Reinsurance Pricing Calculator

A higher attachment point pushes the reinsurance layer further into the tail of the loss distribution, where losses are less frequent and each additional dollar of coverage picks up a shrinking share of the total expected loss. Since technical premium is exactly the portion of expected loss that falls between the attachment and exhaustion points, moving that window further out into a thinner part of the distribution captures less expected loss and therefore prices lower.

The broker's commission compensates for placing the entire loaded transaction the cedant actually pays for, which includes both the pure expected loss cost and the risk load compensating the reinsurer for uncertainty and capital. Calculating brokerage only on the technical premium would understate the commission relative to the full economic value of the deal the broker actually arranged.

Rate on line expresses total premium as a percentage of the layer's limit, which makes layers of very different sizes and attachment points directly comparable on one common scale — a $2 million premium sounds large in isolation, but whether it's cheap or expensive depends entirely on whether it's covering a $5 million or $50 million limit. This is exactly why rate on line, not raw premium dollars, is the standard benchmark reinsurance markets actually quote and compare.

Large property and catastrophe losses are heavy-tailed — extreme losses occur more often, and can be far larger relative to the average, than a normal (bell-curve) distribution would predict. The Pareto distribution is a standard actuarial choice specifically because it captures that heavy-tail behavior realistically, which matters enormously for excess-of-loss layers that sit high up in the loss distribution, precisely where a normal distribution would badly underestimate the real probability of a large loss — this is the same single-parameter Pareto/Lomax severity model and Limited Expected Value approach set out in Klugman, Panjer & Willmot's Loss Models: From Data to Decisions, the standard actuarial text on severity modeling for excess-of-loss pricing.