What does retention in insurance primarily aim to achieve?

Retention in insurance primarily aims to reduce expenses and improve cash flow by keeping a balance of risk that the insurer can manage internally. When an insurance company retains risk rather than transferring it to another party through reinsurance, it enables the company to potentially lower its costs associated with purchasing reinsurance and limit administrative expenses. Additionally, by managing certain risks internally, the company can maintain more control over claims and their associated costs, which ultimately contributes to improved cash flow.

This practice allows insurers to calculate premiums based on the retained risks, which can also lead to more competitive pricing for policyholders. Retention strategies help in stabilizing financial performance and ensuring that there is a sufficient reserve allocation for claims that may arise from the retained risks.

The other choices do not accurately reflect the main goal of retention. Increasing premiums generally relates to managing overall profit margins or risk assessments rather than directly connecting it to retention. Transferring all risks to another party goes against the principle of retention, which is about holding onto a portion of the risk. Finally, eliminating all financial responsibilities is unrealistic in the insurance business, as risk retention inherently involves assuming a level of financial responsibility for potential claims.