Underlying Retention

AAA

DEFINITION of 'Underlying Retention'

The net amount of risk or liability arising from an insurance policy (or policies) that is retained by a ceding company after reinsuring the balance amount of the risk or liability. The degree of underlying retention will vary depending on the ceding company's assessment of the risks involved in retaining part of the policy liability and the profitability of the insurance policy.

BREAKING DOWN 'Underlying Retention'

Since reinsurance requires the payment of a premium to the reinsurer, underlying retention enables an insurer to avoid payment of this reinsurance premium. The insurer will generally retain the most profitable policies or their lowest-risk components, while reinsuring less profitable, higher-risk policies.

RELATED TERMS
  1. Ceding Company

    An insurance company that passes the part or all of its risks ...
  2. Cedent

    A party to an insurance contract who passes financial obligation ...
  3. Catastrophe Excess Reinsurance

    Insurance for catastrophe insurers. Because of the unpredictable ...
  4. Insurance

    A contract (policy) in which an individual or entity receives ...
  5. Reinsurance

    The practice of insurers transferring portions of risk portfolios ...
  6. Indemnity

    Indemnity is compensation for damages or loss. Indemnity in the ...
Related Articles
  1. Home & Auto

    How An Insurance Company Determines Your Premiums

    Find out how insurers use credit history to build an insurance score and how it could affect your bottom line.
  2. Home & Auto

    Exploring Advanced Insurance Contract Fundamentals

    Understanding your contract can help you protect our family's financial security.
  3. Insurance

    Event-Linked Bonds: Competing Against A Catastrophe

    These debt instruments can blow new wind into your portfolio, but only if you can handle the risk.
  4. Home & Auto

    When Things Go Awry, Insurers Get Reinsured

    Guru Warren Buffett is making this sector popular. Learn more here.
  5. Insurance

    Who is a Beneficiary?

    A beneficiary is a person or entity that receives funds, assets, property or other benefits from a trust, will, or life insurance policy.
  6. Insurance

    Top 5 Car Insurance Companies in Florida

    Learn which car insurance companies lead the Florida market in terms of market share and new premium dollars, and discover which companies are growing fastest.
  7. Professionals

    What Kind of Insurance Do RIAs Need?

    Advisors spend a lot of time discussing insurance with clients but they also need to consider their own coverage needs as small-business owners
  8. Stock Analysis

    How MetLife Became a Global Insurance Giant

    MetLife is the largest life insurer in the United States. Here's how it has managed to stay on top.
  9. Insurance

    Understanding Co-Insurance

    Co-insurance is a cost-sharing agreement between an insurer and an insured party.
  10. Insurance

    What Does Errors and Omissions Insurance Cover?

    Errors and omissions insurance protects companies and individuals against claims made by clients for inadequate work or negligent actions.
RELATED FAQS
  1. What is reinsurance?

    Reinsurance occurs when multiple insurance companies share risk by purchasing insurance policies from other insurers to limit ... Read Full Answer >>
  2. What level of reserve ratios is typical for an insurance company to protect against ...

    In the United States, and most developed nations, regulators impose required statutory capital reserve ratios on insurance ... Read Full Answer >>
  3. What risks do I face when investing in the insurance sector?

    Like all equity investments, insurance companies present investors with market risk. Insurance companies, like banks, also ... Read Full Answer >>
  4. Why do insurance policies have deductibles?

    Insurance policies have deductibles for behavioral and financial reasons. Moral Hazards Deductibles mitigate the behavioral ... Read Full Answer >>
  5. Can I buy insurance to reduce unlimited liability in a partnership?

    Partnership insurance is actually quite common. Most of the time, partners buy insurance to safeguard against the possibility ... Read Full Answer >>
  6. Is it more important to have a low deductible or a low premium?

    The choice between a low deductible or a low premium is a personal one. There is no right or wrong arrangement, but there ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Dead Cat Bounce

    A temporary recovery from a prolonged decline or bear market, followed by the continuation of the downtrend. A dead cat bounce ...
  2. Bear Market

    A market condition in which the prices of securities are falling, and widespread pessimism causes the negative sentiment ...
  3. Alligator Spread

    An unprofitable spread that occurs as a result of large commissions charged on the transaction, regardless of favorable market ...
  4. Tiger Cub Economies

    The four Southeast Asian economies of Indonesia, Malaysia, the Philippines and Thailand. Tiger cub economy indicates that ...
  5. Gorilla

    A company that dominates an industry without having a complete monopoly. A gorilla firm has large control of the pricing ...
  6. Elephants

    Slang for large institutions that have the funds to make high volumes trades. Due to the large volumes of stock that elephants ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!