In our training classes at Mad Over Insurance, when I explain EGNPI, Rate on GNPI, Minimum Premium, Deposit Premium, Adustment Premium on AGNPI and Rate on Line and explain Experience pricing and Exposure Pricing using problems, one oft asked question across batches by the participants is:

What is the Highest Rate on Line have you seen practically in your working years?

When I answer 70%, many of them are surprised. They ask what is the point of buying @70% because after reinstatement premium, they pay higher than the recovery.

First of all, where did I see this 70% ROL? It is on a CAT XL sub layer in India. India is a huge country and in a financial year may see many Catastrophes and even at 70%, as a reinsurer, there were years we lost money.

Let us understand through an example.

Let the sublayer be USD 5 m xs USD 5 m. With 2 reinstatements.

Premium = 3.5 m. Even if both the reinstatements are used up, Premium will be USD 10.5 m.

But the aggregate cover available is USD 15 m.

What is the lowest ROL have I seen in my career? I had seen 1% in soft market. If any of you have seen a ROL < 1%, please comment. Do not mention the name of insurer or reinsurer but-just mention the layer on which you saw this low rate and the Country/Region covered.

Blog by Atmaram Cheruvu