Unallocated Loss Adjustment Reserves in an Inflationary Economic Environment [Review]

In this paper Mr. Kittel has noted an apparent flaw in the traditional method of establishing unallocated loss adjustment expenses (ULAE) reserves. For a growing company in an inflationary economy, the traditional method of establishing ULAE reserves as a function of paid to paid ratios appears to overstate these reserves. Since the majority of companies probably use some form of the paid to paid ratio in establishing their ULAE reserves, the discovery of such an error would be an important contribution to the insurance industry.