Pure loss ratio definition
Pure loss ratio means the ratio of incurred claims to earned premiums for a given period, as determined in accordance with accepted actuarial principles and practices, and subject to the following provisions. For the purposes of this calculation, incurred claims do not include any claim adjustment expenses or cost containment expenses. Any savings offset payments, access payments, or reinsurance assessments paid pursuant to Title 24‑A M.R.S.A. §6913, §6917, or §3957, and any assessments for transitional reinsurance pursuant to the ACA, are treated as incurred claims. Except in situations where the assuming carrier is responsible for 100% of the ceding carrier’s financial risk and administration of the policies, earned premiums and incurred claims must be stated on a direct basis without regard to commercial reinsurance. Reimbursements pursuant to the transitional reinsurance pursuant to the ACA shall be deducted from incurred claims. For individual health plans subject to Title 24‑A M.R.S.A. §2736-C, reinsurance premiums pursuant to Title 24-A M.R.S.A. §3958 shall be deducted from earned premiums and reimbursements pursuant to Title 24-A M.R.S.A. §3958 shall be deducted from incurred claims.
Pure loss ratio means incurred losses divided by direct earned premium. Incurred losses include paid claims and the change in reserves for pending and unknown claims. A pure loss ratio does not include defense and cost containment expenses, which are a significant part of the cost to resolve claims.