Work out reinsurance retention optimisation instantly with clear inputs, formula shown and shareable results.
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.
Excess-of-loss split
Retained = λ·μ(1-e^(-R/μ)); Ceded = λ·μ·e^(-R/μ); RI premium = Ceded × (1 + loading)
The lowest expected cost is full retention. The right retention balances that cost against the capital and volatility the cession removes.
As a share of surplus or earnings — often a few percent of capital — so that a single large loss cannot threaten solvency.