Rate on line (ROL) is the ratio of reinsurance premium paid to loss recoverable in a contract, reflecting how much money an insurer or ceding company must pay to obtain reinsurance coverage.
A high rate on line (ROL) implies that more must be paid for coverage, while a lower ROL implies lower cost.
As a result, an ROL can be a metric used by reinsurers or ILS funds to assess the potential profitability of a proposed reinsurance contract they may enter into with a counterparty.
More simply, ROL represents a percentage that is calculated by dividing reinsurance premium by reinsurance limit, the inverse of which is also known as the payback or amortization period.
For example, a $10 million reinsurance limit cover with a premium of $2 million can be said to have an ROL of 20% and a payback period of 5 years.