Question

The purpose of reinsurance is to:

1. Spread risk in case of catastrophic loss, 2. Avoid risk associated with claims by the insured, 3. Comport with state-imposed capacity limits, 4. Provide insurance to those otherwise considered uninsurable:

a. 1 & 2
b. 2, 3, & 4
c. 1 & 3
d. 1, 2, & 4

Answer 1

Reinsurance serves the purpose of spreading risk, avoiding risk associated with claims, and providing insurance to the uninsurable. Option d

Step-by-step explanation:

Reinsurance serves several purposes in the insurance industry:

It helps spread the risk of catastrophic loss among multiple insurance companies. This means that if one company faces a significant loss, it won't have a crippling impact on its finances, as other companies will share the burden.

Reinsurance also helps insurance companies avoid excessive risk associated with claims by the insured. By transferring a portion of their liability to a reinsurer, insurance companies can mitigate their exposure to large and unexpected claim amounts.

Reinsurance can provide coverage to individuals or organizations who are otherwise considered uninsurable. If an insurer is unable or unwilling to offer coverage to a high-risk individual or a unique type of risk, they may seek reinsurance to provide the necessary protection.

Therefore, the correct answer is d. 1, 2, & 4.