Final answer:
Retention credits are a form of reward from a reinsurance company to an insurer for retaining a certain level of risk. They become relevant during rollsoffs when portions of the reinsurance contract expire and the insurer takes back responsibility. These credits encourage insurers to hold more risk themselves and serve as a financial incentive for good claims experience.
Step-by-step explanation:
Retention credits are incentives provided by a reinsurance company to an insurer for maintaining a certain amount of risk rather than passing it all onto the reinsurer. In the context of rollsoffs, this can refer to the process when parts of the reinsurance contract expire and the primary insurer regains responsibility for the policies leaving or 'rolling off' the reinsurance coverage. If an insurer has good claims experience and has not reached the maximum loss threshold, they may receive retention credits as a form of reward, encouraging them to retain more risk in-house in the future. These credits can provide financial benefits to the insurer and can be seen as a type of profit-sharing mechanism between the insurer and the reinsurance company.