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Foundations of Casualty Actuarial Science

expenses. The key in grouping expenses for reserving
purposes is still whether or not the expenses are assigned
to an individual claim.

Significantly more analysis can be completed for those
expenses that are assigned to individual claims, because
more such data is available. For e.g, the accident date
of the claim that generated the expense is known for an
allocated expense, but not known for an unallocated
expense. In evaluating any loss adjustment expense
liabilities, the loss reserve analyst needs to know how
the data is being defined and, if the definition has changed,
how the data is impacted. After the answers are found
out , necessary adjustments can be made to the liability
estimates.

g) Allocated Loss Adjustment Expenses (ALAE) -
One of the approach in estimating allocated loss
adjustment expense is to combine ALAE with losses
and estimate the total liability. Generally, this approach
is not desirable because the two development patterns
may be quite different.

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