What is the primary role of a reinsurer in a reinsurance transaction?

The primary role of a reinsurer in a reinsurance transaction is to indemnify the reinsured for part or all of their liability. This means that when a primary insurer (the reinsured) faces significant claims or risks, they can transfer some of that risk to the reinsurer. This process helps the primary insurer manage their risk exposure by providing additional financial backing, which can stabilize their operations and allow them to underwrite more policies.

Reinsurers play a critical role in the insurance industry by helping to ensure that primary insurers remain solvent, particularly in the event of large or unexpected claims. By sharing the risk, reinsurers allow primary insurers to take on more business while protecting themselves from catastrophic losses. This relationship increases the overall capacity of the insurance market and helps maintain insurance availability for consumers.

In contrast, other choices describe functions not aligned with the primary role of reinsurers. Issuing policies directly to consumers is a function of primary insurers. Auditing financial statements is the responsibility of auditors and regulators, not reinsurers. Creating insurance policies for niche markets falls within the purview of primary insurers who may choose to partner with reinsurers for certain types of coverage, but it is not the core function of a reinsurer.