Reinsurance Retention Optimisation Calculator

Work out reinsurance retention optimisation instantly with clear inputs, formula shown and shareable results.

About Reinsurance Retention Optimisation Calculator

Choosing a retention trades volatility against cost. Every unit ceded costs the reinsurer's loading, so total cost of risk — retained losses plus loaded reinsurance premium — rises as retention falls, while the volatility retained falls with it.

Formula

Excess-of-loss split

Retained = λ·μ(1-e^(-R/μ)); Ceded = λ·μ·e^(-R/μ); RI premium = Ceded × (1 + loading)

Worked example

With the default values below, Reinsurance Retention Optimisation Calculator returns Total Cost Of Risk of $2,041,042.50. Change any input above and every figure here is recalculated in your browser.

Inputs used

Mean Claim Severityminimum 0: 40,000
Retention Per Claimminimum 0: 100,000
Expected Claim Countaccepts 0.1–100,000: 50
Reinsurer Loadingaccepts 0–200 %: 25 %

Results

Total Cost Of Risk: $2,041,042.50
Expected Retained Loss: $1,835,830.00
Reinsurance Premium: $205,212.50
Share Of Expected Loss Ceded: 8.208%

Step by step

1Values used
2Excess-of-loss split
3Total Cost Of Risk= 2,041,042.50
4Expected Retained Loss= 1,835,830.00
5Reinsurance Premium= 205,212.50
6Share Of Expected Loss Ceded= 8.208

Assumptions and limits

The result is derived only from the 4 inputs listed above. Anything not among them is not part of the calculation.
In particular, this calculator does not take inflation or tax into account.
Figures are rounded for display to 3 decimal places, so totals built from several rounded parts can differ slightly from the unrounded arithmetic.

How these calculators are built and tested is described on the Methodology page. If a figure looks wrong, please report it.

Frequently Asked Questions

Why is the cheapest retention not always best?

The lowest expected cost is full retention. The right retention balances that cost against the capital and volatility the cession removes.

How is a retention normally set?

As a share of surplus or earnings — often a few percent of capital — so that a single large loss cannot threaten solvency.