Expenses

Question 1

What should TPs relating to past events incorporate?

Answer 1

An allowance for any related future expenses

Question 2

How should the allowance for future expenses on past events be separated?

Answer 2

ALAE and ULAE

Question 3

What should TPs relating to future events incorporate?

Answer 3

An allowance for future administrative expenses

Question 4

What should be considered when allowing for expenses? 6 factors to list

Answer 4

1. D - whether expenses are included in the data being analysed and the corresponding impact to the Development ratios
2. H - historic expense analyses, including expenses as a % of gross payments
3. D - distortions in past expense analyses due to large events or unsuitable methodology
4. S - stability of past and future events and expenses within each valuation unit, by type and age of claim
5. M - materiality of the expense assumption in the context of the overall TP
6. A - allowance for increasing or decreasing expenses per policy for a closed valuation unit