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. Insurance

    A contract (policy) in which an individual or entity receives ...
  3. Reinsurance

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

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

    1. The total cost of an option. 2. The difference between the ...
  6. Monte Carlo Simulation

    A problem solving technique used to approximate the probability ...
RELATED FAQS
  1. What is the long-term outlook of the chemicals sector?

    The long-term outlook for the chemicals sector, as of 2015, is good, primarily due to continuing emerging market opportunities. ... Read Full Answer >>
  2. What does inventory turnover tell an investor about a company?

    The inventory turnover ratio determines the number of times a company's inventory is sold and replaced over a certain period. ... Read Full Answer >>
  3. What are the restrictions for naming a given individual as my contingent beneficiary?

    Life insurance is an important part of estate planning. It allows you to ensure that you can financially take care of the ... Read Full Answer >>
  4. What proportion of the chemical sector is related to life sciences?

    The subsectors of the chemicals sector that are related to life sciences, pharmaceuticals and agricultural chemicals, make ... Read Full Answer >>
  5. What level of mergers and acquisitions is common in the chemical sector?

    The level of mergers and acquisitions (M&As) in the chemicals sector has surged to an all-time high since the turn of ... Read Full Answer >>
  6. How are C-suite officers measured on performance?

    Evaluation of C-suite officers, especially the chief executive officer (CEO), is an important element of fundamental analysis. ... 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

    What A Rate Hike May Mean For Stocks

    By the end of the year, investors will likely be contending with the first Federal Reserve (Fed) rate hike in nearly a decade.
  7. Fundamental Analysis

    How to Calculate a Coverage Ratio

    In broad terms, the higher the coverage ratio, the better the ability of the enterprise to fulfill its obligations to its lenders.
  8. Technical Indicators

    Will These High-Flying Stocks Stay Hot in 2015?

    These 10 stocks were on fire in 2014. Will they stay hot?
  9. Professionals

    Indexed Universal Life Policies: Watch These Risks

    By properly vetting indexed universal life policies, advisors and savers can avoid contracts that could prove overly costly over the long run.
  10. Fundamental Analysis

    Invest in Cancer Research with These 3 Stocks

    These cancer research stocks offer both a high ceiling and the potential to save lives.

You May Also Like

Hot Definitions
  1. Moving Average - MA

    A widely used indicator in technical analysis that helps smooth out price action by filtering out the “noise” from random ...
  2. Yield Curve

    A line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing maturity ...
  3. Productivity

    An economic measure of output per unit of input. Inputs include labor and capital, while output is typically measured in ...
  4. Variance

    The spread between numbers in a data set, measuring Variance is calculated by taking the differences between each number ...
  5. Terminal Value - TV

    The value of a bond at maturity, or of an asset at a specified, future valuation date, taking into account factors such as ...
  6. Rule Of 70

    A way to estimate the number of years it takes for a certain variable to double. The rule of 70 states that in order to estimate ...
Trading Center