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Foundations of Casualty Actuarial Science

119. Loss Adjustment Expenses
An extremely important part of the loss reserve
evaluation process is the evaluation of loss
adjustment expense liabilities. Loss adjustment
expenses (LAE) can be split into two components,
commonly called allocated loss adjustment expenses
(ALAE) and unallocated loss adjustment expenses
(ULAE).

120. Until 1998, the determining factor in whether or not a
loss expense was considered ALAE or ULAE was
whether the expense could be assigned to an individual
claim. If an expense could be assigned to a claim, it was
considered ALAE.

121. The allocated loss adjustment expenses can often be
further split into subcategories. The most important
subcategory is attorneys' fees and court costs. It will
often be conducive to obtaining better estimates of loss
adjustment expense to develop legal expense separate
from all other allocated expense items.

122. Unallocated Loss Adjustment Expenses
In addition to estimating the liability for allocated loss
adjustment expenses, we must also estimate the liability

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