Which risk-management concept describes the concentration of exposure across a portfolio?

Which risk-management concept describes the concentration of exposure across a portfolio?

• A. Aggregation
• B. CAT/Natural Disasters (Wildfire)
• C. Capacity Limitations
• D. Title Insurance

Answer: (A)

Aggregation describes the concentration of exposure across a portfolio by summing all individual risks to understand the total potential loss. When many items share a common vulnerability—such as properties in the same flood zone or policies tied to a single industry—their losses can add up, creating a concentrated risk. Recognizing this accumulation helps you decide how to diversify or adjust limits to manage overall risk. The other concepts refer to specific event risks (catastrophe losses from a single extreme incident), limits on how much risk can be underwritten (capacity), or a particular product (title insurance), none of which capture the idea of risk building up across the portfolio.

Aggregation describes the concentration of exposure across a portfolio by summing all individual risks to understand the total potential loss. When many items share a common vulnerability—such as properties in the same flood zone or policies tied to a single industry—their losses can add up, creating a concentrated risk. Recognizing this accumulation helps you decide how to diversify or adjust limits to manage overall risk. The other concepts refer to specific event risks (catastrophe losses from a single extreme incident), limits on how much risk can be underwritten (capacity), or a particular product (title insurance), none of which capture the idea of risk building up across the portfolio.