Trends in risk integration and aggregation

August 2003

This report summarises the findings of the Joint Forum's Working Group on Risk Assessment and Capital and builds on the previous efforts of the Working Group to better understand approaches to the management of major individual risks in the banking, insurance, and securities sectors. The Working Group has observed two important trends on the basis of a survey of 31 financial institutions in 12 jurisdictions - (1) greater emphasis on the management of risk on an integrated firm-wide basis, and (2) related efforts to "aggregate" risks through mathematical risk models. The Working Group believes that these trends stem from the interest of firms in understanding better the variety of risks that they face, thereby enabling them to determine more accurately the amount of capital they need to operate their businesses. The report is not designed to identify best practices or make recommendations but to act as a basis for a dialogue with industry in summarising current developments.