Alberta General Insurance Level 1 Practice Exam

Why might an insurer choose to cease operations in a market?

1. Due to excessive profits

2. As a result of successful reinsurance

3. To avoid regulatory compliance

4. To enable them through the support of reinsurance

The correct answer is: To enable them through the support of reinsurance

An insurer might choose to cease operations in a market for a variety of reasons. A common reason could be financial difficulties or excessive losses. In this case, the insurer may choose to withdraw from a market in order to reduce costs and protect their overall financial stability. Option A, "Due to excessive profits," is incorrect because excessive profits would not typically be a reason for an insurer to withdraw from a market. Similarly, option B, "As a result of successful reinsurance," is incorrect as reinsurance typically helps insurers manage their risk and is not a reason for them to withdraw from a market. Option C, "To avoid regulatory compliance," is incorrect because insurers are required to comply with regulations in order to operate in a market, so it is unlikely that they would choose to cease operations solely to avoid compliance. Option D, "To enable them through the support of reinsurance," is the correct