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1999 Casualty Loss Reserve Seminar
Allocated Loss Adjustment Expense Reserves Stacy Mina September 14, 1999
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Purpose of This Section
What is ALAE? / What is ULAE? Analysis Options for ALAE Considerations Methods
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What is ALAE? Allocated Loss Adjustment Expense
Old Definition: Those expenses which can be linked directly to a specific claim Defense costs Surveillance costs Medical exams Expert witness expense New Definition: Those expenses where “claim defense services” have been rendered Expenses as listed above Medical cost containment expenses Audit expenses of law firm billings Expenses for voluntary & involuntary pools if reported by accident year
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What is ULAE? Unallocated Loss Adjustment Expense
Old Definition: Those expenses which cannot be directly linked to a specific claim Claims department salary & overhead Audit expenses of law firm billings New Definition: Those expenses associated with adjusting and recording policy claims Attorney fees if incurred in determination of coverage or if attorney acts in capacity of an adjuster Expenses for voluntary & involuntary pools if reported by calendar year
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Analysis Options Estimate ALAE Reserves Separately
Estimate ALAE Reserves Separately for Claims that Close with Indemnity Payments and Claims that Close without Indemnity Payments Estimate ALAE Reserves with Loss Reserves Estimate ALAE Reserves with ULAE Reserves
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Considerations Are Losses and ALAE Complimentary?
Do Additional ALAE Payments Reduce Losses? Has There Been a Shift between ALAE and ULAE? Are Case Reserves Established? Has There Been a Change in How ALAE is Paid? (e.g. periodic versus lump sum payments to the attorneys)
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Considerations (cont.)
Has There Been a Change in Defense Philosophy? (e.g. more settlements on minor claims) How is ALAE Treated by Reinsurance? Have There Been Any Law Changes Affecting an Insurer’s “Duty to Defend”?
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Methods Standard Loss Methods Development Method
Counts and Average Method Exposure Based Method Bornhuetter-Ferguson Method ALAE Specific Methods Paid-to-Paid Development Method Unpaid-to-Unpaid Method Incremental Paid-to-Paid ALAE Method
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Sample Data
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Methods Development Method
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Paid ALAE Development
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Paid ALAE Development
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Methods Counts and Average Method
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Claim Count Development
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Average Paid ALAE Development
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Counts and Average Method
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Methods Exposure Based Method
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Exposure Based Method
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Methods Bornhuetter- Ferguson Method
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Bornhuetter-Ferguson Method
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Bornhuetter-Ferguson Method
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Methods Paid-to-Paid Development Method
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Paid-To-Paid Development
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Paid-To-Paid Development Method
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Methods Unpaid-to-Unpaid Method
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Unpaid Losses & ALAE
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Unpaid -To-Unpaid Ratio Method
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Unpaid -To-Unpaid Ratio Method
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Methods Incremental Paid-to-Paid ALAE Method
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Incremental Paid Losses & ALAE
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Incremental Paid -To-Paid Ratios
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Projected Incremental Paid ALAE
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Incremental Paid Losses & ALAE
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Summary of Methods (000’s)
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