Casualty Actuarial Society (CAS) Practice Exam

Reinsurance serves several strategic purposes for insurance companies, primarily aimed at managing risk and optimizing financial performance. The goal of facilitating withdrawal from a market segment aligns well with how reinsurance can be utilized in practice.

When an insurer identifies that a particular market segment poses excessive risk or is no longer aligned with their strategic objectives, they may choose to exit that segment. By using reinsurance, the company can mitigate the financial impact of this decision. It allows the insurer to transfer the risk associated with existing policies to a reinsurer, thereby reducing their liability and providing financial protection. This makes the process of exiting a market segment smoother and less financially burdensome, allowing the insurer to focus resources on more profitable or less risky segments.

In contrast, increasing legal compliance costs and eliminating underwriting processes are not business goals that align with the fundamental purposes of reinsurance. Reinsurance typically does not directly affect legal compliance, and it is not designed to remove underwriting entirely; instead, it works to support and enhance underwriting through better risk management. Similarly, enhancing customer engagement practices, while important, is not a direct function of reinsurance. Rather, it is more related to marketing and customer service strategies.

Thus, the most practical business goal reinsurance can help achieve from the