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. Net Line

    The amount of risk that an insurance company retains after subtracting ...
  3. Second Event Retention

    A technique used to establish retention in an excess of loss ...
  4. Reinsurance Assisted Placement

    Insurance business that is developed with the help of a reinsurance ...
  5. Yearly Renewable Term Plan of Reinsurance

    A type of life reinsurance where mortality risks are transferred ...
  6. Reinsurance Credit

    An accounting entry made by an insurer for premiums ceded to ...
Related Articles
  1. Insurance

    When Things Go Awry, Insurers Get Reinsured

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

    Facultative vs. Treaty Reinsurance: Differences and Examples

    Reinsurance companies offer insurance to other insurers in case the traditional insurer does not have enough money to pay claims against its written policies.
  3. Insurance

    The Reinsurance Industry: An Inside Look

    Low demand and high regulatory pressures may be problematic for the global reinsurance market following the shrinking margins and declining demand of the first half of 2016.
  4. Insurance

    How Does Reinsurance Work?

    Reinsurance is a practice in which insurers transfer portions of portfolios to other parties in order to reduce their exposure to claims.
  5. Financial Advisor

    How Utmost Good Faith is Applied in Practice

    The principle of utmost good faith is an articulation of the need for both parties to act in a completely open and honest manner with each other to facilitate access to services at a fair market ...
  6. Insurance

    Third Point Reinsurance Notes Largest Profit in Years

    Third Point Reinsurance saw a tripling of net income in the second quarter of 2016 over last year.
  7. Insurance

    An Advisor's Guide to Prof. Liability Insurance

    A guide to what financial advisors need to know about professional liability insurance.
  8. Insurance

    How To Invest In Insurance Companies

    Knowing the special circumstances that insurance companies operate under helps in evaluating whether or not a listed insurance company is a good investment and whether the economic environment ...
  9. Investing

    Understanding Total Liabilities

    Total liabilities are the combined debts an individual or company owes.
RELATED FAQS
  1. What is Warren Buffett's relation to "Supercat" insurance?

    Understand the concept of catastrophe reinsurance and learn how Berkshire Hathaway makes billions providing such insurance ... Read Answer >>
  2. How do you calculate retained earnings per share?

    Research the amount of retained earnings per share compared over time to understand whether or not a company uses its profits ... Read Answer >>
  3. What are the main factors that impact share prices in the insurance sector?

    Learn about some of the main factors that impact share prices in the insurance sector. Insurance companies make money by ... Read Answer >>
  4. What risks do I face when investing in the insurance sector?

    Read about the unique challenges faced by insurers, and learn how those challenges manifest themselves as risks for equity ... Read Answer >>
  5. How might a company's contingent liabilities affect its share price?

    Discover what contingent liabilities are, and how and to what extent such liabilities may have an impact on a company's share ... Read Answer >>
Hot Definitions
  1. Trumpcare

    The American Health Care Act, also known as Trumpcare and Ryancare, is the Republican proposal to replace Obamacare.
  2. Free Carrier - FCA

    A trade term requiring the seller to deliver goods to a named airport, terminal, or other place where the carrier operates. ...
  3. Portable Alpha

    A strategy in which portfolio managers separate alpha from beta by investing in securities that differ from the market index ...
  4. Run Rate

    1. How the financial performance of a company would look if you were to extrapolate current results out over a certain period ...
  5. Hard Fork

    A hard fork (or sometimes hardfork) is a radical change to the protocol that makes previously invalid blocks/transactions ...
  6. Interest Rate Risk

    The risk that an investment's value will change due to a change in the absolute level of interest rates, in the spread between ...
Trading Center