What protects the insurance company's reported results and financial position from a severity of loss?

Question

Options

• Apotential exposure program
• Baggregated payment program
• Cinsurance protection program
• Dreinsurance program

• A
  4% (1)
• B
  4% (1)
• C
  7% (2)
• D
  86% (24)

Explanation

Reinsurance is a mechanism where an insurance company transfers portions of its risk to another insurer (the reinsurer), directly shielding the primary insurer's financial results and balance sheet when losses are catastrophic or exceed expected severity. Options A and C are fabricated terms not used in standard insurance/reinsurance nomenclature, making them immediately eliminable. Option B ("aggregated payment program") is a distractor that sounds plausible but describes no recognized risk-transfer mechanism - aggregation is a concept in reinsurance treaties, but "aggregated payment program" is not a thing. Only reinsurance is a real, well-defined tool specifically designed to protect an insurer's reported results from large or unexpected loss severity.

Memory tip: Think of re-insurance as "insuring the insurer" - when losses get too big for the company to absorb alone, the reinsurer steps in. The prefix "re-" is your cue that risk is being passed back up the chain.

No community discussion yet for this question.