What is reinsurance?

Reinsurance is defined as a contract between an insurance company and a third party, which is typically another insurance company. This process allows the primary insurer to transfer a portion of its risk to the reinsurer. The primary purpose of reinsurance is to protect insurance companies from facing significant financial losses that may arise from large claims or a high volume of claims. By spreading the risk, reinsurance helps stabilize the insurance market and ensures that insurers maintain adequate reserves to pay for policyholder claims.

In this context, the other choices do not accurately define reinsurance. Job satisfaction assessment methods focus on employee feedback rather than risk management in insurance. Workers' compensation claims are specific to injuries or illnesses suffered by employees, not the broader insurance risk-sharing mechanism that reinsurance embodies. Lastly, while promoting employee wellness is important for organizational health, it is unrelated to the concept of reinsurance in the insurance industry. Understanding reinsurance is crucial for managing risk effectively within the insurance sector.