YOU ASK:

What is the definition of Retention?

WE ANSWER:

Retention refers to the amount of risk that the insurance company assumes or does not reinsure.

The insurance company would also like to limit its exposure to any one risk. Thus, it will pass on a portion of the risk to a reinsurance company, who will assume the portion in exchange for the proportional premiums.

Retention is what is left to the insurance company after it has ceded part of the insurance coverage to a reinsurer.

For example, if an insurance company issues a life insurance policy for $50,000. The insurance company decides to cede $20,000 to a reinsurer. The insurance company's retention for that policy is $30,000.

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