What does reinsurance help insurers manage effectively?

Reinsurance plays a crucial role in helping insurers manage catastrophic losses effectively. When an insurer faces the possibility of significant claims from events like natural disasters, large-scale accidents, or economic crises, reinsurance allows them to transfer some of that risk to another company. This not only mitigates the financial impact on the insurer but also ensures stability and sustainability within the insurance market. By sharing risks with reinsurers, primary insurers can protect their financial health and better fulfill their obligations to policyholders in times of crisis.

Options such as marketing efforts, investment strategies, and policyholder contentment do not directly correlate with the core function of reinsurance. Marketing efforts involve promoting and selling insurance products, investment strategies pertain to how insurers allocate their funds and manage their portfolios, and policyholder contentment mostly relates to customer service and satisfaction rather than the risk management focus of reinsurance. Therefore, the primary benefit of reinsurance is its ability to manage the impact of catastrophic losses.