2014 17 a
A key assumption here I assume is that the expense portion of 20% includes ALAE, is that correct? Which is why we do not need to multiply the expected loss by the loss conversation factor?
Are there any tips to know when this is the case? I certainly get tripped up here.
Comments
These questions can be a bit tricky due to the ambiguity. The expense ratio is the insurers expense provision as a ratio to standard premium. It covers ALAE and ULAE as well as general expenses. It's not the same thing as the expense portion of basic premium which covers all expenses except ALAE.
I think the key here is ratio vs portion.
I see. So would a good summary to be that for a GCP we are never multiplying by the loss conversation in the Expected Agg Loss portion of (e + E[A]) * T?
This is in contrast to a retro plan that uses the formula (B + c*(E - I )) * T. I think that is what I was mistaking in my head is that I would always need to multiply by a loss conversion factor on the E[A] amount. But if I am understanding correct, e covers all expenses so no need to "double dip" and add them twice.
Yes, that's a good summary.
The expense ratio, e, covers all expenses so loading for ALAE via c would double count. Whereas the expense portion of basic premium doesn't include ALAE so you need to load E[A] for ALAE.