[[Actuarial Notes Wiki|Wiki]] / [[Exam 5 (CAS)]] / **Unallocated Loss Adjustment Expenses (ULAE)**
## Definition
==Unallocated Loss Adjustment Expenses ULAE== ULAE (Unallocated Loss Adjustment Expenses) are claim adjustment costs that cannot be attributed to specific individual claims.
## Components
- Claims staff salaries
- Claims office rent
- Technology and systems
- File storage
- Training and development
- Overhead allocation
- General administration
## Characteristics
### Aggregate Estimation
- Not claim-specific
- Estimated in bulk
- Applied as ratio or formula
- Not in case reserves
### Treatment in Reserving
```
Total Reserves = (Losses + ALAE) + ULAE
ULAE often estimated as:
ULAE = (Losses + ALAE) × ULAE Ratio
```
## Typical ULAE Ratios
By line of business (ULAE as % of losses):
```
Workers Compensation: 5-8%
Auto Liability: 4-6%
General Liability: 3-5%
Property: 2-4%
```
## Estimation Methods
### Historical Ratio
```
ULAE Ratio = Historical ULAE / Historical Losses
Apply to unpaid losses:
ULAE Reserve = Unpaid Losses × ULAE Ratio
```
### Budget Method
```
ULAE = Expected Annual ULAE Budget / Expected Claims
Allocated to reserves proportionally
```
### Per Claim Method
```
ULAE = Open Claim Count × Average Cost per Claim
```
## Example
```
Reserve Calculation:
Unpaid Losses + ALAE: $10,000,000
Historical ULAE ratio: 5%
ULAE Reserve:
= $10,000,000 × 0.05
= $500,000
Total Reserve:
= $10,000,000 + $500,000
= $10,500,000
```
## Ratemaking Treatment
### Combined with ALAE
```
Total LAE = ALAE + ULAE
Loss & LAE Ratio = (Losses + ALAE + ULAE) / Premium
```
### Separate Expense Item
```
Underwriting expenses include ULAE
Fixed expense ratio includes ULAE component
```
## Related Concepts
- [[Loss Adjustment Expenses (LAE)]]
- [[Allocated Loss Adjustment Expenses (ALAE)]]
- [[Fixed Expenses]]
## References
- Werner & Modlin, Chapter 5
- Friedland, Chapter 10