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You are here: Home . bulletins . 1998 . b-0002-8
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COMMISSIONER'S BULLETIN # B-0002-98

January 15, 1998


To: All Insurers Writing Residential Property Insurance, Commercial Lines Insurance, or Private Passenger Automobile Insurance in Texas


Re: Definitions for Allocated and Unallocated Loss Adjustment Expenses

The National Association of Insurance Commissioner (NAIC) has changed the definition of Allocated Loss Adjustment Expenses (ALAE) and Unallocated Loss Adjustment Expenses (ULAE) that are to be reported in the Annual Statements. For consistency in reporting statistical data for Texas, the Texas Department of Insurance (TDI) is requiring that the NAIC definitions for ALAE and ULAE be used when reporting under the following statistical plans:

Texas Statistical Plan for Residential Risks
Texas Commercial Lines Statistical Plan
Texas Private Passenger Automobile Statistical Plan

For your information and use the following is an excerpt from the NAIC web site that explains the new definitions. Please use these for informational purposes only and follow the actual Annual Statements instructions as set forth by the NAIC.

THE REVISED RULE

The Annual Statement Instructions are amended (effective 1/1/98) to include a specific delineation between allocated and unallocated loss adjustment expenses, which states:

Allocated loss adjustment expenses include defense, litigation and medical cost containment expenses, whether internal or external. Allocated loss adjustment expenses include the following items:

i. Surveillance expenses;

ii. Fixed amounts for medical cost containment expenses;

iii. Litigation management expenses;

iv. Loss adjustment expenses for participation in voluntary and involuntary market pools if reported by accident year;

v. Fees or salaries for appraisers, private investigators, hearing representatives, reinspectors and fraud investigators, if working in defense of a claim, and fees or salaries for rehabilitation nurses, if such cost is not included in losses;

vi. Attorney fees incurred owing to a duty to defend, even when other coverage does not exist; and

vii. The cost of engaging experts.

The foregoing list is not intended to be all inclusive.

Unallocated loss adjustment expenses are those expenses other than allocated expenses as defined above assigned to the expense group "Loss Adjustment Expense." Unallocated loss adjustment expenses include the following items:

i. Fees of adjusters and settling agents;

ii. Loss adjustment expenses for participation in voluntary and involuntary market pools if reported by calendar year;

iii. Attorney fees incurred in the determination of coverage, including litigation between the insurer and the policyholder; and

iv. Fees or salaries for appraisers, private investigators, hearing representatives, reinspectors and fraud investigators, if working in the capacity of an adjuster.

The foregoing list is not intended to be all inclusive.

Questions relating to this bulletin should be directed to the undersigned at (512) 475-3026 or Jennifer Vaughn at (512) 305-8125.

Sincerely,

Gary Gola
Special Projects Director,
Technical Analysis (MC 105-5S)



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