Burning Cost

A method of calculating the premium for reinsurance whereby within certain limits, the reinsurance premium paid by a cedant is related to the claims made under the policy. The adjustment factor works to the advantage of the reinsurer until the maximum level of reinsurance premium is reached. There are minimum and maximum levels of premium payable usually expressed as a percentage of the cedant's underlying premiums. Within these limits, if the cedant makes a claim the reinsurer will collect an additional premium calculated in accordance with a formula contained in the policy. When the maximum premium has been paid, the reinsurer has full liability for further claims with no recourse.