Before loading for expenses and profit, the insurer must know the expected cost of claims. Pure premium is the portion of the premium calculated to cover expected losses and loss adjustment expenses only. It is the actuarial foundation of the rate.

Pure premium is derived from historical claim data, adjusted for development and trend, and expressed per unit of exposure. Expense loadings, taxes, and profit are added to reach the gross premium charged to the customer. In life insurance a similar concept appears as the net premium based on mortality and interest.

Accurate pure-premium estimates are essential for sustainable pricing. If pure premiums are understated, no amount of expense discipline will produce underwriting profit. Actuaries continually refine pure-premium indications as new experience accumulates and as claim costs inflate.

• Premium component for expected losses and LAE only
• Derived from historical experience
• Base for building the gross rate
• Critical to long-term pricing adequacy