Equity buffers

Real Life Risk Management

 

Tobias Baer explains why the second-order effects of the disruption caused by the Coronavirus are what should concern risk managers the most.

For risk managers, Covid-19 is both scary and a real-life test of our approach to risk management. As we are grappling with the virus and its fall-out, there are three sets of issues: the threat of the virus itself; the panic that it has caused; and lessons for operational risk management.

The risk of the virus itself is still hazy. I myself haven’t lost my cool yet considering facts such as that the total number of deaths from Covid-19 (less than 5,000 people globally as I write this) is dwarfed by the number of people who die in car accidents every year (more than 1 million in the US alone) and that while Covid-19’s overall mortality rate is estimated at 2%, it is less for the strong and healthy.  In fact, as the WSJ points out, while Covid-19’s mortality rate of 2% seems to be 12.5 times higher than the ordinary flu with a mortality rate of 0.16%, the 2% may be greatly overestimated if many benign Covid-19 infections have gone undetected.

 

Points covered in this article include:

  • Supply chain shortages
  • Operational risk mitigation
  • Mandatory equity buffers

 

Read the full article, Covid-19 and Risk Management, on LinkedIn.