What term refers to insurance that insurers purchase to protect against large losses?

Reinsurance is the term that refers to the practice where insurers transfer a portion of their risk to other insurance companies to protect themselves from large losses. This process allows primary insurers to manage their risk effectively and maintain stability in their financial status. By passing on some of the risks associated with the policies they underwrite, insurers can reduce the likelihood of significant financial strain from catastrophic events or a high volume of claims.

In reinsurance, the original insurer, often called the ceding company, pays a premium to a reinsurer in exchange for coverage. This not only helps in mitigating the potential impacts of large claims but also allows the insurer to free up regulatory capital and provide more coverage than it might be able to hold on its own.

Other terms mentioned do not accurately describe this specific action. Excess insurance generally refers to a policy that provides coverage above a certain limit of loss, while statutory insurance deals with mandatory insurance coverage required by law. Ceding insurance is a less common term and typically refers to the process of a primary insurer transferring risk to a reinsurer but does not represent the actual protective measure taken against large losses.