Washington Life Producer Practice Exam

A life insurance company has transferred some of its risk to another insurer. The insurer assuming the risk is called the:

1. Underwriter

2. Reinsurer

3. Carrier

4. Assured

The correct answer is: Reinsurer

In the context of insurance, when a life insurance company transfers some of its risk to another insurer, that secondary insurer is known as a reinsurer. The primary insurer engages in this practice to manage and mitigate its risk exposure by sharing a portion of the risks it has taken on. The reinsurer allows the primary insurer to protect itself against large losses, maintain more stable financial performance, and increase the underwriting capacity to take on more business. The role of the reinsurer is vital in the insurance industry because it provides the necessary support for primary insurers to operate effectively, especially when a claims situation arises that could financially burden the primary insurer. This mechanism ensures that insurance companies can continue to provide coverage and fulfill obligations to policyholders, even when faced with unforeseen high claims. Understanding reinsurance is crucial for anyone involved in the life insurance industry, as it underscores the collaborative strategies that are fundamental to risk management in insurance.