Burning Cost Ratio

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.

BREAKING DOWN '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. Loss Ratio

    The difference between the ratios of premiums paid to an insurance ...
  2. Ultimate Net Loss

    A party's total financial obligation when an insured event occurs. ...
  3. Earned Premium

    The amount of total premiums collected by an insurance company ...
  4. Burn Rate

    The rate at which a new company uses up its venture capital to ...
  5. Expected Loss Ratio (ELR) Method

    A technique used to determine the projected amount of claims ...
  6. Gross Net Written Premium Income

    The amount of an insurance company’s premiums used to determine ...
Related Articles
  1. Investing

    Burn Rate Key Factor In Company's Sustainability

    Be careful around companies with high cash burn rates. These investments can turn to ashes.
  2. Investing

    What is the Burn Rate?

    Burn rate is the rate at which a startup uses venture capital to pay overhead costs before it generates a positive cash flow.
  3. Personal Finance

    Explaining Insurance

    Insurance is a form of contract between an individual and an insurance company that spreads risk in exchange for premium payments.
  4. Markets

    Analyze Investments Quickly With Ratios

    Make informed decisions about your investments with these easy equations.
  5. Personal Finance

    Understanding Your Insurance Contract

    Learn how to read one of the most important documents you own.
  6. Personal Finance

    The Average Cost of Homeowners Insurance

    What factors into the the premiums you pay for homeowners insurance? Much depends on where you live. But there are ways to lower your rates.
  7. Retirement

    Understanding Life Insurance Premiums

    When buying permanent life insurance, what amount of premium should you pay for the coverage?
  8. Personal Finance

    Exploring Advanced Insurance Contract Fundamentals

    Understanding your contract can help you protect our family's financial security.
  9. Investing

    Total Debt to Total Assets

    Total Debt to total assets, also called the debt ratio, is an accounting measurement that shows how much of a company’s assets are funded by borrowing. In business, borrowing is also called leverage.
  10. Personal Finance

    Why Health Insurance Premiums Will Rise in 2017

    To battle the costs and challenges of the Affordable Care Act, many health insurances are raising their premiums in 2017.
RELATED FAQS
  1. What is the difference between the loss ratio and combined ratio?

    Learn about the loss ratio and combined ratio, what the two ratios measure and the main difference between the loss ratio ... Read Answer >>
  2. Why does an investor need to look at the burn rate of companies in the internet sector?

    Understand why an investor needs to look at the burn rate of companies in the Internet sector. Learn what a burn rate is ... Read Answer >>
  3. What is the expense ratio in the insurance industry?

    Learn about the expense ratio for insurance companies and the different methods of calculating it. The expense ratio is a ... Read Answer >>
  4. Why do some companies in the insurance sector engage in reinsurance?

    Discover how some companies in the insurance sector engage in reinsurance. Reinsurance allows insurance companies to transfer ... Read Answer >>
  5. What is reinsurance?

    Reinsurance occurs when multiple insurance companies share risk by purchasing insurance policies from other insurers to limit ... Read Answer >>
  6. How do I calculate the combined ratio?

    Learn about the combined ratio and how it is calculated under a financial basis and a trade basis using the loss ratio and ... Read Answer >>
Hot Definitions
  1. AAA

    The highest possible rating assigned to the bonds of an issuer by credit rating agencies. An issuer that is rated AAA has ...
  2. GBP

    The abbreviation for the British pound sterling, the official currency of the United Kingdom, the British Overseas Territories ...
  3. Diversification

    A risk management technique that mixes a wide variety of investments within a portfolio. The rationale behind this technique ...
  4. European Union - EU

    A group of European countries that participates in the world economy as one economic unit and operates under one official ...
  5. Sell-Off

    The rapid selling of securities, such as stocks, bonds and commodities. The increase in supply leads to a decline in the ...
  6. Brazil, Russia, India And China - BRIC

    An acronym for the economies of Brazil, Russia, India and China combined. It has been speculated that by 2050 these four ...
Trading Center