Property and Casualty Insurance Practice Exam

What is the primary role of a Reinsurance Department?

1. To assist clients in understanding their policies.

2. To protect insurance companies from catastrophic losses.

3. To issue new insurance policies.

4. To review claims disputes.

The correct answer is: To protect insurance companies from catastrophic losses.

The primary role of a Reinsurance Department is to protect insurance companies from catastrophic losses. Reinsurance allows insurers to transfer some of their risk to other insurance companies, providing them with a safety net to manage potential large claims from events such as natural disasters or significant accidents. By doing so, the reinsurance process helps maintain the financial stability of the primary insurance companies, ensuring they can continue to operate effectively and meet their obligations to policyholders. This risk transfer is crucial because it allows insurance companies to underwrite more policies than they would be able to safely manage on their own. It effectively spreads the risk across multiple companies, reducing the potential impact of significant losses on any single insurer. The alternative choices focus on aspects that are more consumer-oriented or related to the direct insurance transaction, rather than on the back-end risk management that reinsurance provides.