The pooling of uncorrelated risks allowing colossal commitments to be borne with modest capital, the vital resource of reinsurance.
Diversification is the mechanism by which an insurer or reinsurer combines uncorrelated risks, a Japanese earthquake, a Florida hurricane, an Australian drought, on the reasonable bet that they will not all materialise on the same day. It is the raw material of reinsurance, for it is what allows considerable commitments to be borne with relatively modest capital, the required capital being lower than the sum of the risks taken in isolation. Systemic risks, pandemic, hybrid war, orbital cascade, abolish this resource by simultaneously correlating all lines and all geographies, which destroys the independence assumption on which mutualisation rests. It is less the magnitude of such a risk than its correlation that makes it hard to insure.
A reinsurer bears a major hurricane without faltering, for its other commitments are uncorrelated; a pandemic, which strikes all its lines at once, destroys this diversification and causes a net loss.
diversification du risque, bénéfice de diversification