Rate on line

Rate on line (ROL) is a non-proportional reinsurance layer's premium divided by its limit, the capacity on offer, and it is the first number a reinsurer checks a layer's price against, the price itself coming from burning cost or an exposure model. The rate on line formula fits on one line: ROL = layer premium / layer limit. A 20% ROL means the cedant pays, each year, one fifth of what the layer can pay back. Flip it and you get the payback period, the number of years of premium it takes to fund a full limit loss, five here. It is often confused with the rate on GNPI, which divides the same premium by the subject premium base instead of the limit. Loss on line runs the same division with the losses the layer actually paid, so it reads straight against ROL. Rate on line lets you compare layers of different sizes and track prices from one renewal to the next. It runs high on low layers that get hit often, and low on high layers that rarely get touched. Averaged across the market, it is a gauge of the cycle. It rises when the market hardens and capacity gets scarce, and falls when the market softens.