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Probable Maximum Loss

What is the Probable Maximum Loss?

The definition of Probable Maximum Loss (PML) refers to the estimated maximum loss that an insured property or asset is likely to incur in the event of a worst-case scenario. It may refer to the highest potential financial loss that an insurer anticipates when assessing the risk associated with a particular property. The PML calculation takes into account various factors such as the property's value, vulnerability, exposure, and the severity of potential perils. The PML serves as a tool for insurers to determine appropriate coverage limits and pricing for policies. It helps insured parties understand the potential magnitude of losses they could face and aids in risk management decision-making.