As to the problem with ALAE reserving for homeowners and CMP, wouldn't similar problems have existed due to fluctuating property experience. I would have thought that several years of high property losses, followed by a year with low property losses would have caused similar analysis problems. Perhaps the methods for dealing with those problems (i.e. developing a multi-peril line with fluctuating property results) would also work for the ALAE/ULAE definition change. The reduction in ALAE (due to independent adjusters now being coded to ULAE) should look like a reduction in property losses for the multi-peril line.
Comments?
To: Ralph S Blanchard/CORP/Travelers
cc: casnet @ lists.casact.org@inetgw@WORLDTALK
Subject: Re: ALAE/ULAE redefinition
I agree that the biggest problem is with homewners and cmp and that it mostly
involves ALAE moving to ULAE, at least for the companies with which I work.
For the property lines, I expect little will be left in ALAE and I expect
little movement in ALAE/ULAE assignment for the liability lines.
This does, however, seem to leave a substantial problem with homeowners and
cmp. I expect this to be a major problem for me doing reserve reviews for
small companies who have basically no actuarial information available other
than Schedule P.
Even if I agree that the biggest impact is in the first year or two of
development, that still means I need a method to assess the impact for 2
years. It also means I have to inflate my ALAE factors beyond 2 years due to
the same dollars of development now being related to a deflated base.
In my opinion, this is a major problem caused for the sake of an improvement
in uniformity that has questionable benefit to the majority of insurance
companies.
Greg Grace
Visit the CAS Web Site at http://www.casact.org
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