Question

What is the role of reinsurance in safeguarding the solvency of an insurer?

a.

It reduces the company's probability of ruin at a price acceptable to the company

b.

It stabilizes fluctuation in the insurer's annual aggregate claims experience

c.

It allows an insurer to accept risks beyond its normal retention

d.

It increases the concentration of risks in any one class of business or geographical area

Answer: (a).It reduces the company's probability of ruin at a price acceptable to the company Explanation:The role of reinsurance is to safeguard the solvency of an insurer against random fluctuations in the overall claims experience and an accumulation of losses arising out of one event by reducing the company's probability of ruin at a price acceptable to the company.

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Q. What is the role of reinsurance in safeguarding the solvency of an insurer?

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