Final answer:
Increasing the retention level is not a reason for a primary insurer to use reinsurance; rather, reinsurance is employed to limit exposure to large losses, stabilize loss experience, and strengthen the balance sheet. Retention level refers to the risk kept by the primary insurer, which reinsurance aims to reduce.
Step-by-step explanation:
All of the following are reasons for a primary insurer to use reinsurance EXCEPT c) Increasing the retention level. Reinsurance is typically used by a primary insurer for various strategic reasons, but not to increase their retention level. Retention level refers to the amount of risk or liability the primary insurer keeps for its own account. Instead, reinsurance is used for purposes such as:
- a) Limiting the exposure to a catastrophic loss.
- b) Stabilizing loss experience by smoothing out the losses over time.
- d) Strengthening the balance sheet through increased capacity to write more business and improve financial ratings.
Utilizing reinsurance allows the primary insurer to manage its risk portfolio more effectively and maintain a healthy balance between the premiums collected and the claims paid out. This balance is crucial since, over time, the average person's payments into insurance must cover the average person's claims, the costs of running the company, and allow for the firm's profits.