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Subject premium

The gross premium base on which a non-proportional treaty premium is calculated by applying a rate.

Definition

Textbook case: on 30 million euros of subject premium, a rate of 1.5 per mille gives a treaty premium of 45,000 euros. Subject premium is the cedant's gross premium base used to calculate the treaty premium for an excess-of-loss or stop-loss cover. Treaty premium = rate × subject premium. The base stands for the total underlying exposure covered by the layer, and burning cost and rate on line are calculated off it. Its definition gets negotiated word by word. Does it include premiums net of brokerage? Taxes? Premiums from all lines, or from one specific line? Define it loosely and you leave room for argument over what the treaty actually covers.

Its 6 cross-references, woven across the glossary's 18 categories
Subject premium: Reinsurance glossary illustration, AlgoPolis
Example

Textbook case: a cat XL treaty on a household book. Subject premium of 30 M EUR at a rate of 1.5‰ gives a treaty premium of 45,000 EUR. For burning cost, divide the 450,000 EUR of layer losses by the 30 M EUR of subject premium and multiply by 1,000, which gives 15‰.

Read next
ReinsuranceBurning cost (and burning cost ratio)Experience-based cost of a reinsurance layer: past losses, each restated as-if to today's conditions, divided by the premium base. It is the first number in an excess of loss quote.Read the entry →ReinsuranceRate on lineA reinsurance layer's premium divided by its limit, the price of the cover as a share of what it can pay.Read the entry →ReinsuranceExcess of loss treaty (XL)A non-proportional treaty in which the reinsurer responds only beyond a loss threshold, the retention, up to a defined limit.Read the entry →
Put it to work
QuizThe fine mechanics of a reinsurance treatyAcademy questions on this concept, each one marked and explained.Test yourself →
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