higher direct written premiums. If, say, the state is prone to hurricanes, the company may also require high levels of reinsurance.
Perfect, thanks Javid