What type of contractual arrangement involves transferring a portion of risk exposure to another insurer?

The concept of a contractual arrangement that involves transferring a portion of risk exposure to another insurer is known as a reinsurance contract. This type of agreement allows an insurance company (the ceding company) to share its risk with another insurer (the reinsurer). This is crucial for managing risk more effectively—by transferring some of the risk, the ceding company can protect itself from large losses that might otherwise threaten its financial stability.

Reinsurance is often used to balance the insurer's risk portfolio and maintain adequate capital levels, essentially allowing the original insurer to provide coverage for more clients or higher limits by securing additional backup support. Such arrangements help insurers stabilize their operations, reduce volatility, and enhance their ability to survive unexpected events or catastrophic claims.

In contrast, other options you might encounter—such as coinsurance, mutuality agreements, and reciprocity arrangements—do not specifically involve this direct transfer of risk between insurers. Every other term pertains to different aspects of insurance operations or collective arrangements among policyholders rather than a mechanism of protecting against excessive risk by shifting it to another insurer.