Average Annual Loss (USD)

Average annual loss (AAL): this is the expected annual loss value, or the equivalent of an annual payment, that would be required to compensate for losses accumulated over a sufficiently long period of time. For the calculation of the AAL layer, the occurrence process of damaging scenarios is assumed to be stationary. In a simple insurance system, LPOA is equivalent to the annual premium. The average annual loss is a useful risk indicator, as it incorporates in a single value the impacts (in terms of economic loss) of the occurrence of hazard scenarios on exposed vulnerable assets. Since the LPOA determines the expected value of the loss and not its uncertainty, it is a robust risk indicator.