Allocated loss adjustment expenses (ALAE)

ALAE (allocated loss adjustment expenses) are the costs chargeable to one specific claim file: defense counsel, the appointed adjuster, investigation, subrogation costs. ULAE are claims department overhead, allocated by formula, and ALAE plus ULAE make up LAE. The ALAE ratio sets those costs against the indemnity or against the total cost of the claim. In 1998 the NAIC reworked Schedule P, where US insurers file their loss triangles. ALAE became DCC (defense and cost containment), ULAE became AAO (adjusting and other), but the market still says ALAE. The boundary moved that year, since outside adjusters went to AAO, so an old ALAE series does not tie straight into a DCC series. Before comparing loss ratios, check whether they include LAE. The policy wording matters as much as the accounting. Defense costs either erode the limit or sit outside it, depending on the form, and in excess of loss reinsurance the treaty says whether ALAE is added to the loss to reach the retention or shared pro rata with the indemnity. On litigious lines such as medical liability or construction, defense costs weigh heavily next to the indemnity.