Time period over which loss exceedance probability is evaluated, significantly altering results for rare risks.
Risk horizon is the time period over which the probability of an event or loss exceedance is calculated. For catastrophe risks, moving from a one-year to a 30-year horizon radically transforms probabilities: a 100-year return period event has 1% probability over one year but approximately 26% over 30 years. In solvency, the standard horizon is one year (Solvency II SCR). For a property asset pricing, the horizon may be the mortgage term. For long-term risk studies (climate change, nuclear), the horizon may exceed 50 years. Choosing the right horizon is critical for consistency between risk analysis and decision-making.
500-year return period tsunami: 0.2% probability / year. Over a 100-year coastal industrial site lifespan: probability ≈ 18%.
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