Probable Maximum Loss (PML)

Probable Maximum Loss (PML) is a term used in the insurance industry especially to determine or measure risk exposure.
There are many definitions of PML depend on your approach. It may be generally defined as the largest loss exposure coming from disaster by assuming all risk/loss preventions working normally i.e Fire Extinguisher, Sprinkler etc.
Estimated loss value is always less than the Maximum Foreseeable Loss (MFL) which is mean all those risk/loss preventions were not working property.
PML and MFL are very important consideration when an Underwriter evaluate insurance exposure and no doubt it would be a tool of underwriting to increase their underwriting capacity and retained premium by limiting their exposure.
When an underwriter evaluate their PML/MFL, underwriter must have protection under reinsurance arrangement to protect PML/MFL error or missvaluation.