Filing at a Glance General Information - Delaware Insurance ...

Exhibit 5. Please note that the actual five year average, excluding high/low outliers, loss
development factors and additive amounts per exposure were used for all coverages.
Loss Adjustment Expenses
Attachment II
Page 4
Allocated loss adjustment expenses are included in both incurred losses and paid losses.
Losses in the experience period for each coverage have been adjusted to account for unallocated
loss adjustment expenses (ULAE). A provision is developed using countrywide Allstate
Insurance Group data. In previous filings, expense data had been separated out by line of
business, as is done in the Insurance Expense Exhibit, to determine the ULAE provisions by line.
Moving forward, Allstate has opted to leave the ULAE data in combined-lines form since the
allocation of ULAE by line of business is done by accounting formula rather than pricing
analysis.
A three-year average of the ratios of countrywide, combined-lines, calendar year ULAE to
countrywide, combined-lines, calendar year incurred losses is used to determine the ULAE
provision. The average ratio is then applied to the losses for each coverage for each year used
in the formula calculation. The ULAE ratios that have been used in this filing are shown in
Exhibit 6.
Loss Trend
Frequency and severity amounts are calculated using the methodology described in “The Effect
of Changing Exposure Levels on Calendar Year Loss Trends” (Casualty Actuarial Society
Forum, Winter 2005) by Chris Styrsky. This methodology helps to more consistently match
losses and claims paid with the exposures that produced the claims.
Using adjusted Allstate Indemnity Company data for the state of Delaware, the past changes in
actual frequency and severity on a twelve-month-moving basis (evaluated at each quarter) over a
six year period were examined. After considering past results, claim practice changes,
countrywide Allstate data and actuarial judgment, annual pure premium trends were selected for
each coverage. The credibility level of Allstate loss trend data was analyzed by coverage based
on the number of claims paid in the latest experience year, which is consistent with the criteria
for selecting a credibility procedure outlined in section 3 of Actuarial Standard of Practice No.
25, Credibility Procedures Applicable to Accident and Health. Group Term Life, and
Property/Casualty Coverages. These selected trends are displayed in Exhibit 7. These annual
selections are used to project the data from the average occurrence date of the experience period
to the average occurrence date of the future policy period. This projection is also shown in
Exhibit 7. Allstate Indemnity Company trend data is included in Exhibits 8.1 through 8.18 of
Attachment III.
Paid frequency and paid severity data was primarily used for all coverages. Also, in order to
reflect additional stability in Allstate’s trend data for Comprehensive coverage, Comprehensive
data excluding catastrophes was used for selecting the trend.