Spreading of risks among insurance entities

A

The correct answer is A. Reinsurance.

Reinsurance is a process by which insurance companies transfer some portion of their risks to other insurance companies, called reinsurers. This is done to reduce the risk exposure of the primary insurer and to ensure that it can meet its policy obligations in case of large claims or losses. In exchange for assuming a portion of the risk, the reinsurer receives a premium from the primary insurer.

Reinsurance helps insurers to spread their risks across a broader geographic area or across different types of risks. For example, a primary insurer may specialize in writing policies for coastal properties, which are more prone to natural disasters such as hurricanes or floods. By purchasing reinsurance, the insurer can transfer some of the risk to a reinsurer who may have expertise in managing these types of risks or who has a broader geographic exposure that can help to diversify the insurer's risk.

Syndication is a process by which a group of investors collectively provide financing or capital for a project or venture. This is different from reinsurance, which is specific to the insurance industry.

Consortium act refers to an agreement between a group of insurers to share risks and pool their resources. This is similar to reinsurance, but it involves a more formal agreement between the participating insurers.

Risk diffusion refers to a process of spreading risk among a group of individuals or entities. This can be achieved through diversification, where an investor invests in a portfolio of assets that have different risk profiles, or through insurance, where an individual or entity transfers some of the risk to an insurer in exchange for a premium. However, risk diffusion is not specific to the insurance industry and does not refer specifically to the process of reinsurance.