5.6 Aggregation / diversification of ICS risk charges
- L1-139. ICS Risk charges are aggregated together using multiple levels:
- • A top-level aggregation between major risk categories (Life risk, Non-life risk, Catastrophe risk, Market risk, Credit risk and Operational risk) using a correlation matrix;
- • A medium-level aggregation between the sub-risks of Life risk, Catastrophe risk and Market risk, using correlation matrices; and
- • An aggregation within individual risk charges (eg interest rate risk, non-life risk).
- L1-140. The aggregation of risk charges incorporates a degree of diversification between the individual risks, based on a specified dependency between the risks.
- L1-141. Correlation matrices are specified for the aggregation of the individual Life Risk charges and the aggregation of individual Market risks charges. A top-level correlation matrix is specified for the aggregation of Life, Non-Life, Catastrophe, Market and Credit risk charges. The Operational risk charge is then added to that aggregate to determine the overall ICS insurance risk charge.
- L1-142. The correlation matrices used to aggregate the ICS risk charges are specified in the Level 2 text. The aggregation approach used within individual risk charges is described in the specific risk section in the Level 1 and 2 texts.
- L2-335. The top-level aggregation matrix between major risk categories is:
| Life | Non-life | Catastrophe | Market | Credit | |
|---|---|---|---|---|---|
| Life | 100% | 0% | 25% | 25% | 25% |
| Non-life | 0% | 100% | 25% | 25% | 25% |
| Catastrophe | 25% | 25% | 100% | 25% | 25% |
| Market | 25% | 25% | 25% | 100% | 25% |
| Credit | 25% | 25% | 25% | 25% | 100% |
〈 Table 34: Aggregation matrix between risks 〉
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