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 active 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 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
Accident Fund Holdings, Inc. 4.6 7.9 3.8 5.2 NA NA NA NA NA NA NA
Amerisure Mutual Insurance Company NA NA NA NA NA 10.8 10.1 11.6 14.3 10.9 14.8
Asplundh Tree Expert, LLC NA NA NA NA NA 5.3 2.9 1.7 2.7 3.4 2.2
CNA NA NA NA 1.5 2.4 11.2 20.8 8.6 4.1 13.8 6.8
EMC Insurance Group, Inc. NA NA NA NA NA NA 0.2 4.8 8.2 7.1 8.6
Frank Winston Crum Insurance Company 0.5 0.3 2.0 1.9 2.4 4.7 2.4 3.6 NA 2.9 2.7
Idaho State Insurance Fund NA NA NA NA NA NA NA NA 8.1 5.4 16.0
MEM NA NA 2.0 2.4 0.6 1.7 8.4 NA NA 4.9 NA
North Dakota Workforce Safety & Insurance 0.7 1.2 0.5 7.8 2.7 4.2 0.7 1.6 1.3 NA NA
Ohio Bureau of Workers’ Compensation NA NA 4.6 11.4 11.8 2.1 NA NA NA NA NA
Old Republic Risk Management NA NA NA 8.9 NA 3.7 2.2 6.2 2.6 12.0 6.7
QBE North America NA NA NA 2.9 3.1 6.5 NA NA 4.8 NA 4.9
Sentry Insurance NA NA NA NA NA 2.3 8.3 15.4 6.9 5.8 6.9
Starr Indemnity and Liability Company NA NA NA NA NA 1.5 9.6 6.1 5.7 9.6 6.9
The Cincinnati Insurance Company NA NA NA NA NA NA NA NA 3.5 4.1 13.3
The State Fund of California 1.6 9.8 26.0 10.7 18.0 24.1 22.7 16.9 15.8 10.0 0.7

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, abrogated and active 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 and stays level until month 25, when it slowly dips again to a low point at month 50, 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 2%. 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 at 90% of budget. As time goes on, the average loss ratio increases gradually until reaching the ultimate loss ratio at 96.6% of budget.

The data is shown below with and without the State Fund of California

The Clear Springs data is plotted against the new client average, showing that as of June 2025, with an inception month of January 2023, the mlr to budget is tracking with the new client data, except for a slight dip below average in recent months. As of June, the ratio of mlr to budget is very near the new client experience. Accordingly, we would expect a further decrease to month 50 followed by an increase from that point forward. The factor of current completed to ultimate loss ratio is 1.045 at month 29. With a current completed loss ratio of 69.8%, this would indicate an ultimate loss ratio of .698*1.045 = 72.9%, or 97.6% of budget.

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
144826 Active 2,152,347 1,289,609 59.9%
145004 Completed 632,131 367,683 58.2%
146891 Active 395,341 246,060 62.2%
147900 Active 1,770,535 1,331,474 75.2%
142594 Active 2,241,449 1,791,155 79.9%
142767 Completed 799,941 618,288 77.3%
142917 Active 1,456,888 960,695 65.9%
143477 Active 1,603,305 2,057,894 128.4%
143637 Active 2,878,237 2,066,288 71.8%
147252 Active 544,512 361,986 66.5%
147418 Active 1,306,020 1,232,963 94.4%
147516 Active 860,120 538,288 62.6%
147834 Active 1,986,530 1,528,189 76.9%
145063 Active 1,668,702 1,202,241 72.0%
144542 Active 1,299,036 786,223 60.5%
142592 Completed 2,166,403 943,230 43.5%
142665 Active 3,535,348 2,380,762 67.3%
142729 Active 893,929 621,545 69.5%
143099 Abrogated 392,916 314,589 80.1%
143635 Active 1,099,101 753,039 68.5%
143749 Active 1,397,773 761,881 54.5%
144038 Completed 557,630 369,634 66.3%
144240 Completed 1,151,427 607,440 52.8%
144346 Active 845,014 478,093 56.6%
144393 Active 1,188,724 730,530 61.5%
144469 Completed 1,136,158 689,545 60.7%
144573 Active 432,571 340,249 78.7%
144621 Active 715,391 455,391 63.7%
144705 Completed 485,260 340,320 70.1%
144930 Active 473,505 304,192 64.2%
146014 Active 1,064,526 771,322 72.5%
146264 Active 1,468,762 770,303 52.4%
146770 Active 2,162,967 1,771,652 81.9%
146893 Active 596,565 476,503 79.9%
145772 Active 347,974 259,542 74.6%