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he third pillar focuses on disclosure and transparency requirements by seeking to harmonise reporting and provide insight into insurers' risk and return profiles.

2.7.1. The Importance of Operational Risk in Solvency II

Over the past few decades many insurers have capitalized on the market and have developed new business services for their clients. On the other hand, the operational risk that these insurers face have become more complex, more potentially devastating and more difficult to anticipate. Although operational risk is possibly the largest threat to the solvency of insurers, it is a relatively new risk category for them. It has been identified as a separate risk category in Solvency II. Operational risk is defined as the capital charge for ‘the risk of loss arising from inadequate or failed internal processes, people, systems or external events'. This definition is based on the underlying causes of such risks and seeks to identify why an operational risk loss happened. It also indicates that operational risk losses result from complex and non-linear interactions between risk and business processes[7].

2.8. Risk Mapping and Operational Risk

Risk mapping is the basis of operational risk as, unlike market and credit risks, it is not product specific. The market risk of a derivative contract depends strictly on the contract's features and on the relevant market risk factors. Once the deal is concluded, the underlying process, by and large, does not matter to the related market risk exposure. It is impossible, on the other hand, to analyse the operational risk in the trading activities of a bank without a thorough understanding of the whole trading process from initial negotiation to final accounting.

It is also not enough to analyse operational risk on a business unit basis. Although this may seem natural in the light of the need to allocate responsibility and reward performance and good behaviour, it will give a biased view of operational risk exposures and may even miss some of them altogether. In fact, failures in one part of the process can generate failures in others as well as materialize into losses within units that are organizationally separate, while being part of the same business process. Controls, on the other hand, are often performed by an organizational unit in order to prevent or detect failures happening elsewhere. In many cases, the organizational separation within the same process (segregation of duties) is a key control feature in itself. For a more general discussion on operational risk measurement's frameworks and methodologies, see Crouhy et al. (1998), van der Brink (2002) and Ebno¨ ther et al. (2003).

Risk mapping is an analysis tool whereby risk exposures are linked to the relevant parts of the business process. Designing this tool requires a methodology to identify and cover all the relevant risks. The mapping will then allow a bank to analyse the causes of operational failures as well as to link the consequent financial loss to the part of the organization at the origin of the problem. In turn, this will be the key step to a transparent measurement and reporting of the corresponding operational risk exposure as well as to foreseeing a本论文由英语论文网提供整理，提供论文代写，英语论文代写，代写论文，代写英语论文，代写留学生论文，代写英文论文，留学生论文代写相关核心关键词搜索。