Risk retention is best described as?

Risk retention is a strategy where an individual or organization decides to take on the financial responsibility for potential losses instead of transferring that risk to an insurance provider or another party. This approach means that when losses occur, the entity uses its own personal funds or reserves to cover those losses.

By choosing risk retention, an entity acknowledges that certain risks will exist and that it is willing to accept the consequences financially. This can be a viable option when the cost of transferring the risk through insurance is too high or when the risk is considered manageable based on the entity's financial situation. In this sense, the focus is on self-funding potential losses, which aligns perfectly with the definition of using personal funds to cover losses that occur.

Other options discuss varying ways of dealing with risk, such as avoiding, transferring, or reducing it, but they do not capture the essence of retaining risk through self-funding. Therefore, understanding risk retention as a proactive choice made by entities to handle anticipated losses with their own financial resources reinforces the distinction between this strategy and others that involve avoiding or distributing risk elsewhere.