A 100-year flood does not happen once every 100 years. The term “return period” describes a probability, not a schedule. A flood with a 100-year return period has a 1% chance of occurring in any given year. That means it…
Average annual loss (AAL) is the expected yearly cost of catastrophe events averaged over a long time horizon. If you ran the same building or portfolio through thousands of simulated years of floods, hurricanes, and earthquakes, the mean annual loss…
Exceedance probability is the likelihood that a specific value, such as a flood depth or a financial loss, will be exceeded within a given time period. A 1% annual exceedance probability means there is a 1-in-100 chance of that event…
A three-foot flood in a retail store destroys different things than the same flood in a warehouse or a hospital. The merchandise on the ground floor is gone in the retail store. The forklift batteries short out in the warehouse.…
Insurers, reinsurers, and risk engineers need a way to quantify the worst a single event can do to a building or portfolio. Estimated maximum loss (EML) fills that role. It represents the largest realistic loss a property could suffer when…
Hurricane Andrew made landfall in South Florida on August 24, 1992, and wiped out $20 billion in insured property in a single day. Eleven insurers went bankrupt. The industry had badly underestimated its exposure because loss estimates relied on historical…
Probable maximum loss is the single most important number in property insurance underwriting. It tells insurers, reinsurers, and lenders how much money they could lose from one catastrophic event at a given property or across a portfolio. Yet despite its…
When a flood hits a commercial building, the first question insurance companies, banks, and risk managers ask is: how much damage? HAZUS is FEMA’s answer. It provides standardized depth-damage curves that estimate building losses at any flood depth, for any…
Climate change is repricing financial assets. Floods, wildfires, and rising seas destroy buildings, disrupt supply chains, and erode property values. But how do you put a dollar figure on that exposure? Climate value at risk (CVaR) answers that question. It…
Banks, insurers, and central banks need a shared language for climate risk. Without it, every institution runs different assumptions, different time horizons, and different definitions of what counts as a bad outcome. NGFS climate scenarios — also called NGFS scenarios…
