System of comparing costs of life insurance policies by using the following formula: 1. Determine pure cost of protection (mortality expectation). 2. Calculate amount of dividends paid. 3. Subtract the pure cost of protection plus dividends from the gross premiums paid into the policy (savings element). 4. Rate of return equals the interest rate at which the savings element must be accumulated to equal the cash value of the policy at a future specific time period. Also called Linton yield method .
Insurance Encyclopedia
Rate on line
A percentage arrived at by dividing reinsurance premium by reinsurance limit the inverse is known as the payback or amortization period. For example, a $10 million catastrophe cover with a premium of $2 million would have a rate on line of 20 percent and a payback period of five years.
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UK: A percentage arrived at by dividing reinsurance premium by the reinsurance limit, e.g. £5 million excess of loss cover with a premium of £1 million gives a rate on line of 20 per cent; the inverse, known as payback, is a period of five years. Rate on line is used to assess the adequacy of the contract rate.
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REINSURANCE: A percentage derived by dividing reinsurance premium by reinsurance limit; the inverse is known as the payback or amortization period. For example, a $10 million catastrophe cover with a premium of $2 million would have a rate on line of 20 percent and a payback period of 5 years.
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REINSURANCE: A rate of premium for a reinsurance which if applied to the liability accepted by the reinsurer will produce an annual premium sufficient to meet expected losses over a number of years.
Rate per cent
a rate per £100 at which premiums are charged; a premium for a sum assured of £50,000 at 25p per cent is £125.
Rate regulation
The process by which states monitor insurance companies’ rate changes, done either through prior approval or open competition models.
Rate Regulatory System
(i) Open Competition Laws/No filing laws: There is no requirement to file rates or policy wordings as the regulator relies on market competition to act as a self-regulating mechanism preventing insurers from over-pricing or dominating the market, such as UK Insurance market. (ii) Prior approval: Policy Forms and rates must be filed and approval obtained by the Insurance Regulatory before the same could be used in the market. The regulators assess the reasonableness of the documents filed against the standard benchmarks. In case there are any policy provisions which do not comply with the regulatory requirements, or other regulations in force, or the product does not appear to be creating the desired value to meet the specific needs of each entity in the value chain, the regulator returns the documents and advises the insurers to modify it. (iii) File and Use (F&I): The insurers are required to file their rates with the regulator before they go into effect; prior approval is not required. However, the regulator has the authority to comment o the rates before they are used, or can disapprove the rates. (iv) Deemed Approval: Both under Prior approval and File and use systems a prescribed period of time is stipulated for the regulator to take a decision either for approval or disapproval. The product would be deemed to be approved if the regulator does not respond to the insurer within the set time limit. (v) Use and File: There is no need to file rates in advance and the system allows the companies to use the rates before they are filed. But the rates must be filed within a specific period after they have been put to use. The system also allows the regulator to subsequently disapprove the rates/policy forms in case they fail to comply with the statutory/standard requirements. (vi) Flex rating regulation: It is a law prevailing in the US insurance market under which insurers are required to obtain prior approval for rates that exceed a certain percentage above or below the rates previously filed. Here, floor rates can be fixed based on Minimum Loss Ratio Requirements.
Rate request
To ask for a set of insurance rates that are based on a specific list of benefits.
Rate restriction
System in health insurance for establishing premiums so that an insurance company’s premium varies by not more than a fixed amount from other premiums for individuals in the same premium class within a certain geographical region.
Rate review
Advance evaluation of a health care facility’s financial data by a government or private agency to determine the reasonableness of the hospital fees and assess a possible increase in the fees.
Rate setting
1. System used to contain health care costs in which the government sets payment fees for all insurance payers for categories of medical services. 2. In the Medicare program, to determine and establish the cost of medical professional services provided to a patient by using historical cost data reported by providers.
Rate stabilization reserve
If a specific account’s actual experience at the close of an insurance contract period results in excess funds, these can be applied toward the account’s rate for the next year, which helps offset the rate increase.