Loss Estimation (MFL/EML)

Concepts and boundaries

The Maximum Foreseeable Loss (MFL) assumes the complete failure of all protection features – sprinklers, fire walls, works fire brigade – and represents the theoretical extreme case. The Estimated Maximum Loss (EML), in many markets used interchangeably with the probable maximum loss (PML), assumes a realistically unfavourable scenario in which most, but not all, protection measures function. For business interruption, the Normal Loss Expectancy (NLE) is the equivalent figure for loss of income.

Approach

The starting point is the risk survey: compartment sizes, separation distances, sprinkler density, and replacement and start-up times are condensed into a loss scenario. For business interruption, a worst-case analysis of the indemnity period supplements the property loss estimate; interdependency losses between group companies and critical suppliers are quantified separately.

Insurance relevance

The results determine underwriting capacity, co-insurance shares, reinsurance structure and deductibles per location. Sums insured or indemnity periods that are systematically set too low regularly only become apparent as a coverage gap after a major loss.