Risk Financing

Risk Financing is the process of acquiring the funds necessary to pay for losses that strike the organization at the least possible cost. The key components of Risk Financing are Retention and Transfer. Retention = Budgeted Losses + Tolerance Corridor. Budgeted Losses = Planned retention based upon expected losses. Tolerance Corridor = Marginal retention amount beyond the budgeted retention that may also be actively retained.  The diagram below illustrates this concept.