In one sentence
Probable maximum loss, an estimate of the damage a building would suffer in a major earthquake, expressed as a percentage of replacement cost.
The longer version
Lenders in seismic zones order a seismic risk assessment that produces a PML figure. Most set a threshold, commonly twenty percent, above which earthquake insurance or a structural upgrade is required as a condition of the loan.
The figure depends heavily on the scenario and methodology used, so two assessments of the same building can differ. Where a result sits near the threshold, lenders look at the assumptions rather than the headline number before deciding what the loan requires.
Common questions
- What PML threshold triggers earthquake insurance?
- Twenty percent of replacement cost is the most commonly used threshold, though the figure is set by lender policy and varies by program and by portfolio concentration.
- When is a seismic assessment ordered?
- For properties in higher seismic zones, usually determined by the lender's policy based on location and building age and construction type.
- Can a building be upgraded instead of insured?
- Yes. Structural retrofit can bring the PML below the threshold, and lenders sometimes fund that work through a holdback with completion conditions attached.
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