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. Expected Loss Ratio (ELR) Method

    A technique used to determine the projected amount of claims ...
  5. Ground-Up Loss

    The total amount of loss that is covered by an insurance policy.
  6. Gross Net Written Premium Income

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

    Burn Rate Key Factor In Company's Sustainability

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

    Explaining Insurance

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

    The Industry Handbook: The Insurance Industry

    As a result of globalization, deregulation and terrorist attacks, the insurance industry has gone through a tremendous transformation over the past decade. In the simplest terms, insurance of ...
  4. Home & Auto

    6 Ways To Save On Insurance

    Love it or hate it, insurance policies are a necessary expense in everyone's life. Learn the top tricks for saving money on your various insurance policies.
  5. Professionals

    Introduction to Life Insurance

    Introduction to Life Insurance
  6. Home & Auto

    Intro To Insurance: Fundamentals Of Insurance

    By Cathy ParetoHow does insurance work? Insurance works by pooling risk.What does this mean? It simply means that a large group of people who want to insure against a particular loss pay their ...
  7. Investing Basics

    Analyze Investments Quickly With Ratios

    Make informed decisions about your investments with these easy equations.
  8. Home & Auto

    Intro To Insurance: What Is Insurance?

    By Cathy ParetoInsurance is a form of risk management in which the insured transfers the cost of potential loss to another entity in exchange for monetary compensation known as the premium. (For ...
  9. Home & Auto

    Intro To Insurance: Conclusion

    By Cathy ParetoInsurance is an integral part of any personal financial plan. The type of insurance and the amount of coverage you obtain all depends on your unique financial and family circumstances, ...
  10. Insurance

    Understanding Your Insurance Contract

    Learn how to read one of the most important documents you own.
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. Yield Curve

    A line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing maturity ...
  2. Stop-Limit Order

    An order placed with a broker that combines the features of stop order with those of a limit order. A stop-limit order will ...
  3. Keynesian Economics

    An economic theory of total spending in the economy and its effects on output and inflation. Keynesian economics was developed ...
  4. Society for Worldwide Interbank Financial Telecommunications ...

    A member-owned cooperative that provides safe and secure financial transactions for its members. Established in 1973, the ...
  5. Generally Accepted Accounting Principles - GAAP

    The common set of accounting principles, standards and procedures that companies use to compile their financial statements. ...
  6. DuPont Analysis

    A method of performance measurement that was started by the DuPont Corporation in the 1920s. With this method, assets are ...
Trading Center