In insurance terminology, what is meant by the term \"reinsurance\"?

Introduction / Context:
This question tests your understanding of a fundamental concept in insurance called reinsurance. It is an important mechanism that allows insurance companies to manage large risks and maintain financial stability. While ordinary policyholders may not deal directly with reinsurance, competitive exams in banking, finance and insurance often ask about this concept because it affects the overall risk management system in the insurance sector.

Given Data / Assumptions:

• The term to be defined is “reinsurance”.
• Options present several possible interpretations, including an individual taking insurance again, an insurer dealing with another insurer, and government policies.
• The goal is to identify the technically correct definition used in the insurance industry.

Concept / Approach:
Reinsurance is a contract where one insurance company (the ceding company) transfers part of its risk to another insurance company (the reinsurer). This is not about individuals buying multiple policies but about insurers protecting themselves from large or catastrophic losses. By sharing risk with another insurer, the original company can underwrite more policies and maintain solvency. Understanding this high level idea helps quickly eliminate incorrect interpretations that focus on individuals rather than companies.

Step-by-Step Solution:
Step 1: Observe option A, which talks about an individual taking insurance for the second time. This is simply a person buying another policy and is not what reinsurance means in insurance practice.Step 2: Option B defines reinsurance as an insurer placing insurance with another insurer. This matches the standard definition, where a primary insurer reinsures its risk with a reinsurer.Step 3: Option C describes the government buying insurance policies for employees, which is just group insurance, not reinsurance.Step 4: Option D, “All of the above”, cannot be correct because options A and C are clearly not technical definitions of reinsurance.Step 5: Therefore, the correct definition is given by option B.

Verification / Alternative check:
Standard insurance textbooks define reinsurance as the practice by which insurers spread risk by insuring themselves with other insurers. For example, if a company has issued many fire insurance policies in a city, it may purchase reinsurance so that if a large fire occurs, part of the claim payments are borne by the reinsurer. This confirms that the key idea is risk transfer from one insurer to another, exactly described in option B.

Why Other Options Are Wrong:
An individual taking insurance again is simply multiple or renewed coverage at the policyholder level, not reinsurance.
Government buying insurance for employees is a form of group insurance or social security, not reinsurance.

Since these do not match the formal industry meaning, and all of them cannot simultaneously be correct, option D is also incorrect.

Common Pitfalls:
Students sometimes assume that any situation involving “insurance again” or “second insurance” qualifies as reinsurance, focusing only on the prefix “re”. This leads to confusion with renewals or additional policies. The key is to remember that reinsurance always involves an insurer as the client and another insurer as the provider, rather than an individual. Keeping this distinction in mind helps answer related questions correctly.

Final Answer:
Reinsurance refers to an insurer placing insurance with another insurer.