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Risk retention means taking risks. In other words, if a loss occurs, the economic entity will pay it with any funds available at that time. Risk retention includes unplanned retention and planned self-protection.
(1) Unplanned reservation. Refers to the payment from the income after the risk loss occurs, that is, no financial arrangements are made before the loss occurs. When the economic subject is not aware of the risk and thinks that the loss will not happen, or when the maximum possible loss related to the risk is obviously underestimated, it will take unplanned reservation to bear the risk.
Generally speaking, there is no need to use capital reserve carefully, because if the actual total loss is much greater than the expected loss, it will cause difficulties in capital turnover.
(2) protect yourself in a planned way. It means that before the possible loss occurs, all kinds of financial arrangements are made to ensure that the loss can be compensated in time. Planned self-insurance is mainly realized by establishing risk reserve.
Refer to the above content: Baidu Encyclopedia-Risk Control