Apex Insurance Company wrote a large number of property insurance policies in an area where earthquake losses could occur.When the president of Apex was asked if she feared that a severe earthquake might put the company out of business,she responded,"Not a chance.We transferred most of that risk to other insurance companies." An arrangement by which an insurer that initially writes insurance transfers to another insurer part or all of the potential losses associated with such insurance is called
A)hedging.
B)speculating.
C)reinsurance.
D)loss avoidance.

Question

Quizplus · Accepted Answer

The arrangement described in the scenario is reinsurance, which involves the original insurer (Apex Insurance Company in this case) transferring part or all of the potential losses associated with the insurance to another insurer. This helps spread the risk and can provide a way for the original insurer to continue writing policies without taking on too much risk.

Apex Insurance Company Wrote a Large Number of Property Insurance