When an insurer assumes the risk of another insurance company, this is known as?

When an insurer assumes the risk of another insurance company, this practice is referred to as reinsurance. Reinsurance is a crucial part of the insurance industry, allowing insurance companies to spread their risk and protect themselves from significant financial losses. Through reinsurance, the primary insurer can transfer part of the risk associated with certain policies to another company, known as the reinsurer. This process helps insurers manage their risk exposure effectively, ensure solvency, and maintain the ability to cover claims, especially in the event of large catastrophic losses.

In contrast, primary insurance refers to the original insurance policy issued to the policyholder, while excess insurance involves coverage that kicks in after a certain limit is reached on the primary policy. Subrogation is the process by which an insurer seeks reimbursement from the responsible party after paying a claim. Understanding these definitions and how they interrelate is key for those studying personal lines insurance, as it helps clarify the roles and responsibilities of various entities in the insurance market.