Which of the following best defines a reinsurer?

• A. A government entity that backs all high-risk policies
• B. An insurance company that specializes in accepting risk from other insurance companies who want to insure a large financial risk without taking the full risk
• C. An insurance company that writes only life insurance
• D. A broker that places policies between insurers and insureds

Answer: (B)

Reinsurance is a way for insurance companies to share risk and increase their capacity. A reinsurer is an insurer that specializes in taking on part of the risk from other insurance companies, especially when those primary insurers want to cover large financial exposures without bearing the full risk themselves. This arrangement helps the ceding company protect its solvency and take on bigger or more complex policies, spreading potential losses across multiple carriers.

So the best choice describes a reinsurer as an insurance company that accepts risk from other insurers to insure a large financial risk without taking the full risk. The other descriptions don’t fit: a government entity backing all high-risk policies isn’t how reinsurance operates in normal practice; a company that writes only life insurance describes a life insurer rather than a reinsurer; and a broker who places policies between insurers and insureds is a broker, not a reinsurer.