Question

Why does an insurer need reinsurance?

a.

To insure only those risks it can accept within its own limits

b.

To mitigate the risk of very large losses from catastrophic events

c.

To increase its profit margins

d.

To avoid insuring connected risks

Posted under IC 92 Actuarial Aspects of Product Development

Answer: (b).To mitigate the risk of very large losses from catastrophic events Explanation:Reinsurance helps insurers mitigate the risk of very large losses resulting from catastrophic events such as massive explosions or terrorist attacks, which may not be insurable by a single insurer alone.

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