What is it called when an insurer buys insurance to reduce its exposure to loss?

The term that describes when an insurer purchases insurance to reduce its exposure to loss is re-insurance. This practice involves transferring some of the risks that the insurer has underwritten to another insurance company, known as the reinsurer. By engaging in re-insurance, an insurer can protect itself against large losses, stabilize its financial performance, and manage its capital requirements more effectively.

Re-insurance is a critical component of the insurance industry because it allows insurers to take on more risk than they would be able to handle independently. This arrangement can be structured in various ways, such as through excess of loss re-insurance or quota share re-insurance, depending on the insurer's specific needs and the risks involved.

In contrast, mitigation refers to strategies and measures taken to reduce the severity or impact of potential losses rather than transferring the risk. Co-insurance typically involves multiple insurers sharing in the coverage of a single risk, rather than an insurance company protecting itself with additional insurance. Loss reduction is an aspect of risk management that focuses on minimizing the actual losses from a covered event but does not involve the sale or purchase of insurance. Therefore, re-insurance is the correct choice since it specifically addresses the situation of an insurer seeking to manage and reduce its own risk exposure.