Which of the following best describes risk transfer?

Risk transfer is best described as shifting the risk to another party. This concept involves transferring the financial burden of risk from one entity to another, typically through mechanisms such as insurance policies or contracts. By doing so, the original party can protect itself from potential losses that could arise from certain events, thus managing its exposure to risk more effectively.

For instance, when a business purchases liability insurance, it pays a premium to the insurance company in exchange for the company assuming the risk of potential claims against the business. This allows the business to focus on its core operations while the insurer covers the financial repercussions of specific risks.

The other options do not describe risk transfer accurately. Completely eliminating all risks is not feasible in most situations, as risks can always persist in some form. Involuntarily retaining certain risks refers to situations where risks cannot be transferred or eliminated, which is a different risk management approach. Accepting all risk without mitigation falls under risk acceptance, where one chooses not to take proactive measures to manage risk, rather than transferring it.