[S074]

spread loss reinsurance

A type of excess of loss property reinsurance which provides for a periodic adjustment of the reinsurance premium rate based on the reinsured's experience for preceding years (usually three or five) plus a loading for the purpose of compensating the reinsurer for:

1. its expenses
2. the possibility of unusual losses
3. those losses occurring at the end of the period of the treaty, which the reinsurer might not have a chance to recoup if the treaty is not renewed
4. a catastrophe possibility and
5. the reinsurer's profit. In casualty reinsurance, adjustments to the above may be required for such other factors as economic and social inflation.

Also known as Carpenter plan.
(See Carpenter plan.)