Friedland17.ULAE

Chapter 17: Estimating ULAE (UnAllocated Claim Adjustment Expenses)

Reading: Friedland, J.F., Estimating Unpaid Claims Using Basic Techniques, Casualty Actuarial Society, Third Version, July 2010. The Appendices are excluded.

Study Tips

This chapter is 33 pages and covers a shitload of methods for calculating ULAE. But you can see from the BattleTable below that every question, except (2013.Fall #19b) for 0.5 pts, is about either the classical method or the Kittel method. These 2 methods are covered in just 8 pages in the source text.

Based on history, my recommendation is to study the mechanics of classical and Kittel methods, along with their assumptions, advantages & disadvantages. Then either skip the rest of the chapter entirely, or cover it very briefly. If you're uncomfortable with that and you really do want to study the less-tested ULAE methods in depth, make sure you cover all the important material from the other syllabus readings first.

Estimated study time: 2 days (not including subsequent review time)

BattleTable

Based on past exams, the main things you need to know (in rough order of importance) are:

• classical technique - calculation, assumptions, advantages & disadvantages
• Kittel refinement - calculation, assumptions, advantages & disadvantages

reference	part (a)	part (b)	part (c)	part (d)
E (2019.Fall #24)	Kittel refinement: - unpaid ULAE	calculation changes: * clms-made → occurrence
E (2018.Fall #22)	IBNYR claims: - calculate	any method: - unpaid ULAE
E (2018.Spring #23)	classical technique: - unpaid ULAE	Kittel refinement: - unpaid ULAE	compare techniques: - classical vs Kittel
E (2017.Fall #26)	classical technique: - unpaid ULAE	calculate ratio: → (pd ULAE)/(pd claims)	assess reasonableness: - ULAE estimate
E (2017.Spring #24)	ULAE scenario: - expanding operations	ULAE scenario: - hurricane risk	ULAE scenario: - long-tail line
E (2016.Fall #26)	classical technique: - unpaid ULAE	classical technique: - assumption violation	Kittel refinement: - assess appropriateness
E (2016.Spring #22)	ALAE development: - unpaid ALAE	classical technique: - unpaid ULAE	assess reasonableness: - ULAE estimate
E (2015.Spring #25)	classical technique: - identify problem	Kittel refinement: - unpaid ULAE
E (2014.Fall #23)	B-F method: - claims IBNR	classical technique: - unpaid ULAE	classical technique: - assess assumptions	Kittel refinement: - describe
E (2013.Fall #19)	assess impact: - on ALAE ratio method	assess impact: - on ULAE Johnson method	assess impact: - on rates using PP method	assess impact: - on reinsurance recoverable
E (2013.Spring #25)	Kittel refinement: - unpaid ULAE	Kittel refinement: - purpose	classical technique: - shortcoming

In Plain English!

ULAE is Totes Easy

Take a moment to review What is ALAE & ULAE from the ALAE chapter of Friedland. Since ULAE isn't associated with a particular claim, there's no accident date or report date. So unlike ALAE data, you can't make a triangle for ULAE. But then WTF do you do??!! Up until now, every reserving technique has been based on development triangles. With ULAE, there's a much simpler formula:

unpaid ULAE   =   (ULAE ratio)   x   [ 50% x (Case + IBNER)   +   100% x (IBNYR) ]

Let's calculate the unpaid ULAE for calendar year 2021 given the following information:

• For the (ULAE ratio) we'll need:

paid ULAE (CY 2015 - 2019) = 110

paid claims (CY 2015 - 2019) = 1000

• For CY 2020, you also need:

case oustanding = 300

IBNER = 120

IBNYR = 80

Then just substitute into the given formula:

unpaid ULAE: = (110/1000) x [ 50% ( 300 + 120) + 100% x 80 ]