Rate On Line

There’s insurance. And then there’s reinsurance: insurance for insurance companies. If you want your insurance company to be able to cover you when the next Katrina hits, you’d better hope they have reinsurance.

Rate on the line (ROLF...er, just ROL...nothing funny to see here) is a reinsurance thing. It’s the premium the insurance company is paying to its insurer, divided by the coverage. The rate on the line is how much an insurance company needs to pay for their reinsurance coverage to kick into gear. The higher the ROL, the more the insurance company has to pay upfront before they get any coverage.

Say there was a giant caramel spill that cost $10 million in liabilities for Insuraconda insurance co. They’ve been paying their reinsurer $2 million in premiums. The rate on the line would be 1:5, or 20%. That’s a lot of caramel.