What Does Diversification Credit Mean?

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What does Diversification Credit mean? Read on to discover the definition & meaning of the term Diversification Credit - to help you better understand the language used in insurance policies.

Diversification Credit

Diversification Credit

An enterprise risk management term (ERM) referring to the recognition of the "portfolio effect" that is, the fact that the economic capital required at the enterprise level will be less than the sum of the capital requirements of the business segments calculated on a stand-alone basis. The diversification credit is typically apportioned to the business segments in a manner that attempts to preserve the relative equity of the capital attribution process.

We hope the you have a better understanding of the meaning of Diversification Credit.

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