Patent-pending · Peer-reviewed · U.S. and international applications filed
The Kerper Bowron Method
Contract-level cash flows for accounting and capital markets.
The KB Method replaces aggregate earning curves with month-by-month expected cash flows for every service contract and manufacturer warranty. The same stream supports revenue recognition, liability measurement, and structured risk transfer.
$350B is the combined service-contract and manufacturer-warranty opportunity cited in public company materials and industry estimates: roughly $210–240B of global extended-warranty / service-contract volume by 2030 plus about $110–135B of manufacturer warranty accruals. Outstanding liabilities are larger. The Risks paper separately cites a service-contract market on the order of $250B in annual sales by 2031.
Two applications, one cash-flow engine
Service contracts and manufacturer warranties are among the world’s largest short-duration liability books, yet they have been modelled with one backward-looking shape applied to an entire block. That is workable for a rough reserve. It is not sufficient for ASC 606, IFRS 17, SSAP 65 testing, or an SPV waterfall.
Using point-of-sale data, the method projects for each contract the expected claims, expected cancellation refunds, and value emergence, month by month.
Accounting
Earned revenue, unearned contract, reserves, warranty accruals, and statutory tests — from the economics of the individual contract, not the average of the block.
SPV and capital markets
The same streams become the cash-flow engine for note sizing, stress testing, servicing, and lending against projected equity in unearned premium reserves.
A high-mileage, low-deductible contract with little factory coverage left should not earn like a new-vehicle contract still inside the manufacturer warranty. The method does not force them onto the same curve.
How it works
- Start at the point of sale — term, mileage or usage, coverage, deductible, vehicle or product profile, price, and related factors.
- Build probabilistic exposure — month by month, excluding time still inside the manufacturer warranty and adjusting for mileage limits.
- Project claims and cancellations — GLMs on point-of-sale characteristics, plus trend, seasonality, and IBNR discipline. Two outputs: FLC (future losses and cancellations, for liabilities) and FL (future losses, the usual basis for revenue recognition).
- Earn with the Earned Contract formula — monthly expected losses at sale become the recognition pattern. Revenue, unearned contract, and related balances follow that pattern. In most cases the initial Earned Contract allocation is not rewritten every time the model is refreshed.
Because every stream belongs to a named contract, the book can be audited line by line, rolled up by cohort, booked on the balance sheet, or transferred into a bankruptcy-remote SPV.
Watch
The KB Method, explained
Accounting
One valuation logic. Many outputs.
| Framework | Role of the projections |
|---|---|
| ASC 606 | Revenue follows expected cash flows by contract, not an aggregate curve |
| IFRS 17 | Contract-level expected cash flows align with the measurement model |
| ASC 460 | Warranty outflows from the same stream |
| IAS 37 | Warranty and service provisions from projected cash flows |
| SSAP 65 | Contract-level future losses and cancellations for the proportional and discounted unearned-premium tests |
| Solvency II | Demonstrated exact match to the ideal probability-weighted cash-flow equation for finite, predictable risks |
SPV and capital markets
Once the book is projected contract by contract, it is a financeable cash-flow asset. The originator or administrator sends contracts and premium. An SPV holds the book or issues notes. Investors buy senior, subordinate, or equity pieces sized to the projected streams. Claims, cancellation refunds, and benefits still go to customers. KB projections feed sizing, the waterfall, monitoring, and lending analytics.
- Portfolio cash-flow engine — monthly collections vs. claims, cancellation refunds, admin costs, and residual margin
- Tranche sizing and stress testing — loss levels, survival, inflation, cancellation, early attrition
- Maturity design — runoff defines when the structure deleverages
- Servicing benchmark — actual vs. modelled at portfolio, cohort, or contract level
- Cancellations as a first-class variable — early refund-heavy periods vs. later claim-heavy periods, which matters on new-vehicle books with long factory-warranty tails
- Lending against emerging equity — the gap between earned value and claims plus refunds, including inside existing U.S. dealer-owned reinsurance structures
Research & publications
Peer-reviewed · Risks (MDPI) · 2026
Kerper, J.; Bowron, L. “The Kerper–Bowron Method: A Foundational Change for Service Contract Claim Estimation and Accounting.” Risks 14(3), 44.
Read in Risks
Preprint · SSRN
Original technical paper and patent disclosure.
Read on SSRN
Follow-on paper · SSRN · submitted for peer review
Bowron, L.; Kerper, J.; Lightfoot, A.; Bowron, W. “Additional Notes on Manufacturer’s Warranties and Collateralization Applications.”
Read on SSRN
In the News
Firm files patent on service contract and warranty accounting
Read the article
Kerper and Bowron, with IP Counsel Bradley Arant Boult Cummings, Files U.S. and International Patent Applications
Read the release
Homewood firm develops new financial model for global service-contract industry
Read the article
Timeline
- 2003 · Kerper & Bowron founded
John Kerper, FSA, MAAA, and Lee Bowron, ACAS, MAAA, open the firm in Birmingham and begin developing exposure-based techniques for service contracts — starting with two components: exposure development and loss projection. - 2007 · Foundation paper published by the CAS
“An Exposure Based Approach to Automobile Warranty Ratemaking and Reserving” appears in the Casualty Actuarial Society Forum, introducing the exposure-based framework the KB Method builds on. - 2025 · Provisional patent filed
U.S. Provisional Patent Application No. 63/858,053 is filed August 5, 2025, with related company Irish Trinity LLC developing the intellectual property. - Feb 2026 · Peer-reviewed publication
The paper is accepted and published in Risks (MDPI) — the first formal academic validation of the approach. - May 2026 · National recognition
Featured in Business Alabama and announced via Business Wire. - Jul 2026 · Birmingham Business Journal feature
The Birmingham Business Journal covers the method as pilot-project evaluations with potential clients get underway. - Jul 2026 · Village Living feature
Village Living profiles the Homewood-based firm and the new financial model developed for the global service-contract industry. - Jul 31, 2026 · U.S. and international patent applications filed
U.S. Non-Provisional Application No. 19/761,554 and International PCT Application No. PCT/US26/39345 are filed, claiming priority to U.S. Provisional Application No. 63/858,053. Irish Trinity LLC holds the intellectual property. Bradley Arant Boult Cummings LLP serves as counsel. - Aug 2026 · Patent filing announced; Accounting Today reports
The filings and the manufacturer-warranty paper are announced via EIN on August 14. Accounting Today reports the U.S. and international applications on August 17.
Applications
- Vehicle service contracts — shifting term, mileage, and coverage mixes
- Manufacturer warranties — same engine, distinct legal and accounting treatment
- Phones, appliances, home systems, commercial equipment
- Accounting conversion — ongoing revenue, reserves, and statutory tests
- Structured risk transfer — SPV sizing, scenarios, monitoring
- Lending & dealer reinsurance — advances against projected equity in unearned premium reserves
- Cancellation forecasting and CLV
Who it is for. Insurers · reinsurers · administrators · originators · SPV issuers · lenders · dealers · regulators · auditors · capital-markets analysts
FAQ
What is the KB Method in one sentence?
A patent-pending method that projects expected claims and cancellations month by month for every service contract and manufacturer warranty, from point-of-sale data.
How is it different from earning curves?
Curves apply one block-level shape. This builds the estimate contract by contract and updates as experience emerges.
What data does it need?
Standard point-of-sale fields, plus emerging claims and cancellations.
Which standards does it support?
ASC 606, IFRS 17, ASC 460, IAS 37, SSAP 65, and Solvency II.
Can the same model feed an SPV?
Yes. Contract-level streams are what let the book be booked, stressed, tranched, and monitored without a second overlay model.
Patent status?
Patent-pending. U.S. non-provisional and PCT applications filed July 31, 2026, priority to provisional 63/858,053 (August 2025). IP held by Irish Trinity LLC. Counsel: Bradley Arant Boult Cummings LLP.
The Kerper Bowron Method is patent-pending. U.S. non-provisional and international PCT applications filed July 31, 2026, claiming priority to U.S. Provisional Application No. 63/858,053. Intellectual property held by Irish Trinity LLC. IP counsel: Bradley Arant Boult Cummings LLP. Developed by John Kerper, FSA, MAAA, and Lee Bowron, ACAS, MAAA.