ALAE Methods
ALAE Methods. Methods are similar to the paid loss development method, the reported loss development method, the Bornhuetter-Ferguson paid loss method, the Bornhuetter-Ferguson reported loss method, the reported count and average value method and the reported losses with de-trended average open claim. Average paid ALAE per closed claim was not used because ALAE often involve periodic payments and payments may not be related to the claims that are closed. An additional method, the reported ALAE as a percent of reported loss method, is similar to the reported count and average value method.
Reported losses with de-trended average open claim method
Reported losses with de-trended average open claim method. This method is also known as the Berquist-Sherman method. Average case basis reserves at prior levels of maturity are re-stated using an assumed trend rate. The case basis report losses are then adjusted to reflect a more stable average case reserve. Adjusted reported losses equal paid losses plus the number of open claims times the adjusted average open claim value. The trend rate was selected judgmentally based on a review of average paid claim severities and other indications. Methods similar to the reported loss development method, the Bornhuetter-Ferguson reported loss method, and the reported count and average value method are applied to adjusted reported losses. This method adjusts for case reserving methods that may have changed over time.
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