The threat of “natural” and “man-made” disasters continues to grow in many parts of the world do to a confluence of factors, including population growth and economic development, climatic changes and weather cycles, geologic activity, and political unrest. Figures 1 and 2 underscore the growing significance of catastrophe risk in terms of both actual and potential catastrophe losses. 1 The nature and severity of the catastrophe threat varies among countries and regions of the world but its implications raise certain common issues and increasing global integration intensifies the inter-dependencies between countries and the rippling effects of a disaster. At its core, the problem of catastrophe risk poses a number of challenges to mitigating its effects, financing the costs that are incurred, and responding to the needs of those affected.

The regulation of insurance and reinsurance companies, among other government policies, has significant implications for the management and financing of catastrophe risk. At present, the risk and cost of catastrophes are borne by many “stakeholders” in different ways in the interaction of public and private sectors that influence their incentives and economic efficiency. This paper examines the different regulatory systems and government policies of the United States (US) and the European Union (EU) generally and how they address catastrophe risk financing specifically. The link between the fundamental philosophies and elements of these regulatory systems and their treatment of risk financing is important. Current policies and the prospects for reforming any specific policy depend on the government frameworks in which they reside.