1. Insurance Risk Mapping Thursday 3 March 2005 Paul Search Managing Consultant

2. 2 Marsh Basel II – implications on financial institution insurance Requires banks to set aside capital for operational risks Allows a credit of up to 20% of the bank’s operational risk capital for insurance Marsh has a track-record of assisting financial institutions: – enhance decision making about insurance – lay the groundwork required to maximise the benefits of insurance in terms of economic and regulatory capital.

3. 3 Marsh Insured loss events to operational risk loss event categories

4. 4 Marsh Insurance today does not cover all operational risks in financial institutions Basel and AMA experience has shown that insurance is associated with less than 30% of operational risk capital The operational risk-insurance relationship Fines & Penalties Technology Interruptions Processing Errors Other Insurance

5. 5 Marsh Relationship challenge The current Basel requirement language for understanding the relationship between insurance and operational risk: ‘The risk mitigation calculations must reflect the bank’s insurance coverage in a manner that is transparent in its relationship to, and consistent with, the actual likelihood and impact of loss used in the bank's overall determination of its operational risk capital.’

6. 6 Marsh Approaches Insurance-based – Apply information from insurance sources to operational risk (e.g. map insurance loss events/claim data to operational risk categories, using insurance premium information, insurance professional's expert opinion). Operational risk-based – Apply information obtained from bank's operational risk environment to insurance (e.g. map bank's loss scenarios and event data to insurance coverage). Intent of both – Clarify relationships between insurance and operational risk. – Provide modelling inputs or parameters to be used in the bank's capital models.

7. 7 Marsh Operational risk-based  Can re-use the information used by the bank to determine its actual likelihood and impact of loss (used in its operational risk capital calculations).  Can form the basis for understanding the economic value of the insurance.  Can help banks to clarify the ‘gap’ and develop the requirements to: –evolve traditional insurance, and –create new risk transfer solutions.

8. 8 Marsh Questions/comments?

9. 9 Marsh Contact details Marsh s.r.l. Soseaua Nordului 24-26, etaj 1 Sector 1, Bucuresti T: +4 021 232 1874 F: +4 021 232 2102 E: office@marsh.ro W: www.marsh.ro, www.marsh.com

10. 10 Marsh The information contained in this presentation provides only a general overview of subjects covered, is not intended to be taken as advice regarding any individual situation and should not be relied upon as such. Insureds should consult their insurance and legal advisors regarding specific coverage issues. This document or any portion of the information it contains may not be copied or reproduced in any form without the permission of Marsh Ltd, except that clients of Marsh Ltd need not obtain such permission when using this report for their internal purposes.  Copyright Marsh Ltd 2005 All rights reserved Marsh Ltd is a member of the General Insurance Standards Council (GISC).