Probable Maximum Loss

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Probable Maximum Loss (PML)

The anticipated value of the largest loss that could result from the destruction and the loss of use of property, given the normal functioning of protective features (firewalls, sprinklers, and a responsive fire department, among others, in the case of a fire loss). This number is usually smaller than the maximum foreseeable loss, which assumes the failure of all protective features. Underwriting decisions would typically be influenced by PML evaluations, and the amount of reinsurance ceded on a risk would normally be predicated on the PML valuation. Some underwriters define PML as above but with a single impairment to the fire protection systems.