What is rate on line in reinsurance?

Rate on line is premium divided by limit. It is a comparison tool for non-proportional layers, not a moral judgement on the risk. If the premium is not the premium in the accounts, or the limit is not the limit in the wording, the ratio is a story.

Operators use it because two layers with different sizes are otherwise hard to put on the same page. A USD 400,000 premium on a USD 10,000,000 limit is not the same conversation as a USD 400,000 premium on a USD 2,000,000 limit. Rate on line makes that visible. It does not replace burning cost, exposure rating, or a human view of the file.

The ratio, cited

Fictional walkthrough: ACME Construction Ltd, acme.example. The cedent buys per-risk excess of loss USD 10,000,000 excess of USD 5,000,000. The signed layer premium is USD 400,000. Rate on line is 400,000 divided by 10,000,000, which is 0.04. Write it as four percent of the cited limit if your market speaks that way. Write the two inputs with spans either way.

The failure is using the wrong denominator. Someone takes ACME's occurrence limit of USD 10,000,000 from Slip.pdf page 2, which is correct for this layer. Someone else divides the same USD 400,000 by the slip TIV of USD 42,000,000 and gets a tiny figure that looks cheap. Someone else uses the SOV total of USD 47,100,000. Those are not rate on line of the layer. They are premium over a schedule total. Treaty reinsurance administration needs the limit from the wording, not from the largest number in the zip.

If reinstatement premium is payable, decide whether rate on line is original premium over original limit, or original plus reinstatement over original limit, and say so. Mixing them in a renewal pack is how last year's price looks like this year's price.

What it is not

Rate on line is not a loss ratio. Loss ratio is incurred over earned. Rate on line can look cheap on a quiet year and still be the wrong number if the attachment moved. It is not a combined ratio. It does not include ceding commission, because excess of loss usually has no ceding commission of the quota-share kind. It is not a promised return. This page will not invent a market band and call it a good rate on line.

Reinsurer operations still have to price. Technical price uses the cited exposure, the cited loss history, and the cited structure. Quoted price is a later artefact. Rate on line is a way to talk about the quoted premium against the cited limit once both exist. A model that emits a rate on line with no premium span and no limit span has not priced anything.

Files that support the number

The placing slip or treaty wording must show the limit. The premium must show in the accounts or the written lines. If ACME's facultative pack is the file, inspect the pack inspector sample: occurrence limit USD 10,000,000 is on slip page 2. TIV is in conflict. Do not put TIV in the rate-on-line denominator because the TIV box was closer to the premium in the covering email.

If the layer is a share of USD 10,000,000, rate on line still uses the full layer limit as the market convention unless the slip says the premium is for a 10 percent line of USD 1,000,000. Then the denominator is USD 1,000,000 for that line, or you gross up and say you grossed up. Silent mixing of line premium against 100 percent limit is a classic false comparison.

Reinsurance AI does not invent a rate on line from a chat summary of the slip. Extract premium and limit. If either is a gap, rate on line is a gap. If the two documents disagree, show both ratios and the two spans. Do not average them.