Retention in the insurance industry refers to the amount of risk that an insurance company decides to keep on its own balance sheet instead of transferring it to reinsurers. It is a measure of the company's self-insurance and is applied to individual policies or entire books of business.

There are two main types of retention: net retention and gross retention. Net retention refers to the amount of risk that an insurance company retains after deducting the amount reinsured. Gross retention refers to the total amount of risk that the insurance company retains, including both reinsured and self-insured risks.

Retention is an important concept in the insurance industry as it helps insurers manage their risk exposure and maintain adequate financial reserves. A higher retention level means the company is taking on more risk, which can lead to increased profitability but also exposes the insurer to greater financial losses if claims exceed expectations.

Insurance companies typically set their retention levels based on their risk appetite, financial strength, regulatory requirements, and market conditions. Higher retention levels are generally found in more mature and financially stable insurers, while smaller and less established insurers may have lower retention levels.

In summary, retention is a key factor in determining an insurer's financial strength and risk appetite. It is a crucial element in managing the company's overall risk exposure and is closely monitored by regulators and rating agencies.