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The maximum amount of insurance an insurer can retain before ceding business to a reinsurer. The maximum amount may depend on the insured's age, health, coverage in force, as well as the insurance company's financial condition.
An insurer cannot retain a risk exceeding 10% of its surplus to policyholders. However, it may write insurance on a risk exceeding this amount if it enters into a reinsurance agreement or treaty with another insurer who agrees to insure the portion of the risk exceeding the retention limit. In the event of a total loss, the insurer would pay the portion of the claim up to its limit and the reinsurer would pay the rest.
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