Premium is adjusted on the basis of actual loss experience of the insurance company. Loss Ratio = (Losses + Loss Adjustment expenses) over the premium charged.
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Procedure for changing by uniform percentage the premium rates for several classes of closely related property or liability Insurance contracts in order to bring the combined actual loss ratio of these classes to the expected or permissible loss ratio for these classes. If “A” represents the combined loss ratio, and “E” the combined expected or permissible loss ratio, the loss ratio method calls for multiplying the premium rate of each Policy by the factor (A=E)/E. Compare with “Pure premium method.”