What is the term for the insurer that takes on risk from another insurer?

• A. Insurer
• B. Reinsurer
• C. Broker
• D. Adjuster

Answer: (B)

The concept being tested is reinsurance. A reinsurer is an insurer that takes on part of the risk from another insurer, helping to spread exposure, protect solvency after big losses, and increase underwriting capacity. The reinsurer may assume all or part of a risk under arrangements like treaty reinsurance (covering a portfolio) or facultative reinsurance (specific risks), in exchange for part of the premium and the obligation to pay a portion of future claims.

An insurer is the company that writes policies and bears the initial risk. A broker is an intermediary who helps place coverage between the insured and the insurer. An adjuster investigates and settles claims on behalf of an insurer or insured, not primarily to assume risk.