Aggregate exceedance probability curve
A curve giving the annual probability that the sum of all events in a year exceeds a given amount.
Florida, August and September 2004: Charley, Frances, Ivan and Jeanne hit the state in six weeks. None of the four alone would have exhausted a program sized for the biggest storm; it was the total that hurt. The AEP curve, or aggregate exceedance probability curve, measures exactly that: for each amount, it gives the probability that the total of all events in a year exceeds it. The OEP curve, per occurrence, keeps only the largest loss of the year and so ignores frequency by construction. At a given return period, the gap between the two curves shows how much frequency weighs in the portfolio. A narrow gap points to a risk dominated by a single extreme peril; a wide one, to exposure to medium events that pile up, and the reinsurance you buy differs: per-occurrence excess of loss on one side, aggregate cover or stop loss on the other. The annual deductible is calibrated on the AEP, and so is catastrophe capital, which prudential regimes mostly measure on an aggregate one-year basis.
For the same French cedant in 2026, the aggregate curve gives 149 million euros at a hundred-year return period and 214 million at two hundred years, against 118 and 172 million on the occurrence curve. The 42 million gap at two hundred years measures frequency's contribution, and justifies buying a 45 million xs 60 aggregate cover that examining the occurrence curve alone would never have suggested.
AEP curve, aggregate exceedance probability, aggregate EP curve
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