Unfortunately, interpretation of simple loss ratios applied to long-term care insurance is not straightforward and may be misleading. Computed loss ratios may be very low in the early years of long- term care policies, since premiums are usually collected several years in advance of expected benefit payments. Thus initial payouts to the consumer may be quite low, whereas the long-range liability of the insurer may be substantial. The buildup of reserves for the younger age population is a crucial element in lowering premium costs, but the application of annual minimum loss ratios does not take that into account. With these limitations in mind, the NAIC advisory committee recommends that no specific minimum loss ratio be set and that regulators evaluate loss ratios over the entire period for which rates are calculated. (Lynn Paringer, 1995.)
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