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.

INVESTOPEDIA EXPLAINS '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. Basket Retention

    An insurance policy that covers exposures to several different ...
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. Home & Auto

    What is reinsurance?

    Reinsurance occurs when multiple insurance companies share risk by purchasing insurance policies from other insurers to limit the total loss the original insurer would experience in case of disaster. ...
  6. Options & Futures

    Is short selling a form of insurance?

    Explore short selling and put options. Learn how put options may be used as insurance to protect positions, and costs associated with using this method.
  7. Insurance

    How to Use a Waiver of Subrogation

    A waiver of subrogation means that a party to a contract waives the right to allow someone (usually an insurance company) to sue the other party to the contract in case of a loss.
  8. Retirement

    What is an equity-indexed annuity?

    Understand what an equity-indexed annuity is, its advantages and disadvantages, and how it differs from other annuity investments.
  9. Insurance

    What are some examples of unexpected exclusions in a home insurance policy?

    Learn about commonly excluded perils with different standard insurance policies. Explore events that homeowners should consider when purchasing insurance.
  10. Insurance

    What are the tax implications of a life insurance policy loan?

    Learn the instances in which you are required to pay taxes on a life insurance policy loan, so you can avoid making a costly mistake.

You May Also Like

Hot Definitions
  1. Prospectus

    A formal legal document, which is required by and filed with the Securities and Exchange Commission, that provides details ...
  2. Treasury Bond - T-Bond

    A marketable, fixed-interest U.S. government debt security with a maturity of more than 10 years. Treasury bonds make interest ...
  3. Weight Of Ice, Snow Or Sleet Insurance

    Financial protection against damage caused to property by winter weather specifically, damage caused if a roof caves in because ...
  4. Weather Insurance

    A type of protection against a financial loss that may be incurred because of rain, snow, storms, wind, fog, undesirable ...
  5. Portfolio Turnover

    A measure of how frequently assets within a fund are bought and sold by the managers. Portfolio turnover is calculated by ...
  6. Commercial Paper

    An unsecured, short-term debt instrument issued by a corporation, typically for the financing of accounts receivable, inventories ...
Trading Center