What is the primary goal of reinsurance?

The primary goal of reinsurance is to allow insurers to share risk and stabilize their financial performance. Reinsurance acts as a financial safety net for insurance companies, enabling them to manage risk more effectively by transferring portions of their risk portfolios to other insurance firms. This sharing of risk helps insurers maintain sufficient capital reserves and avoid catastrophic losses that could jeopardize their financial stability.

By spreading the risk associated with large claims or high volumes of claims across multiple parties, reinsurance effectively stabilizes an insurer's overall experience. It allows primary insurers to underwrite more policies and offer coverage for higher limits than they might otherwise feel comfortable with if they were to retain all the risk. This is especially important in protecting them during times of significant loss, like natural disasters or economic downturns, ensuring not just their survival but also their ability to meet their obligations to policyholders.

Other options, while not entirely incorrect in their context, do not capture the essence of reinsurance's primary function. For instance, providing liability coverage to insurers does not describe the sharing of risk aspect central to reinsurance. Simplifying the claims process is more related to the operational side of insurance rather than its risk management strategy. Strictly regulating premium rates pertains to regulation rather than risk-sharing, which is the