Reinsurance involves which type of arrangement?

Reinsurance is a financial arrangement in which one insurance company indemnifies another, typically to manage risk and provide additional security against potential losses. This practice allows the original insurer (the ceding company) to transfer some of its risks to a reinsurer, thereby protecting itself from large losses and enhancing its solvency.

By effectively pooling risk, reinsurance enables companies to underwrite policies that they might not otherwise be able to. It also facilitates greater financial stability for the insurance sector as a whole, because it helps spread potential liabilities over multiple entities. This means that when one company faces unexpectedly high claims, the reinsurer can step in to absorb some of those costs.

The other choices do not accurately describe the concept of reinsurance. Sharing resources directly among multiple companies refers more to collaborations or joint ventures rather than the specific indemnification relationship inherent in reinsurance. The mention of a cooperative of insurance agents focuses on agents rather than the companies themselves and does not convey the risk-transfer mechanism. Lastly, agents selling policies from various insurers discusses the distribution side of the insurance market rather than the risk management strategies involved in reinsurance.