A Taxonomy of Threats for Macro-Catastrophe Risk Management

Cambridge Centre for Risk Studies Working Paper SeriesA Shock to the System – Research Programme of the Cambridge Centre for Risk StudiesCambridge System Shock Risk FrameworkA taxonomy of threats formacro-catastrophe risk managementAndrew Coburn 1 *, Gary Bowman 2 , Simon Ruffle 3 , Daniel Ralph 4 , Michelle Tuveson 5 ,Abstract20 July 2013This paper argues that there is a need for a systematic assessment of the taxonomy of macrocatastrophethreats that have the potential to cause damage and disruption to social andeconomic systems in the modern globalized world. It presents the threat taxonomydeveloped as part of the Cambridge Risk Framework and describes the methodology used,including a categorization based on causal similarity. The framework and the taxonomy areintended for use in a number of applications, including use in insurance accumulationmanagement for complex threats that can impact multiple lines of business. The taxonomyprovides a framework for populating with more detailed studies of each threat. A method ofbenchmarking and comparing between the threats is proposed, based on developingscenarios that illustrate the severity of event that might be expected with 1% annualprobability of exceedance. The consequences of these scenarios can be assessed from theirimpact on specified categories of assets, liabilities and economic business sectors, and astandardized data structure for developing scenarios is outlined.Keywords: risk management, disasters, catastrophe, taxonomy, threat, business management,scenarios, categorization,Author(s):1. Director of External Advisory Board of the Centre for Risk Studies, University of Cambridge, and Senior VicePresident, Risk Management Solutions Inc.2. Research Associate, Centre for Risk Studies, University of Cambridge; Cambridge-Singapore Fellow; partial supportfrom the Institute of Catastrophe Risk Management, Nanyang Technical University, Singapore, gratefullyacknowledged3. Director of Technology, Centre for Risk Studies, University of Cambridge4. Professor of Operations Research, Judge Business School, and Academic Director of the Centre for Risk Studies,University of Cambridge5. Executive Director of the Centre for Risk Studies, University of Cambridge* Correspondence to: Andrew Coburn, University of Cambridge Judge Business School – Centre for Risk Studies,Trumpington Street, Cambridge, UK, CB2 1AG. Email address: andrew.coburn@jbs.cam.ac.ukWorking Paper 201307.20www.risk.jbs.cam.ac.ukCambridge Centre for Risk Studies 1