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for unallocated loss adjustment expenses. Most ULAE
is the expense of operating a claims department and
includes such items as claim adjuster fees, office rent,
and utilities.

123. Insurers may use different strategies for pricing business.
Two common strategies are: (a) adjust price according
to individual cost potential, and (b) accept an individual
only if the existing price structure is adequate.

124. Criteria for selecting variables may be summarized into
the following categories: actuarial, operational, social,
and legal. Following this discussion, we describe the
ramifications of restricting the use of rating variables.

125. Actuarial Criteria
Actuarial criteria may also be called "statistical" criteria.
They include accuracy, homogeneity, credibility, and
reliability. Foremost is accuracy. Rating variables should
be related to costs.

126. Operational Criteria
Actuarial criteria must be tempered by practical or
operational considerations. The most important
consideration is that the rating variables have an
objective definition. There should be little ambiguity, class

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