Concentration of risk

(Aug 21, 2008)

Liabilities within any given portfolio are rarely equal, and they usually differ widely in size. Typically, a large proportion of liabilities is concentrated in a relatively small number of lives, so this should always be checked.

One measure of inequality in income distribution is the Gini Index, which is widely used in the social sciences. It ranges from 0% (perfect equality) to 100% (one person has all the income). The CIA World Fact Book gave the UK as a whole a value of 36.8% in 2005, and the UK is one of the more unequal countries among developed nations. Equivalent figures for portfolios of insurance-company liabilities and pension schemes routinely exceed this value, i.e. such portfolios are even more…

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Tags: concentration risk, Gini, socio-economic group, lifestyle

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