ABSTRACT
Humanity has always lived in the shadow of catastrophic risk. The common definition of catastrophe is “a momentous tragic event ranging from extreme misfortune to utter overthrow or ruin.”1 A catastrophe connotes a large, broadly distributed loss. Frequency of event and severity of loss are inversely correlated. Severe losses are infrequent, but they may still be within the range of expectation. Highly destructive terrorist attacks, hurricanes, and earthquakes are certainly foreseeable. Most catastrophes are also localized events. Despite great misfortune, they do not significantly affect the broader society, economy, or even the insurance industry. But there is a category of catastrophes that surpasses ordinary expectations. An extreme catastrophe (mega-catastrophe) is an event so severe that the exogenous shock ripples out from the immediate locus of loss to the greater society. These events test the traditional network of compensation and insurance schemes.
