Glossary

Retention in an insurance context refers to the assumption of risk of loss by means of noninsurance, self-insurance, or deductibles.

Retention ability is the amount of aggregate incurred losses that an insured can retain in any one financial reporting period without creating an adverse impact on cash flow or earnings. Compare to risk tolerance.

A retention plan is a type of dividend plan most often used only in connection with workers compensation insurance. This plan provides that the net cost to the insured is equal to a retention factor (insurance company expenses) plus actual incurred losses, subject to a maximum equal to standard premium less premium discount. Can be used for other lines of insurance.

Retired directors liability policies are insurance policies designed to cover individuals who at one time served yet are now no longer serving on a corporate board of directors. Directors are exposed to claims long after their tenure on a board has ended. In fact, the statute of limitations for such claims under the Sarbanes-Oxley Act (SOX) of 2002 is 5 years. Standard directors and officers (D&O) liability policy forms affirmatively cover retired directors, and for this reason, retired directors policies always apply as excess over the organization's policy. However, retired directors policies may still be needed because at the time a claim is made, (1) the parent company may not have a policy in force; (2) even if a policy is in force, the policy's coverage limits may be exhausted or inadequate; or (3) the current policy may exclude a claim for which coverage is not excluded under the retired directors policy. Another advantage of retired directors policies is that the retired director is the sole insured under such policies. As a result, the insurer will focus its efforts on defending the insured's interests, which sometimes conflict with those of existing board members; and the insured does not share policy limits with other persons. For example, directors who sat on the boards at Enron and WorldCom were required to use their personal assets to settle lawsuits filed against them because the corporations they served were financially unable to provide indemnification due to the companies' insolvencies and the exhaustion of their policy limits. Five former directors of Just for Feet paid a total of $41.5 million in conjunction with their service at the company. In these situations, retired directors liability policies would likely have eliminated, or at least vastly reduced, the amounts of personal director contributions that were required.

Retirement annuity is a form of deferred annuity that provides for retirement income.

A retirement income policy is a life insurance policy providing for income during retirement age based on a percentage of the face amount for monthly income. This type of policy will have a cash value in excess of the face amount in later policy years so as to provide high death benefits or adequate retirement income.

Retraction provisions are clauses contained in media professional liability policies stating that if an insured is sued (or threatened with suit) as a result of information that has been published but that is untrue or incorrect, the insured is required to publish a timely retraction of these misstatements.

Retroactive conversion refers to the conversion of term life insurance into whole life insurance at the original age rather than attained age.

A retroactive date is a provision found in many (although not all) claims-made insurance policies that eliminates coverage for claims produced by wrongful acts that took place prior to a specified date, even if the claim is first made during the policy period. For example, a January 1, 2030, retroactive date in a policy written with a January 1, 2030-2031, term, would bar coverage for claims resulting from wrongful acts that took place prior to January 1, 2030, even if claims (resulting from such acts) are made against the insured during the January 1, 2030-2031, policy period. There are two purposes of retroactive dates: (1) to eliminate coverage for situations or incidents known to insureds that have the potential to give rise to claims in the future and (2) to preclude coverage for "stale" claims that arise from events far in the past, even if such events are unknown to the insured. In the former case, the retroactive date preserves the principle of "fortuity"—that is, the insurer should not be called on to cover the so-called burning building. In the latter instance, the retroactive date makes policies more affordable by precluding coverage for events that, while insurable, are remote in time.

Retroactive insurance refers to insurance purchased to cover a loss after it has occurred. For example, such insurance may cover incurred but not reported (IBNR) claims for companies that were once self-insured.