• We are pleased to announce that the winner of our Feedback Prize Draw for the Winter 2024-25 session and winning £150 of gift vouchers is Zhao Liang Tay. Congratulations to Zhao Liang. If you fancy winning £150 worth of gift vouchers (from a major UK store) for the Summer 2025 exam sitting for just a few minutes of your time throughout the session, please see our website at https://www.acted.co.uk/further-info.html?pat=feedback#feedback-prize for more information on how you can make sure your name is included in the draw at the end of the session.
  • Please be advised that the SP1, SP5 and SP7 X1 deadline is the 14th July and not the 17th June as first stated. Please accept out apologies for any confusion caused.

Chapter 20 - page 32 & 34

I

indexo

Member
Hi,

Can someone explain further on the last para under 'aggregate deductibles' in page 34? Why would you need to have tabulated discounts for common aggregate deductibles for basic burning cost analysis?

Also, on last 4 para on page 32, why it is less straightforward to apply reinstatements on basic exposure rate and we need tables of discounts based on benchmark severity distributions to apply to exposure-based rates?

Also, what does it mean when we say 'table of discounts' in both scenarios?

Thanks.
 
It's saying that to allow for aggregate deductibles, you have to use a stochastic/simulation approach to work out the effects of the aggregate deductible, and so to make it easier, reinsurers have pre-determined figures (tables) giving them the effects of the deductible on a layer so that they can allow for it quickly and easily. These will have been worked out using benchmarks.
 
Understood and thanks.
However, why did the core reading recommend this method for basic burning cost analysis (for aggregate deductible) and basic exposure rate analysis (for reinstatement)?
 
If I understand your question correctly, I think what they're saying is that if you want a simple (basic) quick analysis, use the quick table of adjustments. If you want something more 'exact', use a stochastic model instead. This would apply to any rating methodology where there are aggregate features, eg profit commission, aggregate deductibles, etc.
 
Back
Top