Capital Needed Above Expected Loss to Survive a 1-in-100-Year Disaster: Independent vs. Correlated Policies

200
10%
$100
30%
Extra capital needed because of correlation
—
Expected total loss
Same in both cases
—
If independent
Capital needed for a 1-in-100 year disaster (99th percentile loss)
—
If correlated (selected)
Capital needed for a 1-in-100 year disaster (99th percentile loss)
—
Distribution of possible total losses
Independent Correlated (selected) Expected loss Independent's 99th percentile Correlated's 99th percentile