Alberta General Insurance Level 1 Practice Exam

Question: 1 / 400

What is NOT a reason to reinsure?

To increase insurers' capacity to write business

To earn a quick profit without risks

Reinsurance is a risk management tool used by insurance companies to transfer a portion of their risk to another insurer, known as the reinsurer. Insurers may reinsure for various reasons such as to increase their capacity to write new business, maintain proper reserve balances, and provide stability in a fluctuating market. However, earning a quick profit without risks is not a valid reason to reinsure as it goes against the purpose of risk management. By transferring risk to a reinsurer, the insurer is still responsible for paying claims and therefore cannot expect to earn a quick profit without any risks.

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To maintain a proper reserve/liability balance

To provide stability in a fluctuating market

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