Is your PML under 20? What does that mean?
According to IRMI (International Risk Management Institute, Inc.), probable maximum loss (PML) is the traditional measure of earthquake loss popularized by the insurance and seismic engineering industry in the 1980s. Historically, the PML is based on a deterministic analysis, using an event on the controlling fault for a site having a magnitude that is not expected to occur more than once in every 475 years. A PML report identifies the PML value, expressed as a percentage of the building’s replacement cost and estimates the potential damage, the lower the percentage, the lower the expected damage.
The PML value can be expressed either as the Scenario Expected Loss (SEL) or the Scenario Upper Loss (SUL), SUL is more conservative and moves the PML up.
The scenario expected loss (SEL) is also a term introduced by ASTM E2026-99 (ASTM E2026–99 was called the Standard Guide for the Estimation of Building Damageability in Earthquakes). It can be defined as the average expected loss to the building, resulting from a specified event on specific faults affecting the building. If the specified earthquake is the 475-year return period event, then this term can be called the SEL475. The level of confidence associated with the SEL is not necessarily 50 percent; it may be greater than or less than this depending on the damageability function for the particular building.
The scenario upper loss (SUL) is a term introduced by ASTM E2026-99. It can be defined as the earthquake loss to the building with a 90 percent confidence of non-exceedance (or a 10 percent probability of exceedance), resulting from a specified event on specific faults affecting the building. If the specified earthquake hazard is the 475-year return period event, then this term can be called the SUL475, and this term is the same measurement as the traditional PML defined above. The SUL can also be based on earthquakes with other return periods.
What does it mean to be under 20 PML?
Many have a threshold PML value in the range of less than 20 percent, however, lenders will often accept higher PML values provided that appropriate earthquake insurance coverage is in place.