Which insurance principle indicates that insurable losses must be non-catastrophic?

The principle that states insurable losses must be non-catastrophic is known as insurability. This principle is crucial in the context of insurance because it ensures that the risk can be managed and covered effectively by the insurer. Non-catastrophic losses are those that do not affect a large number of policyholders simultaneously, allowing the insurance company to pool risks and calculate premiums based on predictable loss patterns.

In the case of catastrophic events, such as widespread natural disasters, the losses can be so extensive that they exceed the insurer's capacity to pay claims, which can lead to financial instability for the insurance company. This is why insurers typically avoid covering risks that could result in catastrophic losses since it complicates their ability to remain solvent and fulfill their obligations to all policyholders.

Other concepts like subrogation relate to recovering losses from a third party after an insured event, indemnification involves compensating the insured for the loss incurred, and risk avoidance is the strategy of eliminating the risk entirely rather than insuring against it. While these principles are related to insurance, they do not specifically address the nature of losses that can be insured as clearly as the insurability principle does.