What is Probable maximum loss (PML)?
Also known as: PML
The underwriter's estimate of the largest loss that could occur in a single event under normal adverse conditions. It is not "the worst possible outcome" but "the largest outcome that is likely to occur": for example, in a fire it is assumed that some of the protection systems will work. There is no single definition in the industry, and companies calculate it differently. PML is not the same as the sum insured: the sum insured is the payment limit in the contract, while PML is the underwriter's internal estimate. This estimate helps the insurer decide how much risk to retain and how much to pass on to reinsurance.
Source: Risk Education insurance glossary: probable maximum loss