Final answer:
The process where an insurance company shares risk with another insurer is called reinsurance, distinct from coinsurance where the policyholder and the insurer split the cost of a loss.
Step-by-step explanation:
When an insurance company cedes part of an insurance risk to another insurance company, the process is known as reinsurance. This is different from coinsurance, where an insurance policyholder pays a percentage of a loss, as well as the insurance company pays the remaining cost.
Reinsurance allows insurance companies to manage their risk by sharing it with other insurance entities, thereby reducing the potential financial impact of large or frequent claims. By transferring portions of risk, insurers can stabilize loss experience and protect themselves as well from the financial consequences of major claims that might otherwise jeopardize their financial stability.