When a business faces the risk of losing it gets insurance against the cause of loss. By doing this the risk of loss is shifted toward the insurer and you have to pay insurance premiums as insurance costs. What if you do not do this and set aside an estimated amount to bear the losses yourself. This is called retaining risk on your own rather than transferring the risk to an insurer.
Businesses can have various purposes for doing this one of which is large deductions as losses from its pretax income and yet having the funds available to cope with extraordinary loss situations.
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