A reinsurance company

A reinsurance company

• A. Provides direct coverage to individuals
• B. Assumes loss exposures from a primary insurer
• C. Sets rates for the entire industry
• D. Underwrites foreign operations

Answer: (B)

Reinsurance is insurance for insurers: the reinsurer assumes loss exposures from the primary insurer. A primary insurer cedes part of its risk to a reinsurer to gain more underwriting capacity, reduce volatility from large or catastrophe losses, and protect its solvency. The reinsurer collects part of the premium and agrees to cover a portion of claims as defined in the reinsurance contract. This is why the correct description is that the reinsurer assumes loss exposures from the primary insurer. The other options describe activities more typical of direct insurers or unrelated industry roles. A reinsurer does not provide direct coverage to individuals, so that isn’t its function. It also does not set rates for the entire industry; pricing is negotiated between the insurer and the reinsurer for specific treaties or risks. And while some reinsurers may operate internationally, underwriting foreign operations is not what defines the role of a reinsurer.

Reinsurance is insurance for insurers: the reinsurer assumes loss exposures from the primary insurer. A primary insurer cedes part of its risk to a reinsurer to gain more underwriting capacity, reduce volatility from large or catastrophe losses, and protect its solvency. The reinsurer collects part of the premium and agrees to cover a portion of claims as defined in the reinsurance contract. This is why the correct description is that the reinsurer assumes loss exposures from the primary insurer.

The other options describe activities more typical of direct insurers or unrelated industry roles. A reinsurer does not provide direct coverage to individuals, so that isn’t its function. It also does not set rates for the entire industry; pricing is negotiated between the insurer and the reinsurer for specific treaties or risks. And while some reinsurers may operate internationally, underwriting foreign operations is not what defines the role of a reinsurer.