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Amortization Period (Payback Period)

This term is used in the rating of per occurrence excess of loss agreements and represents the number of years, at a given premium level, necessary to accumulate total premiums equal to the indemnity limit of the contract.

 

Example:  A $10,000,000 XS $1,000,000 Property Catastrophe Excess of Loss layer priced at $500,000 has an Amortization Period of 20 years.  The inverse of Amortization Period/Payback is Rate on Line (ROL).  This layer of coverage would have a 5% ROL.