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Retention Layer

Trading Term

The retention layer is the portion of losses a ceding insurer keeps on its own balance sheet before reinsurance coverage attaches. It functions much like the deductible on a personal insurance policy, in that the insurer absorbs everything up to that level. Setting the retention higher lowers the reinsurance premium but increases the volatility of the insurer’s own results, which is the central tradeoff in structuring a reinsurance program.

Hurricane Forecast Contracts as Efficient Reinsurance

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