This memo is to address the average loss ratio lifecycle of new clients over time. It has been observed that the first contracts to complete tend to have lower or even windfall loss ratios than what is typically budgeted. This raises concerns about pricing and windfall profits that might accrue to Paradigm over time.

In order to study this experience, this study gathers the experience of contracts that are completed or abrogated from the period of 2011 to 2021 (to allow for sufficient completion), for clients that started with Paradigm in that period, and have at least 15,000,000 in contract revenue for purposes of credibility. This encompassed the following list of clients

PrimaryPayer
Accident Fund Holdings, Inc.
Amerisure Mutual Insurance Company
Asplundh Tree Expert, LLC
BITCO General Insurance Corporation
CNA
Coaction Specialist Insurance Group, Inc.
EMC Insurance Group, Inc.
Employers Preferred Insurance Company
Falls Lake Insurance/Stonewood
Frank Winston Crum Insurance Company
Idaho State Insurance Fund
MEM
Mitsui Sumitomo Marine Management (U.S.A.), Inc.
National Interstate Insurance Company
Nationwide Mutual Insurance Company
North Dakota Workforce Safety & Insurance
Ohio Bureau of Workers’ Compensation
Old Republic Risk Management
QBE North America
SECURA Insurance
Sentry Insurance
Starr Indemnity and Liability Company
Summit Consulting, LLC.
The Cincinnati Insurance Company
The State Fund of California
United Fire & Casualty Insurance Company
Vanliner Insurance Company
Washington State Department of Labor & Industries

The loss ratio for these clients was tracked by month from inception (the month the first contract was effective), over up to 120 months. The green line shows how the loss ratio of completed and abrogated contracts compares to the original budget for those contracts. The blue line show the ultimate loss ratio (including active estimates as of May 2025) divided by the contract budget. This population of clients is expected to end a few percent lower than budget according to the chart.

What can be observed from the chart below is a loss ratio that begins high, rapidly dips over the next 24 months, and then gradually increases to the ultimate loss ratio near budget.

In the dataset, the first contracts to end are generally those abrogated, beginning here in month 6 from inception. These contracts result in a loss ratio over budget by approximately 10%. The next contracts to complete are ones with outcomes more positive than expected. As a result, the average loss ratio falls sharply as these complete, shown in the chart reaching a low point slightly below 75% of budget. As time goes on, the average loss ratio increases gradually until reaching the ultimate loss ratio at 96.3% of budget.

The Clear Springs data is plotted against the new client average, showing that as of May 2025, with an inception month of January 2023, the client loss ratio is at the low point in the lifecycle. Accordingly, we would expect a significant increase from this point forward in the total loss ratio. The factor of current completed to ultimate loss ratio is 1.202 at month 28. With a current completed loss ratio of 67.1%, this would indicate an ultimate loss ratio of .671*1.202 = 80.6%.

Note however that only 5 Clear Spring contracts have closed (1 abrogated and 4 completed), so the data for projection is not very credible.

PatientContractID Contract Status Ultimate Price Ultimate Projections MLR
142767 Completed 799,941 604,312 75.5%
143099 Abrogated 392,916 314,585 80.1%
144469 Completed 1,136,158 689,189 60.7%
144705 Completed 485,260 339,826 70.0%
145004 Completed 632,131 365,459 57.8%