The assessment identifies the outcome at a defined adverse percentile rather than the mean, accounting for maximum damages, adverse liability findings, and any punitive or fee exposure.
It informs limits adequacy and reinsurance decisions.
Alternative Names:
Worst Case Exposure|Tail Exposure
Why it Matters?
Expected value understates the decision-relevant risk where the downside would materially harm the organization, since a low-probability outcome exceeding available limits creates personal or balance sheet exposure that averaging conceals. Assessing downside separately supports excess notification, reinsurance reporting, and settlement authority decisions that expected value alone would not justify.
Frequently Confused with
Related terms
Frequently asked questions
Why assess downside separately from expected value?
What decisions does it support?
