Abstract
IS THERE SOMETHING SPECIAL, with respect to risk and capital, about a financial conglomerate that combines banking, insurance, and potentially other financial and nonfinancial activities? To what degree is the risk of the whole less than the sum of its parts? This paper seeks to address these questions by evaluating the risk profile of a typical banking-insurance conglomerate and highlighting some of the key analytical issues relating to risk aggregation. We provide a framework of analysis that builds up this risk profile and allows for coherent dissection of a financial conglomerate's diverse set of risks. We then use the analytical results to frame a policy debate for regulating the solvency of a multi-line financial conglomerate.
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