The amount of loss expected from a specific peril given some level of impairment or delay in protection. PML is expressed as a percentage of the total values. Unless noted, PML refers to the peril of fire.

• A. Maximum Possible Loss (MPL)
• B. Probable Maximum Loss (PML)
• C. Predicted Loss Potential
• D. Potential Maximum Exposure

Answer: (B)

Probable Maximum Loss captures the expected, not absolute, impact from a defined peril when protection is impaired or delayed, expressed as a percentage of total values. This is a practical, high-severity loss estimate used in risk management to gauge potential financial impact and determine appropriate reserves or capital. By default, the peril referenced is fire unless another is noted, aligning with common practice in these assessments. This differs from the absolute worst-case scenario (Maximum Possible Loss), which would assume no protective constraints; it also isn’t about a general exposure measure or a different predicted metric, which is why the term described fits Probable Maximum Loss best.