An insurance company in Florida arranges for another insurance company to assume part of the risk on policies it has issued. In Florida insurance terminology, this arrangement between the two insurers is called:

Why C is correct

Under the Florida Insurance Code, reinsurance is insurance bought by an insurer, called the ceding company, from another insurer, the reinsurer, which agrees to indemnify the ceding company for all or part of the risk it has assumed under its own policies. Reinsurance spreads risk among insurers rather than between an insurer and a consumer.

Why the other options are wrong

• A) A joint policy covering multiple insureds is still original insurance, not insurance between insurers.
• B) Duplicate coverage owned by the insured is excess or overlapping insurance, not reinsurance, which runs between insurers.
• D) Directors and officers coverage protects corporate managers; it is not the risk-sharing arrangement between insurers that defines reinsurance.

Memory hook

Reinsurance = insurance for insurers.

Why C is correct

Under Florida insurance law, as administered by the Office of Insurance Regulation, reinsurance is insurance purchased by one insurer (the ceding company) from another insurer (the reinsurer) to transfer all or part of the risk it has underwritten. The original policyowner continues to deal only with the ceding insurer; the reinsurance exists entirely between the two insurers. Practically, reinsurance allows insurers to spread large risks, protect solvency, and write larger lines than they could retain alone.

Why the other options are wrong

• A) Policyowners do not share the insurer's underwriting risk with each other; risk-sharing between insurers is the essence of reinsurance.
• B) Subrogation is an insurer's right to recover from a responsible third party after paying a claim - a claim remedy, not inter-insurer risk transfer.
• D) Surplus lines placement is buying coverage for an insured from an unauthorized insurer through a licensed surplus lines agent - not an insurer's own risk transfer.

Memory hook

Reinsurance = insurance for insurers.