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📊 '''Net retention analysis''' is the process by which an [[Definition:Insurance carrier | insurer]] or [[Definition:Reinsurance | reinsurer]] evaluates how much risk it retains on its own books after all [[Definition:Cession | cessions]] to reinsurance programs have been accounted for. Unlike a simple look at gross exposures, this analysis drills into the layered structure of an insurer's [[Definition:Reinsurance program | reinsurance program]] — including [[Definition:Quota share | quota shares]], [[Definition:Excess of loss reinsurance | excess of loss treaties]], and [[Definition:Facultative reinsurance | facultative placements]] — to determine the true amount of loss the company would bear under various scenarios. The analysis is fundamental to [[Definition:Capital management | capital management]], [[Definition:Risk appetite | risk appetite]] calibration, and strategic planning across all major insurance markets.

⚙️ Conducting a net retention analysis typically involves modeling a range of [[Definition:Loss scenario | loss scenarios]], from attritional losses to [[Definition:Catastrophe risk | catastrophe events]], and tracing how each scenario flows through the insurer's reinsurance tower. Actuaries and risk managers map [[Definition:Gross written premium (GWP) | gross exposures]] against the specific terms, [[Definition:Attachment point | attachment points]], and limits of each reinsurance layer to calculate the residual exposure that remains with the [[Definition:Cedant | cedant]]. Under [[Definition:Solvency II | Solvency II]] in Europe, this work feeds directly into the [[Definition:Solvency capital requirement (SCR) | solvency capital requirement]] calculations, while in the United States, it informs [[Definition:Risk-based capital (RBC) | risk-based capital]] assessments overseen by the [[Definition:National Association of Insurance Commissioners (NAIC) | NAIC]]. In markets governed by [[Definition:C-ROSS | C-ROSS]] in China or the frameworks administered by regulators in Japan and Singapore, similar retention analyses are embedded in regulatory capital reporting, though the specific methodologies differ.

💡 Underestimating net retention has historically been a root cause of insurer distress — companies that assumed their reinsurance would respond fully in a severe event have sometimes discovered gaps created by [[Definition:Aggregate limit | aggregate limits]], [[Definition:Reinstatement | reinstatement]] exhaustion, or [[Definition:Reinsurer | reinsurer]] credit failures. A rigorous net retention analysis protects against such surprises by quantifying worst-case retained losses and stress-testing them against available [[Definition:Surplus | surplus]]. Rating agencies such as [[Definition:AM Best | AM Best]] and [[Definition:S&P Global Ratings | S&P Global Ratings]] routinely scrutinize net retention metrics when assigning [[Definition:Financial strength rating | financial strength ratings]], making the analysis not just an internal risk tool but a key factor in external market credibility.

'''Related concepts:'''
{{Div col|colwidth=20em}}
* [[Definition:Reinsurance program]]
* [[Definition:Cession]]
* [[Definition:Attachment point]]
* [[Definition:Risk appetite]]
* [[Definition:Solvency capital requirement (SCR)]]
* [[Definition:Probable maximum loss (PML)]]
{{Div col end}}

Definition:Net retention analysis - Revision history

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