Burning Cost Ratio

AAA

DEFINITION of 'Burning Cost Ratio'

An insurance-industry calculation of excess losses divided by total subject premium. The burning cost ratio is an experience-based insurance-rating method commonly used in determining rates for excess of loss reinsurance, or the insurance that insurance companies buy to protect themselves against total claims that exceed their total premiums collected.

INVESTOPEDIA EXPLAINS 'Burning Cost Ratio'

This method is strongly related to a type of statistics called ratio estimation.Calculation of the burning cost ratio is one of several rating methods and is simple and widely used, but requires lots of claims data for it to be accurate. Another type of experience-based insurance-rating method is the Monte Carlo simulation.

RELATED TERMS
  1. Stochastic Modeling

    A method of financial modeling in which one or more variables ...
  2. Reinsurance

    The practice of insurers transferring portions of risk portfolios ...
  3. Insurance Score

    A rating computed and used by insurance companies that represents ...
  4. Premium

    1. The total cost of an option. 2. The difference between the ...
  5. Insurance

    A contract (policy) in which an individual or entity receives ...
  6. Monte Carlo Simulation

    A problem solving technique used to approximate the probability ...
RELATED FAQS
  1. How do you calculate the geometric mean to assess portfolio performance?

    The geometric mean is used to calculate the central tendency of a set of numbers. It is the average of the logarithmic values ... Read Full Answer >>
  2. What does the operating cash flow ratio measure?

    The operating cash flow ratio measures a company's ability to meet its short-term, or current, liabilities, also known as ... Read Full Answer >>
  3. What is the difference between moral hazard and adverse selection?

    Adverse selection occurs when there's a lack of symmetric information prior to a deal between a buyer and a seller, whereas ... Read Full Answer >>
  4. What's the difference between the coverage ratio and the levered free cash flow to ...

    Coverage ratios focus on a company’s ability to manage its debt, while the levered free cash flow to enterprise value ratio ... Read Full Answer >>
  5. What is the difference between an operating expense and a capital expense?

    An operating expense (OPEX) is an expense required for the day-to-day functioning of a business. In contrast, a capital expense ... Read Full Answer >>
  6. What are some ways a company can improve on its Return on Capital Employed (ROCE)?

    Options available to a company seeking to improve on its return on capital employed (ROCE) ratio include reducing costs, ... Read Full Answer >>
Related Articles
  1. Home & Auto

    The History Of Insurance

    The first written policy appeared in Hammurabi's Code. Find out how it evolved from there.
  2. Home & Auto

    How An Insurance Company Determines Your Premiums

    Find out how insurers use credit history to build an insurance score and how it could affect your bottom line.
  3. Home & Auto

    Exploring Advanced Insurance Contract Fundamentals

    Understanding your contract can help you protect our family's financial security.
  4. Home & Auto

    The History Of Insurance In America

    Insurance was a latecomer to the American landscape, largely due to the country's unknown risks.
  5. Active Trading Fundamentals

    Using Logic To Examine Risk

    Know your odds before you put your money on the table.
  6. Investing

    Why International Diversification Matters Today

    Given the breadth and diversity of the U.S. economy and market, many U.S. investors feel comfortable keeping their money within U.S. borders.
  7. Economics

    Explaining the EBITDA Margin

    EBITDA margin can provide an investor with a cleaner view of a company's core profitability.
  8. Economics

    The U.S. Economy May Be Stronger Than You Think

    While the economic performance in the U.S. broadly disappointed in the first quarter, temporary factors presented one-off events that depressed output.
  9. Entrepreneurship

    The Story Behind Google's Success

    An ongoing commitment to innovation and rapid iteration drives Google's ongoing success.
  10. Charts & Patterns

    How to Analyze Pharma Stock Fundamentals

    What you need to know about analyzing the fundamentals of pharma stocks.

You May Also Like

Hot Definitions
  1. Fisher Effect

    An economic theory proposed by economist Irving Fisher that describes the relationship between inflation and both real and ...
  2. Fiduciary

    1. A person legally appointed and authorized to hold assets in trust for another person. The fiduciary manages the assets ...
  3. Expected Return

    The amount one would anticipate receiving on an investment that has various known or expected rates of return. For example, ...
  4. Carrying Value

    An accounting measure of value, where the value of an asset or a company is based on the figures in the company's balance ...
  5. Capital Account

    A national account that shows the net change in asset ownership for a nation. The capital account is the net result of public ...
  6. Brand Equity

    The value premium that a company realizes from a product with a recognizable name as compared to its generic equivalent. ...
Trading Center