This situation is called Reinsurance.
Reinsurance is a situation where an insurer passes on its risk to another insurance company so that it does not have to pay to settle a huge insurance claim should such a situation arise.
Advantages of this include:
- the insurance company suffers less risk exposure and,
- the insurance company can take on more risk in other areas
In conclusion, reinsurance allows an insurance company to pass on some risk to another insurance company.
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