What Does Net Line Mean?
A net line is the amount of insurance retained (the maximum amount that could be paid out) by an original insurer on a particular risk after purchasing reinsurance.
Most insurers, in order to reduce the total amount of risk they are exposed to — that is, the theoretical maximum amount they could have to pay out to satisfy claims — purchase reinsurance. With reinsurance, part of the risk is borne by another insurance company, the reinsurer.
Insuranceopedia Explains Net Line
The insurance industry can be risky, especially given major disasters such as hurricanes. If a particular insurer has written auto, homeowner’s and other policies to large numbers of individuals and businesses in an area that is hit hard by a hurricane, losses can be astronomical.
In order to protect themselves from potential huge losses, insurers commonly purchase reinsurance from other insurance companies. By doing this, a certain percentage — or a certain dollar amount — of the coverage is provided by the reinsurer. The remaining amount (after the reinsurance amount is deducted) is the net line.
Reinsurance can be purchased from specialized companies that only deal in reinsurance, or from other ordinary insurance companies.