General Insurance✓ Verified · outline & fact-checked · Sep 2026Difficulty 1/5
An insurer purchases reinsurance primarily to:
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Answer & full 3-part explanation (select an option above, or peek)
Why A is correct
Reinsurance is insurance for insurers: the ceding company transfers a portion of its risk to a reinsurer in exchange for part of the premium, protecting against losses that are too large for the primary insurer to absorb comfortably. This increases the insurer's capacity and stabilizes its financial results. It does not affect policyholders' direct relationship with the insurer or the marketing of policies.
Why the other options are wrong
- B) Reinsurance does not market policies; it manages the primary insurer's risk portfolio.
- C) Illustration compliance is governed by CIC Section 10509.950 et seq., unrelated to reinsurance.
- D) Reinsurance is a risk-transfer purchase, not a mechanism to raise agent commissions.
Memory hook
Reinsurance = the insurer's own insurance. Big losses, shared burden.