What is a primary purpose of reinsurance?

Reinsurance primarily serves the purpose of reducing the risk for an insurance company. By transferring portions of risk to another insurer, known as the reinsurer, the primary insurance company can mitigate the potential for large losses. This is particularly crucial in cases where an insurer faces substantial claims from catastrophic events or significant underwriting exposures.

Reinsurers help distribute risk across a broader base, allowing primary insurers to provide coverage they may not have the capacity to assume alone, essentially making the insurance market more stable. This risk management technique encourages insurance companies to underwrite more policies and accept larger risks without endangering their financial health. The overall effect is a strengthened ability for insurers to offer comprehensive coverage to policyholders while maintaining solvency.

The other options focus on aspects such as customer loyalty, pricing strategies, and sales volume, which, while important in the broader context of insurance business operations, do not represent the core function of reinsurance itself. The essence of reinsurance lies in risk transfer and management rather than customer relations or competitive tactics.