Ratio of pd ALAE to pd clm - multiplicative
- Ult ALAE = Ult clms 8 Ult ratio of pd ALAE to pd clm
- Assumptions: relationship btwn ALAE and clms is relatively stable
- + recognizes relationship btwen ALAE and clms
- + not highly leveraged
- + easy to interject actuarial judgment
- - any error in estimate of clms affect est of ALAE
- - large amts of ALAE may be spent on clms with no pmt