revised naic alae and ulae definitions (or dcc and a&o > 1/1/98) a non-actuarial perspective
DESCRIPTION
Revised NAIC ALAE and ULAE Definitions (or DCC and A&O > 1/1/98) A Non-Actuarial Perspective. by Richard Carris, CPCU, CIPA, CLU, CFE, APA, AIC, ARM Casualty Actuarial Society Meeting:Casualty Loss Reserve Seminar Session:NAIC Redefinitions of Loss Adjustment Expense - PowerPoint PPT PresentationTRANSCRIPT
Revised NAIC ALAE and ULAE Definitions (or DCC and A&O > 1/1/98)
A Non-Actuarial Perspective
Revised NAIC ALAE and ULAE Definitions (or DCC and A&O > 1/1/98)
A Non-Actuarial Perspectiveby
Richard Carris, CPCU, CIPA, CLU, CFE, APA, AIC, ARM
Casualty Actuarial SocietyMeeting:Meeting: Casualty Loss Reserve SeminarCasualty Loss Reserve Seminar
Session:Session: NAIC Redefinitions ofNAIC Redefinitions ofLoss Adjustment ExpenseLoss Adjustment Expense
Venue:Venue: Arlington, VAArlington, VA
Date:Date: September 24, 2002September 24, 2002
Time:Time: 12:30 PM to 2:00 PM12:30 PM to 2:00 PM
Contact:Contact: [email protected] or [email protected] or
(212) 894-7747 (212) 894-7747
2
Keys on ALAE for the LAE PersonKeys on ALAE for the LAE Person
Traditional ALAE =
Allocated Loss Adjustment Expense =
Allocated Loss Expense (in Sch P) =
New or Revised ALAE =
Defense and Cost Containment (“DCC”) =
(in name only but not components)
Traditional ALAE =
Allocated Loss Adjustment Expense =
Allocated Loss Expense (in Sch P) =
New or Revised ALAE =
Defense and Cost Containment (“DCC”) =
(in name only but not components)
CAS = Claim Adjustment Services (Interim Period)
Whereby CAS = Defense, Litigation and Medical Cost containment Services <DCC but> Traditional ALAE. Used for Discussion Purposes by NAIC.
CAS = Claim Adjustment Services (Interim Period)
Whereby CAS = Defense, Litigation and Medical Cost containment Services <DCC but> Traditional ALAE. Used for Discussion Purposes by NAIC.
Trigger = 1/1/98
3
Keys on ULAE for the LAE PersonKeys on ULAE for the LAE Person
Traditional ULAE =
Unallocated Loss Adjustment Expense =
Unallocated Loss Expense(in Sch P)
New or Revised ULAE =
Adjusting and Other (“A&O”)
(in name only but not components)
Traditional ULAE =
Unallocated Loss Adjustment Expense =
Unallocated Loss Expense(in Sch P)
New or Revised ULAE =
Adjusting and Other (“A&O”)
(in name only but not components)
Traditional LAE = ALAE + ULAE
New or Revised LAE = DCC + A&O
Traditional LAE = ALAE + ULAE
New or Revised LAE = DCC + A&O
Trigger = 1/1/98
4
Old NAIC Definitions of ALAE and ULAE
Old NAIC Definitions of ALAE and ULAE
Old ALAE - Allocate whatever can be allocated. (Expense identified with a specific claim)
Old ULAE - Everything else.
Old ALAE - Allocate whatever can be allocated. (Expense identified with a specific claim)
Old ULAE - Everything else.
Chapter 11 - Loss Adjustment Expenses of the Accounting Practices and Procedures Manual
Defense, litigation and medical cost containment not previously specified.Defense, litigation and medical cost containment not previously specified.
5
New ALAE (DCC)* (Sch P Columns 6 & 7
2001 Annual Statement)
New ALAE (DCC)* (Sch P Columns 6 & 7
2001 Annual Statement)
Specifically, Allocated Loss Adjustment Expense (new ALAE) includes the following items:
Surveillance expenses;
Fixed amounts for medical cost containment expenses;
Litigation management expenses;
Specifically, Allocated Loss Adjustment Expense (new ALAE) includes the following items:
Surveillance expenses;
Fixed amounts for medical cost containment expenses;
Litigation management expenses;
Per NAIC 6/24/97 Draft
6
New ALAE (DCC) (Sch P Columns 6 & 7 2001 Annual Statement)
New ALAE (DCC) (Sch P Columns 6 & 7 2001 Annual Statement)
Loss adjustment expenses for participation in voluntary and involuntary market pools if reported by accident year;
Fees or salaries for appraisers, private investigators, hearing representatives, reinspectors and fraud investigators, if working in defense of a claim, and fees or salaries for rehabilitation nurses, if such cost is not included in losses;
Loss adjustment expenses for participation in voluntary and involuntary market pools if reported by accident year;
Fees or salaries for appraisers, private investigators, hearing representatives, reinspectors and fraud investigators, if working in defense of a claim, and fees or salaries for rehabilitation nurses, if such cost is not included in losses;
Per NAIC 6/24/97 Draft
7
New ALAE (DCC) (Sch P Columns 6 & 7 2001 Annual Statement)
New ALAE (DCC) (Sch P Columns 6 & 7 2001 Annual Statement)
Attorney fees incurred owing to a duty to defend, even when other coverage does not exist; and
The cost of engaging experts.
The foregoing list is not intended to be all inclusive.
Attorney fees incurred owing to a duty to defend, even when other coverage does not exist; and
The cost of engaging experts.
The foregoing list is not intended to be all inclusive.
Per NAIC 6/24/97 Draft
8
New ULAE (A&O)* (Sch P Columns 8 & 9 2001 Annual Statement)
New ULAE (A&O)* (Sch P Columns 8 & 9 2001 Annual Statement)
Unallocated Loss Adjustment Expenses are those expenses other than allocated expenses. New ULAE includes the following items:
Fees of adjusters and settling agents;
Loss adjustment expenses for participation in voluntary and involuntary market pools if reported by calendar year;
*Effective 1/1/98
Unallocated Loss Adjustment Expenses are those expenses other than allocated expenses. New ULAE includes the following items:
Fees of adjusters and settling agents;
Loss adjustment expenses for participation in voluntary and involuntary market pools if reported by calendar year;
*Effective 1/1/98
Per NAIC 6/24/97 Draft
9
New ULAE (A&O) (Sch P Columns 8 & 9
2001 Annual Statement)
New ULAE (A&O) (Sch P Columns 8 & 9
2001 Annual Statement)
Attorney fees incurred in the determination of coverage, including litigation between the insurer and the policyholder; and
Fees or salaries for appraisers, private investigators, hearing representatives, reinspectors and fraud investigators, if working in the capacity of an adjuster.
The foregoing list is not intended to be all inclusive.
Attorney fees incurred in the determination of coverage, including litigation between the insurer and the policyholder; and
Fees or salaries for appraisers, private investigators, hearing representatives, reinspectors and fraud investigators, if working in the capacity of an adjuster.
The foregoing list is not intended to be all inclusive.
Per NAIC 6/24/97 Draft
10
Who Is An Adjuster? (For ULAE)Who Is An Adjuster? (For ULAE)
And although not defined, the term adjuster is broad enough to include claim examiners, claim investigators, claim representative, claim supervisors, appraisers, reinspectors and other titles that any one company may use. It is not really the title, but the claims adjusting function.
And although not defined, the term adjuster is broad enough to include claim examiners, claim investigators, claim representative, claim supervisors, appraisers, reinspectors and other titles that any one company may use. It is not really the title, but the claims adjusting function.
11
ThemeTheme
It no longer matters whether an insurer uses its own employees or independent contractors. The concept of internal adjuster or external adjuster is gone.
It no longer matters whether an insurer uses its own employees or independent contractors. The concept of internal adjuster or external adjuster is gone.
12
Exhibit I NAIC Change
Exhibit I NAIC Change
MAJOR EXPENSE OLD ALAE/ULAE NEW ALAE/ULAE METHOD METHOD <1998 > 1998
Inside Legal Counsel * ULAE or ALAE ALAEbut mostly ULAE +Overhead loading
Outside Adjusters and ALAE or ULAE ULAE
Appraisers but mostly ALAE
Insider Adjuster and ULAE or ALAE and Appraisers but mostly ULAE ULAE
* For Duty to Defend
_
(Cheat Sheet)
13
Exhibit I NAIC Change (cont’d)
Exhibit I NAIC Change (cont’d)
Outside Experts ALAE or ULAE ALAEbut mostly ALAE
Inside Experts ULAE or ALAE ALAE
but mostly ULAE
Attorney Engaging in ALAE or ULAE ULAE Adjusting Work
MAJOR EXPENSE OLD ALAE/ULAE NEW ALAE/ULAE METHOD METHOD <1998 > 1998
(Cheat Sheet)
14
Question and Answer Session with Richard Roth, JD, FCAS
Question and Answer Session with Richard Roth, JD, FCAS
1. Dick, what was the reason for the redefinition of LAE effective January 1, 1998?
2. Was this an industry motivated redefinition or one thought about by the CATF of the NAIC?
3. How many years prior to the implementation of the new LAE definitions was the CATF considering this redefinition?
4. How were the terms DCC and A&O (post 1/1/98) ultimately determined?
1. Dick, what was the reason for the redefinition of LAE effective January 1, 1998?
2. Was this an industry motivated redefinition or one thought about by the CATF of the NAIC?
3. How many years prior to the implementation of the new LAE definitions was the CATF considering this redefinition?
4. How were the terms DCC and A&O (post 1/1/98) ultimately determined?
15
Question and Answer Session with Richard Roth, JD, FCAS
Question and Answer Session with Richard Roth, JD, FCAS
5. Besides space issues (22 characters formerly for Allocated Loss Expense and 24 characters formerly for Unallocated Loss Expense) in the annual statement blank heading of Sch P, what was the rational or constraints in selecting new terms?
6. What changes, if any, have there been in the actual implementation of the redefinition from the June 24, 1997 CATF draft on the topic?
5. Besides space issues (22 characters formerly for Allocated Loss Expense and 24 characters formerly for Unallocated Loss Expense) in the annual statement blank heading of Sch P, what was the rational or constraints in selecting new terms?
6. What changes, if any, have there been in the actual implementation of the redefinition from the June 24, 1997 CATF draft on the topic?
16
Question and Answer Session with Richard Roth, JD, FCAS
Question and Answer Session with Richard Roth, JD, FCAS
7. Are you aware of methods insurers have employed to adjust to the change? If so, can you explain?
8. Are you aware of changes, if any, made by ISO and NCCI regarding their definition of ALAE (ALE prior to 1/1/98 and DCC thereafter)?
9. Can you say yet if this change is expense neutral? If not, how has the ALAE/LAE (DCC/DCC + A&O) ratio changed? Would this vary by company?
7. Are you aware of methods insurers have employed to adjust to the change? If so, can you explain?
8. Are you aware of changes, if any, made by ISO and NCCI regarding their definition of ALAE (ALE prior to 1/1/98 and DCC thereafter)?
9. Can you say yet if this change is expense neutral? If not, how has the ALAE/LAE (DCC/DCC + A&O) ratio changed? Would this vary by company?
17
Question and Answer Session with Richard Roth, JD, FCAS
Question and Answer Session with Richard Roth, JD, FCAS
10.Do you think the NAIC change has achieved its objective?
11.Would you ever see the NAIC going back to the pre-January 1st 1998 definitions of LAE?
12.Did anyone study the cost to the insurance industry of implementation of DCC and A&O as compared with traditional ALAE and ULAE?
10.Do you think the NAIC change has achieved its objective?
11.Would you ever see the NAIC going back to the pre-January 1st 1998 definitions of LAE?
12.Did anyone study the cost to the insurance industry of implementation of DCC and A&O as compared with traditional ALAE and ULAE?
18
Question and Answer Session with Richard Roth, JD, FCAS
Question and Answer Session with Richard Roth, JD, FCAS
13.Do you know what the NAIC is doing differently with the new data vs. the old data?
14.How is the NAIC monitoring implementation of compliance with DCC and A&O?
15.By the way, has the NAIC ever determined what is a settling agent? (Source: NAIC Draft June 24, 1997).
13.Do you know what the NAIC is doing differently with the new data vs. the old data?
14.How is the NAIC monitoring implementation of compliance with DCC and A&O?
15.By the way, has the NAIC ever determined what is a settling agent? (Source: NAIC Draft June 24, 1997).
19
Question and Answer Session with Richard Roth, JD, FCAS
Question and Answer Session with Richard Roth, JD, FCAS
16.Have you learned of insurers or reserving actuaries that are pleased with the change?
17.Do you have any feedback that you would like to provide to the members in attendance at the CAS?
Thanks as always for your help on our favorite topic.
16.Have you learned of insurers or reserving actuaries that are pleased with the change?
17.Do you have any feedback that you would like to provide to the members in attendance at the CAS?
Thanks as always for your help on our favorite topic.
20
Exhibit IIRevised Definition of ALAE and ULAE
Exhibit IIRevised Definition of ALAE and ULAE
Salaries of fraud investigators, private investigators, appraisers, hearing representatives and reinspectors.
Yes, if working in the capacity of an adjuster. No, if working in defense of a claim.
Yes, if working in defense of a claim. No, if working in the capacity of an adjuster.
Surveillance Expenses No Yes
Fees of Professionals No Yes
Salaries and expenses of inside adjusters and fees and expenses of outside adjusters.
NoYes
Source: NAIC June 24, 1997 Draft and various conversations with Richard J. Roth, Jr. of the California Insurance Department.
EXAMPLE Coded as ULAE ? (A&O) Coded as ALAE ? (DCC)
21
Exhibit II (cont’d) Revised Definition of ALAE and ULAE
Exhibit II (cont’d) Revised Definition of ALAE and ULAE
All independent adjuster expenses
Yes No
All staff adjuster expenses Yes No
Attorney fees Yes, for coverage evaluation and litigation between the insurer and insured. (i.e., D.J. costs). Also, Yes, for any adjustment type of activity.
Yes, for expenses incurred under the broad duty to defend concept, even if no duty to indemnify. Does not include any adjuster type of expense. (Include an overhead loading).
Selected medical cost containment expenses
No Yes
Source: NAIC June 24, 1997 Draft and various conversations with Richard J. Roth,Jr. of the California Insurance Department.
EXAMPLE Coded as ULAE ? (A&O) Coded as ALAE ? (DCC)
22
Exhibit II (cont’d) Revised Definition of ALAE and ULAE
Exhibit II (cont’d) Revised Definition of ALAE and ULAE
Litigation management expenses including legal bill review
YesNo
Loss adjustment expenses for participation in voluntary and involuntary market pools
Yes, if reported by calendar year
Outside Expert fees (accountants, physicians, engineers, architects, etc.)
Yes
Inside Expert fees No Yes
Yes, if reported by accident year
No
Claim adjuster expenses NoYes
Source: NAIC June 24, 1997 Draft and various conversations with Richard J. Roth,Jr. of the California Insurance Department.
EXAMPLE Coded as ULAE ? (A&O) Coded as ALAE ? (DCC)
23
Exhibit II (cont’d) Revised Definition of ALAE and ULAE
Exhibit II (cont’d) Revised Definition of ALAE and ULAE
Internal or external defense and litigation
YesNo
Medical cost containment expenses
Usual Adjuster Expense
Yes
Unusual Adjuster Expense No Yes
YesNo
Expenses not cited above
No
Yes
Yes
EXAMPLE Coded as ULAE ? (A&O) Coded as ALAE ? (DCC)
Source: NAIC June 24, 1997 Draft and various conversations with Richard J. Roth,Jr. of the California Insurance Department.
24
Redefinitions of Loss Adjustment ExpenseConstraints for Allocated Loss Expense Payments vs. DCC
And there is also:Allocated Loss Expenses Unpaid Measurements (Not being Discussed)
(A/K/A Defense and Cost Containment Unpaid)
Table I – Measuring LAE – ALAE – Width, Height and Character SpacingSch P Component Being Measured ALAE < 1/1/98 (Note 1) ALAE > 1/1/98 (Note 2)
Column Name Loss and Loss Expense Payments Loss and Loss Expense PaymentsWidth of Cell Row:Loss and Loss Expense Payments 4.5 Inch 4.5 InchHeight of Cell Row:Loss and Loss Expense Payments 1/8 Inch ¼ inchColumns Numbers Being Utilized forLoss and Loss Expense Payments
Columns (5) to (10) Columns (4) to (9)Acc Year is No Longer Column (1)
Pure ALAE Name Allocated Loss ExpensePayments
Defense and CostContainment Payments
Number or Alpha Characters including SpacesUtilized
30 36
Number of Character Spaces Available with utilizedColumn Width and Height
43 59
Size of Selected Columns –
Width
1 inch for total ALAE with .5 inchfor Direct and Assumed (Col. 7)
and .5 inch for Ceded (8)
1 inch for total ALAE with .5 inch forDirect and Assumed (Col. 6) and .5
inch for Ceded (7)
Size of Selected Columns –Height
¼ (2/8) inch 3/8 inch
Note (1) Source: Schedule P – Part 1 – Summary using the 8 ¾ inch x 14 inch version of the 1998 Annual Statement.Note (2) Source: Schedule P – Part 1 – Summary using the 8 ¾ inch x 14 inch version of the 1999 Annual Statement.
25
Redefinitions of Loss Adjustment ExpenseConstraints for Unallocated Loss Expense Payments vs. A&O
And there is also:Unallocated Loss Expenses Unpaid Measurements (Not being Discussed)
(A/K/A Adjusting and Other Unpaid)
Table II – Measuring LAE – ULAE – Width, Height and Character SpacingSch P Component Being Measured ULAE < 1/1/98 (Note 1) ULAE > 1/1/98 (Note 2)
Column Name Loss and Loss Expense Payments Loss and Loss Expense PaymentsWidth of Cell Row:Loss and Loss Expense Payments 4.5 Inch 4.5 InchHeight of Cell Row:Loss and Loss Expense Payments 1/8 Inch ¼ inchColumns Numbers Being Utilized forLoss and Loss Expense Payments
Columns (5) to (10) Columns (4) to (9)Acc Year is No Longer Column (1)
Pure ULAE Name Unallocated Loss ExpensePayments
Adjusting and Other Payments
Number or Alpha Characters including SpacesUtilized
32 27
Number of Character Spaces Available with utilizedColumn Width and Height
42 53 (But the problem is with Adjustingand Other Unpaid – 30 spaces only)
Size of Selected Columns –
Width
1 inch for total ULAE with .5 inchfor Direct and Assumed (Col. 9)
and .5 inch for Ceded (10)
1 inch for total ULAE with .5 inch forDirect and Assumed (Col. 8) and .5
inch for Ceded (9)
Size of Selected Columns –Height
¼ (2/8) inch 3/8 inch
Note (1) Source: Schedule P – Part 1 – Summary using the 8 ¾ inch x 14 inch version of the 1998 Annual Statement.Note (2) Source: Schedule P – Part 1 – Summary using the 8 ¾ inch x 14 inch version of the 1999 Annual Statement.
26
Considerations of LAEConsiderations of LAE
NAIC
ISO
NCCI
State Bureaus
GAAP
Operational - Allocating expenses to their source makes good economics and is proper cost accounting, regardless of the regulatory requirement.
NAIC
ISO
NCCI
State Bureaus
GAAP
Operational - Allocating expenses to their source makes good economics and is proper cost accounting, regardless of the regulatory requirement.
27
Exhibit III-Pre/Post ObservationsExhibit III-Pre/Post Observations
ALAE
Inside Legal
ALAE
Inside Legal
ULAEOutsideAdjusters
ULAEOutsideAdjusters
ULAEInside Legal
ULAEInside Legal
ALAEOutsideAdjusters
ALAEOutsideAdjusters
ULAE ALAE
= Overlap = Overlap Other Expenses
NEW ALAE/ULAE (Practice)
NEW ALAE/ULAE (Practice)
OLD ALAE/ULAE (Practice)
OLD ALAE/ULAE (Practice)
28
Exhibit IVOther Benefits of the Change: An Increase in
Demand for Casualty Actuaries
Exhibit IVOther Benefits of the Change: An Increase in
Demand for Casualty Actuaries
D2D2
D1D1
S1*S1*
Q1Q1 Q2Q2
P1P1
P2P2
Quantity Quantity DemandedDemanded
PricePrice
29
Exhibit V - Net Exhibit V - Net
Inside Legal Mostly Out In + Loading + X %
Factor
Independent Mostly In Out - y % Adjuster
Net
OLD NEW NET Change toALAE ALAE ALAE as % of LAE
ONE EXAMPLE
+ if x% > y%- if x%< y%no ^ if x%=y%
30
Analytic Geometry of Two DimensionsAnalytic Geometry of Two Dimensions
Year 12 24 36 48 60 72 84 96 108
x1 X X X X X X X X X
x2 X X X X X X X X
x3 X X X X X X X
x4 X X X X X X
x5 X X X X X
x6 X X X X
x7 X X X
x8 X X
x9 X
EXAMPLEMonth of Development
Month of Development
ACCYR
ACCYR
Year 12 24 48 60 72 84 96 108
x1 X X X X X X X Xx2 X X X X X X X x3 X X X X X X x4 X X X X X x5 X X X Xx6 X X X x7 X Xx8 X Xx9 X
2 Triangles =
31
= 1 Claims File= 1 Claims File
If one can do triangles, with double the effort, one can do rectangles (the claims file). If one can do triangles, with double the effort, one can do rectangles (the claims file).
Year 1 24 36 48 60 72 84 96 108
x1 X X X X X X X X X
x2 X X X X X X X X
x3 X X X X X X X
x4 X X X X X X
x5 X X X X X
x6 X X X X
x7 X X X
x8 X X
x9 X
EXAMPLE
Year1 24 36 48 60 72 84 96 108
x1X X X X X X X X X
x2X X X X X X X X
x3X X X X X X X
x4X X X X X X
x5X X X X X
x6X X X X
x7X X X
x8X X
x9X
32
Economic Benefits of Transforming Traditional ULAE into ALAE
Economic Benefits of Transforming Traditional ULAE into ALAE
Proper Analysis of Profitability
Reinsurance Recoverables (Per terms of Contract)
Correctly Calculate MGA’s and Agents’ Contingent Commissions
Additional Premiums for insurers and reinsurers
via Loss-Sensitive Insurance Programs
Subrogation and Salvage Actions
Proper Analysis of Profitability
Reinsurance Recoverables (Per terms of Contract)
Correctly Calculate MGA’s and Agents’ Contingent Commissions
Additional Premiums for insurers and reinsurers
via Loss-Sensitive Insurance Programs
Subrogation and Salvage Actions
33
LAE TrendLAE TrendC
on
fusi
on
Co
nfu
sio
n
TimeTimeActuarial ACAS FCAS 1996 1998 2000 2002Student
X =?Sept. 24, 2002
1:30 PM
X
~~
34
E-mail address:E-mail address:
For a copy of this presentation –
contact Richard Carris at:
For a copy of this presentation –
contact Richard Carris at:
35
Richard Carris, CPCU, CLU, CFE, CIPA, APA, ARM, AICQBE the Americans
Wall Street Plaza New York, New York 10005
Richard Carris, CPCU, CLU, CFE, CIPA, APA, ARM, AICQBE the Americans
Wall Street Plaza New York, New York 10005
Richard is vice president and internal audit manager for QBE the Americas consisting of QBE Reinsurance Corporation and QBE Insurance Corporation.
Richard began his insurance career in 1980. In his more than 20 years of property/casualty experience he spent 12 years with a Big 4 accounting firm in the auditing of various insurance company operations (claims, underwriting, premium auditing, finance, accounting, etc.). His experience prior to 12 years with a Big 4 firm included risk management, brokerage and positions with two primary insurance companies.
Richard is a member of the professional societies of CPCU, CLU, ChFC, CFE, NSIPA (National Society of Insurance Premium Auditors) and NASP (National Association of Subrogation Professionals). He has served for ten years as an Editorial Advisory Board Member for Risk Management magazine (the professional magazine of RIMS) reviewing risk management and other articles for publication consideration. He serves on the ISO Premium Fraud Panel.
Richard was an Adjunct Professor of Insurance Economics for several years teaching the Part 9 CPCU course at Baruch College –
City University of New York and The College of Insurance located in NYC.
Richard has published over 50 articles on a variety of insurance operational topics including underwriting, premium auditing, claims, risk management and international insurance economics for Best’s Review, CPCU Journal, National Underwriter, Insurance Executive Reports, Subrogator, Risk Management, Global Reinsurance and a variety of construction trade publications. He is the co-author of a McGraw-Hill textbook entitled Construction Insurance, Bonding and Risk Management.
36
Next Speaker ...
“This new definition of ALAE/ULAE is not retroactive. However, prospectively the change could be implemented on a calendar year or an accident year basis. On a calendar year basis, the expenses in the new and older accident years have the new definition as they develop in the loss and expense triangles. On an accident year basis, the expenses in the new accident years have the new definition and the expenses in the older accident years have the old definition. It is optional to the company which way to do it. There is a split among companies as to which is easier. The actuary should be able to handle either way as long as it is known which choice was made.”
Source: NAIC
“This new definition of ALAE/ULAE is not retroactive. However, prospectively the change could be implemented on a calendar year or an accident year basis. On a calendar year basis, the expenses in the new and older accident years have the new definition as they develop in the loss and expense triangles. On an accident year basis, the expenses in the new accident years have the new definition and the expenses in the older accident years have the old definition. It is optional to the company which way to do it. There is a split among companies as to which is easier. The actuary should be able to handle either way as long as it is known which choice was made.”
Source: NAIC