Risk Retention

Risk retention is a strategy in foreign trade risk management where a company actively or passively bears the potential losses from certain risks, rather than avoiding them through insurance, guarantees, or transferring them to third parties (such as buyers or carriers). It is common in export credit insurance; for example, to save premiums, a company may choose not to insure certain small or low-risk transactions and bear the bad debt risk itself. It also appears in letter of credit transactions when exporters accept soft clauses or bear the risk of discrepancies. Use cases include: when a company assesses the risk as controllable, for cost-benefit reasons, or when insurance coverage is unavailable. Note: It is necessary to accurately assess one's own risk tolerance to avoid significant losses from excessive retained risk; it should be distinguished from risk avoidance and risk transfer (such as insurance or factoring), which shift risk to others. Risk retention is not entirely negative; when used properly, it can reduce transaction costs and improve efficiency, but risk reserves and monitoring mechanisms must be established.