Question 1

What does burning cost pricing use as its primary input?

Accepted Answer

The cedent's own historical losses to the layer, indexed and loaded for development — Burning cost rates a layer from the cedent's own claims history to that layer, adjusted for inflation and further claims development, rather than from a market or exposure-based benchmark.

Question 2

When is burning cost pricing least reliable?

Accepted Answer

For genuinely new risks or high layers with little or no loss experience to draw on — Burning cost depends entirely on having enough of the cedent's own credible loss history — it struggles for new risks or high layers where that history barely exists.

Burning Cost

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