VII Reinsurance & Specialty Risk
Rate on line
The percentage obtained by dividing the premium paid for a reinsurance layer by that layer's limit; the core measure of the price of non-proportional cover.
How it works
Rate on line expresses the price of excess of loss cover as a single percentage. If an insurer pays 10 million dollars of premium for a 100 million dollar layer, the rate on line is 10%. The higher the rate, the dearer the same cover; a rise in this rate is the first sign watched for a hardening market.
The inverse of the rate is the payback period. A 10% rate on line means the reinsurer would recover, through premium, a single loss that exhausts the whole layer in about 10 years. A 25% rate cuts that period to 4 years; in other words, the reinsurer is pricing a total loss of that layer once every 4 years.
The trap in measurement is that the rate depends on where the layer sits. Lower layers are hit by losses more often, so a 30% rate on line in the first layer and 3% in the top layer are normal. Renewal changes quoted in the press usually give an average of broker indices, not the year-on-year change for the same layer; if the retention changed, two years' rates cannot be compared like for like.
Why it matters here
This rate tells you, before the headlines do, how far war and political violence risk can still be transferred. If the rate on line jumps in a region, the reinsurer sees that risk as a total loss every few years; cover capacity shrinks and the premium passes into freight and project finance. At the 1 January renewal we track Gulf and Black Sea risks separately from the overall rate.