Exceedance probability curve
An exceedance probability (EP) curve shows the probability of experiencing different levels of financial loss.
The curve can help you determine the amount of risk to retain or cede.
During a loss analysis, probability distributions of loss are computed for each simulated year (used for aggregate EP curves) and event (used for occurrence EP curves). These distributions are used to build a standard EP. Losses are ranked in descending order, and then the rank of each loss is divided by the catalog length. For example, the largest loss in a 10K analysis represents the loss at the 1/10,000 or 0.01% EP. The second largest loss represents the 0.02% EP, and so on.
