A Florida life insurer pays a premium to another authorized insurer to cover part of the death benefit risk on a block of policies it has issued. This arrangement is called:

Why C is correct

Under Florida insurance law, as administered by the Office of Insurance Regulation, reinsurance is insurance purchased by one insurer (the ceding company) from another insurer (the reinsurer) to transfer all or part of the risk it has underwritten. The original policyowner continues to deal only with the ceding insurer; the reinsurance exists entirely between the two insurers. Practically, reinsurance allows insurers to spread large risks, protect solvency, and write larger lines than they could retain alone.

Why the other options are wrong

• A) Policyowners do not share the insurer's underwriting risk with each other; risk-sharing between insurers is the essence of reinsurance.
• B) Subrogation is an insurer's right to recover from a responsible third party after paying a claim - a claim remedy, not inter-insurer risk transfer.
• D) Surplus lines placement is buying coverage for an insured from an unauthorized insurer through a licensed surplus lines agent - not an insurer's own risk transfer.

Memory hook

Reinsurance = insurance for insurers.