Life & Health Insurance Practice Exam 2026 - Free Practice Questions and Study Guide

The term for when an insurance company transfers some or all of its insurance risk to another company is reinsurance. This process allows the original insurer, known as the ceding company, to reduce its overall risk exposure by sharing potential losses with another insurer, known as the reinsurer.

Reinsurance serves several important functions, including enhancing the financial stability of the insurance company, allowing for greater underwriting capacity, and providing protection against catastrophic losses. By transferring risk, the original insurer can better manage its balance sheet and reduce the likelihood of insolvency in the event of a significant claims surge.

In contrast, delegation refers to the process of assigning responsibilities to another party but does not specifically pertain to risk management in insurance contexts. Retrospective rating is a system of adjusting premium amounts based on the insured's loss experience over a policy period, rather than transferring risk. Co-insurance involves the sharing of risk and costs between insurers but does not involve a transfer of risk as reinsurance does.