Why would the method only give you a ULAE estimate for the coming year? Isn't it just using (the simplistic assumption) that ULAE as a proportion of indemnity remains constant?
As it's being applied to your outstanding case reserves, you're getting an estimate of the ULAE required to pay all outstanding claims, which is what you want?
If anything, to the extent that some of your ULAE will be fixed costs not rising with indemnity settlements, you could argue that ULAE is overstated when reserves are increasing (and similarly, there is a danger of underestimation when reserves are decreasing, if fixed costs won't be covered?)
I'm thinking as I type here but you should probably at least split ULAE into fixed and variable (with your fixed coming from future business plans, and your variable using this ratio approach), to get a ULAE estimate?
I've never heard of the other methods, but will take a quick look now. Thanks for the link
Last edited by a moderator: Mar 29, 2013