Aggregation benefitAggregation benefit

Aggregation benefit

1. The aggregation benefit makes an explicit allowance for diversification between asset and insurance risks in the calculation of the prescribed capital amount.
2. The aggregation benefit formula is:

Aggregate benefit equals open bracket A plus I close bracket minus root A squared plus I squared plus two times the correlation of A times I.

where:

1. ‘A’ is the Asset Risk Charge;

2. ‘I’ is the Insurance Risk Charge; and

3. ‘correlation’ is 20 per cent.

4. The Asset Concentration Risk Charge and the Operational Risk Charge are not included in the calculation of the aggregation benefit.