Glossary

Probable Maximum Loss (PML)

Also known as: Seismic PML, PML

A modeled estimate, typically expressed as a percentage of a building's replacement cost, of the maximum damage expected from a single catastrophic event (most often earthquake, but also applied to wind) at a given probability threshold, generally the 475-year or 10%-in-50-years return period.

PML is the standard metric CRE lenders use to quantify seismic and, in some markets, windstorm risk on a specific asset, generated through an engineering-firm seismic risk assessment (often called a seismic PML report) that models building-specific factors such as construction type, age, soil conditions, and proximity to fault lines. Lenders commonly set an underwriting threshold — a PML above roughly 20% often triggers a requirement for earthquake insurance or additional structural due diligence, though thresholds vary by lender and loan program — because a PML at that level implies a plausible single event could impair the collateral enough to threaten loan repayment absent adequate coverage or reserves. It is important not to conflate PML with a maximum foreseeable loss or a worst-case scenario: PML is explicitly a probabilistic estimate at a stated confidence level and return period, not an absolute ceiling, and a rarer, more severe event could in principle exceed the modeled PML figure.