An insurer has a contractual agreement which transfers a portion of its risk exposure to another insurer. What type of contractual arrangement is this?

• A. Stop-loss agreement
• B. Co-insurance agreement
• C. Reinsurance pool
• D. Reinsurance contract

Answer: (D)

Transferring part of an insurer’s risk to another insurer is reinsurance. The legal instrument that makes this transfer is a reinsurance contract, describing what risks are ceded, how much of the risk and premium the reinsurer takes on, and the terms for handling claims. This arrangement helps the ceding insurer stabilize losses, protect solvency, and expand capacity to write business.

A stop-loss agreement is a type of non-proportional reinsurance that kicks in after aggregate losses reach a specified limit; it’s a form of reinsurance, but not the general term for the transfer itself. Co-insurance describes multiple insurers sharing liability on a policy or market, not a transfer of risk between two insurers. A reinsurance pool involves several insurers sharing risk collectively, not a single contractual arrangement between two parties.