Probable maximum loss

Probable maximum loss (PML) is a term used in the <a href="/facts/Insurance/06VP8I3B">insurance</a> industry as well as <a href="/facts/Commercial_real_estate/Q2Aysw7o">commercial real estate</a>. Although the definition is not consistent across the insurance industry. It is generally defined as the value of the largest loss that could result from a disaster, assuming the normal functioning of passive protective features (e.g. <a href="/facts/Firewall_(construction)/G5fK74YR">firewalls</a>, nonflammable materials, flood defences etc.) and proper functioning of most (perhaps not all) active suppression systems (e.g. <a href="/facts/Fire_sprinkler_system/SR7d8pzv">sprinklers</a>). This loss estimate is always less than (or in rare cases, equal to) the maximum foreseeable loss, which assumes the failure of all active protective features. <a href="/facts/Underwriting/75rr1GD7">Underwriting</a> decisions can be influenced by PML evaluations, and the amount of reinsurance ceded on a risk can be predicated on the PML valuation.
PML estimation is also used to determine the extent of losses in Chemical & Petrochemical Industries. Insurers and Reinsurers across the world use PML to estimate loss during events such as vapour cloud explosions (VCE) or high pressure rupture (HPR).

Probable maximum loss open-in-new

Probable maximum loss