A method of rating under which the underwriter sets the price based upon his view of how frequently the loss event might occur over a period of time.
Thus, if the underwriter felt that the loss would occur only once in five Years, the price would be set (without regard to expenses and profit margins) to be equal to the limit divided by five and the contract would thus be said to have a “five Year payback.”
See also Rate on Line.
Can also refer to premium charged in addition to the cost of an ongoing program for prior losses and, thus “payback” reinsurers.