Glossary

Probable maximum loss

A modeled estimate of how big an insurer's loss from a single severe catastrophe could be, stated at a probability such as a 1-in-100-year event.

Also called: PML, 1-in-100 loss, 100-year PML, 1-in-250 loss, return period loss

Probable maximum loss, or PML, is a catastrophe-model estimate of how large a loss from one severe event could be. It is usually quoted by return period. A 1-in-100-year PML is the loss with about a 1% chance of being met or exceeded in any given year. It does not mean the worst loss imaginable, because bigger events exist, and it does not mean a loss that occurs once a century.

Insurers use PML to decide how much reinsurance to buy, and rating agencies and regulators use it to test whether surplus can survive a major storm. Say an insurer's model puts its 1-in-100 hurricane loss at $2 billion and its surplus at $800 million. It would want reinsurance covering most of the gap above what it can absorb, arranged in layers like the ones in a reinsurance tower. Florida law directs Citizens Property Insurance Corporation to try to buy reinsurance covering its projected 100-year PML.

For a homeowner the figure is indirect but useful. Different models give different PMLs, so a company's number is an estimate, not a fact. An insurer with thin reinsurance against its own PML is more fragile after a big storm. Look at its financial strength rating, and read how catastrophe models feed into reinsurance costs and your premium.

Last reviewed October 10, 2026

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Related terms

Catastrophe model Software that simulates thousands of possible hurricanes, quakes, wildfires and storms to estimate the losses an insurer's policies could suffer. Reinsurance Insurance that an insurance company buys from other companies, which reimburse part of its claim payments, especially after a large disaster. Reinsurance tower The stack of reinsurance layers an insurer buys one above another, each starting where the layer below ends, to cover progressively larger catastrophe losses. Policyholder surplus An insurer's assets minus its liabilities under statutory accounting, the capital cushion that absorbs losses beyond its reserves and premiums. Florida Hurricane Catastrophe Fund Florida's state-run reinsurance program, set up after Hurricane Andrew, that reimburses residential insurers for part of their hurricane losses.

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Catastrophe bonds and home insurance How cat bonds let investors, not just reinsurers, back hurricane and wildfire risk, who sponsors them, and what they change for homeowners and their premiums. How catastrophe models shape your premium Catastrophe models estimate yearly losses from hurricanes, wildfires and storms. How that output reaches your rate, who checks the models and what you can fix. Federal catastrophe reinsurance proposals Bills in Congress would put a federal backstop behind insurers or state programs after huge disasters. What the INSURE Act and others do, and the arguments. Reinsurance: the insurers behind your insurer How reinsurance works for home insurers: quota share vs excess of loss, retentions and towers, state backstops, and what it means for your premium and claim.

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