Hi, Page 962 of the CMP says: Again, pricing this theoretically is relatively straightforward for a burning cost exercise or for a frequency / severity experience or exposure model. The reinsurer can reduce the losses to the layer for each year / simulation by the aggregate deductible Where basic burning cost analysis is being used, a reinsurer will again have tabulated discounts for common aggregate deductibles (probably tabulated by layer retention and aggregate deductibles as a multiple of limit). These will have been derived from stochastic modelling using the reinsurer’s benchmark severity curves. (This is core reading, rather than ActEd additions) I am somewhat confused by this. The first part suggests that, when doing a burning cost exercise, you can simply reduce the trended/developed aggregate losses by historic year to allow for the aggregate deductible. If this is the case, I do not understand what the second paragraph is supposed to mean. If we can reduce the losses to the layer for each year by the aggregate deductible, why would we need to use a table? Or rather, what is the difference implied by a "burning cost exercise" vs "basic burning cost analysis"?
Hi My take is that when you do the burning cost analysis you either apply the aggregate deductible in your analysis (paragraph 1 - the theoretical approach) or instead of applying the aggregate deductible you apply a discount from a table of predetermined discounts (paragraph 2 - the practical approach).
