Splitting Allocated Loss Adjustment Expense

Facultative casualty reinsurance certificates and working layer casualty excess of loss reinsurance treaties will often provide that the primary company and its reinsurer are to share Allocated Loss Adjustment Expense (ALAE) in proportion to their respective amounts of the indemnity loss. This works well in most cases and can be properly priced by the reinsurer and evaluated by the primary company before entering into the reinsurance contract.