The Carpenter Plan links reinsurance pricing to the insured’s incurred losses over a defined period.
Coverage intent
It is used to align reinsurance cost with actual loss experience rather than static premium assumptions.
Underwriting and policy mechanics
Premiums are often reset after the measurement period using:
- Reported losses.
- Expense load factors.
- Capital adequacy and trend assumptions.
Claims logic
Because premium is performance-linked, claim reporting quality and loss reserving methods materially affect year-end pricing and future treaty terms.
Practical question
If reserves are strengthened after year-end, will the Carpenter Plan premium always rise?
Not always. The period-specific formula determines which reserves and adjustment factors are used for each reset.