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average claims and expense ratios. By applying average claims
and expense ratios to petitioner’s community-rated group
contracts, petitioner’s expert fails to account for the
characteristics of individual members of each group such as age,
gender mix, number of persons covered, family composition,
occupation, differing health conditions, and historical claims
experience unique to the individuals and families covered by each
group contract.
We note that petitioner’s experts acknowledged that specific
characteristics unique to each community-rated group contract and
its members would be considered important by petitioner’s
competitors in any attempt to obtain (by purchase or otherwise)
discrete community-rated group contracts.
Further, the use by petitioner’s expert of average claims
and average expense ratios for community-rated group contracts
explains why he treats each community-rated group contract as
profitable. For example, use of a claims ratio just 1 percent
higher than the aggregate average claims ratio used by
petitioner’s expert for community-rated group contracts would
reduce petitioner’s projected profit relating to the contracts by
more than half. Petitioner’s expert treats the average
community-rated group contract as profitable, and he treats each
community-rated group contract as profitable.
Turning to petitioner’s experience-rated group contracts,
petitioner’s expert again assumes that all of the experience-
rated group contracts had the same profit margin and that
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