Unfunded Retention means what?

• A. Deliberate retention decision
• B. No separate fund to pay for losses, you pay they occur for losses that are low frequency and low in severity
• C. Funds set aside for high severity
• D. A Hold Harmless Agreement

Answer: (B)

Unfunded retention means you keep the risk yourself and don’t set aside a dedicated reserve to cover losses. Losses are paid out of the company’s existing resources as they occur. This approach makes sense for losses that are infrequent and small in impact, because you can handle them with regular cash flow rather than building a separate fund.

The idea here is about funding structure: there’s no separate fund to pay for losses, you absorb them as they happen. In contrast, funded retention would involve setting aside reserves for potential losses, and other options describe different risk-transfer arrangements or broader retention choices without the funding aspect.