What is the term for a mechanism of internal fund allocation to manage loss exposure?

The term that best fits a mechanism of internal fund allocation to manage loss exposure is retention. Retention refers to the practice of managing financial risk by assuming a portion of the risk rather than transferring it to an insurance company. This means that an organization sets aside funds or simply relies on its own resources to cover potential losses. By utilizing retention, companies can keep control over their risk management strategy and can save on insurance premiums by deciding to cover certain risks internally. This approach is particularly useful for predictable risks where the loss amounts are manageable.

In contrast, retained earnings refer to the portion of a company's profits that are held back for reinvestment in the business, not specifically tied to managing risk exposure. A deductible is the amount an insured party must pay out of pocket before an insurance policy kicks in and is not a mechanism for managing loss exposure internally. Self-insurance, while similar to retention, typically refers to a specific practice of setting aside funds to cover losses rather than transferring the risk to an insurance provider. Retention emphasizes the internal allocation of funds for loss exposure more broadly, making it the most appropriate term in this context.