Alberta General Insurance Level 1 Practice Exam

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What strategy do insurers NOT use reinsurance for?

  1. To share profits equally among all parties

  2. To reduce the effects of catastrophic loss

  3. To write a higher level of risk

  4. To maintain a proper reserve/liability balance

The correct answer is: To share profits equally among all parties

Insurers do not use reinsurance to share profits equally among all parties because reinsurance is a risk transfer mechanism used to protect insurers against large losses, not to distribute profits. The other options, including reducing catastrophic loss, writing a higher level of risk, and maintaining a proper reserve/liability balance, are all common reasons why insurers use reinsurance.

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