Maximum foreseeable loss (MFL)

Category: Pricing & rating · Reviewed by Taylor Watts, Broker · New Business · Last reviewed

Maximum foreseeable loss (MFL)

Maximum foreseeable loss (MFL) is the largest loss that could conceivably occur from a single event, assuming complete failure of all loss-mitigating systems (sprinklers, fire walls, business continuity arrangements). It is the most conservative of the maximum-loss concepts.

Worked example — single warehouse risk

• Total sums insured: £40m building + £30m stock + £15m BI = £85m total.
• Building is fully sprinklered with one-hour fire compartmentation between two halves.
• EML (sprinklers and compartmentation function): perhaps £15m.
• PML (one compartment fails, sprinklers reach 80% of fire): perhaps £35m.
• MFL (total loss of contents and building, full BI): £85m.

Use

• Capacity allocation — the underwriter must consider whether the firm could absorb the MFL.
• Reinsurance — defining the height of a programme.
• Risk-improvement requirements — narrowing the gap between MFL and PML.

References

• Swiss Re Property Insurance.
• LPC / FPA risk control guidance.

Cross-references

• Probable maximum loss
• MFL
• Estimated maximum loss

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