Excess Loss Premium and Excess Loss Factor
Are we not double-counting LAE if the Excess Loss Factor includes an LAE% and the Excess Loss Premium also adds provisions for LAE through the Loss Conversion Factor?
Excess Loss Factor = Excess Loss Pure Premium factor⋅ELR⋅(1+Loss Adjustment Expense %+Loss Assessment %)
Excess Loss Premium = (Excess Loss Factor)⋅(Standard Premium)⋅(Loss Conversion Factor)
Comments
We reviewed the NCCI circular extract provided in the study kit and this is how they presented it. That said, we definitely share your concern about potentially double counting LAE. We think it is okay and that the excess loss factor loss adjustment expense is to account for ALAE, while the loss conversion factor accounts for ULAE. The NCCI circular doesn't give a worked example for us to confirm this though.