Which of the following best describes the concept of 'risk retention'?

The concept of 'risk retention' is best described as accepting the financial consequences of risks. This approach involves acknowledging that certain risks exist and choosing to manage them internally rather than transferring them to another party or avoiding them altogether. Organizations or individuals employing risk retention strategies typically evaluate their risk exposure and determine that they can absorb potential losses without engaging in insurance or external risk transfer solutions.

In the context of risk management, risk retention may be a practical choice when it comes to risks that are relatively minor or when the cost of transferring those risks (for instance, through insurance premiums) is greater than the potential losses that might arise. This could include situations where the likelihood of a loss is low, or where the losses would not significantly impact the overall financial health of an organization.