- The limit of retention is the maximum amount of risk a life office is able to keep for its own account.
- It is the maximum amount of liability a life office is prepared to pay per any loss occurrence on a life – A more realistic definition.
- Retention limit is usually expressed as a flat amount, but may also be stated in percentages when a quota share treaty is in use.
In life assurance, retention is per life and not per policy and as such life offices should guide against any possible accumulations from various life policies.
Some of the key factors considered before fixing the retention limit are:
- The paid-up capital of the life office.
- Assets and other free assets.
- The size of the portfolio.
- Types and spread of risks.
- Size and frequency of losses in the past (if any).
- Experience of the chief life underwriter.
- Ages of the lives proposed/ lives assured