Catastrophe Insurance — Pricing a disaster before it happens

Ordinary insurance runs on averages: many small claims that have nothing to do with each other. A catastrophe breaks that, because one earthquake damages every policy in a region at once. So insurers model the hazard, buy reinsurance from other insurers, and hold capital against the worst year they can picture.

• The hazard is the measurable half. The loss depends on what people built and where, which is why the same size of quake costs wildly different amounts in different countries.
• Risk only became calculable a few centuries ago. Before probability, disaster was fate. After it, disaster became a number you could plan against.