Risk Modelling glossary
What is a Probable Maximum Loss (PML)?
The maximum loss expected at a given return period (e.g., 1-in-250 year PML). Used for portfolio risk management.
Definition
Probable Maximum Loss (PML)
The maximum loss expected at a given return period (e.g., 1-in-250 year PML). Used for portfolio risk management.
Example
How it works in practice
An insurer calculates its PML for Florida hurricane at the 1-in-250-year return period. The model estimates that a storm of that severity would cause $4.2 billion in losses to the insurer's book. The insurer uses this figure to determine how much reinsurance and cat bond coverage it needs to survive its worst plausible hurricane scenario without threatening its solvency.
Related terms
Related glossary entries
A
B
C
Calculation AgentILSCat BondILSCatastrophe ModelRisk ModellingCCRIF (Caribbean Catastrophe Risk Insurance Facility)ILSCedantReinsuranceCoCo (Contingent Convertible)CreditCollateralILSCollateralised ReinsuranceILSConditional Expected Loss (CEL)ILSCorrelationILSCouponILSCoupon DeferralCreditCyber Cat BondCyber
D
E
ESGILSExhaustion PointILSExpected Loss (EL)ILSExpense LoadILSExposureGeneral InsuranceExtension RiskILS
G
H
I
IBRD (International Bank for Reconstruction and Development)ILSILW (Industry Loss Warranty)ReinsuranceIndemnity TriggerILSIndustry Loss Index TriggerILS
L
M
Mark-to-MarketILSMark-to-ModelILSMaturityILSMEL (Multiple of Expected Loss)ILSModelled Loss TriggerILSMoral HazardGeneral Insurance
N
O
P
Parametric TriggerILSPCS (Property Claims Services)ILSPeak PerilILSPerilGeneral InsurancePERILS AGILSPremiumGeneral InsuranceProbability of First Loss (PFL)ILSProbable Maximum Loss (PML)Risk ModellingProportional PayoutILS
R
RansomwareCyberReg SILSReinsuranceReinsuranceResilience BondILSRetrocessionReinsuranceReturn PeriodRisk ModellingRisk LoadILSRisk-Free RateCreditRoadshowILSRT1 (Restricted Tier 1)CreditRule 144AILS
S
SCR (Solvency Capital Requirement)General InsuranceSeasonalityILSSecondary MarketILSSharpe RatioILSSidecarILSSilent CyberCyberSOFRILSSolvency IIGeneral InsuranceSpecial Purpose Vehicle (SPV)ILSSpreadILSStructuring AgentILSSubordinated DebtCreditSupply Chain AttackCyber
T
V
W
Z
Learn ILS properly with ILS101
Move from definitions into structures, pricing, triggers, reinsurance applications, and specialist risk topics.
Start Learning