Which of the following statements regarding the use of retention is (are)true?
I.Retention is best used for loss exposures that have a low frequency and a high severity.
II.A financially strong firm can have a higher retention level than a firm whose financial position is weak.
A)I only
B)II only
C)both I and II
D)neither I nor II

Question

Quizplus · Accepted Answer

Statement I is incorrect as retention is best used for loss exposures with a high frequency and low severity. Statement II is correct as a financially strong firm can afford to retain a higher level of risk compared to a financially weak firm, which may choose to transfer more risk.

Which of the Following Statements Regarding the Use of Retention