What is the primary role of reinsurance for insurance companies?

The primary role of reinsurance for insurance companies is to mitigate risk by transferring portions of risk to another insurer. Reinsurance allows primary insurers to protect themselves from the financial impact of large losses. By sharing the risk with a reinsurer, insurers can ensure that they remain solvent and able to pay claims, even in adverse situations, such as natural disasters or other catastrophic events.

In essence, reinsurance acts as a safety net, enhancing the stability and capacity of insurance companies to underwrite policies. It helps them manage their exposure effectively while maintaining their overall risk appetite. This also contributes to the larger insurance ecosystem's health by ensuring that insurers can meet their obligations without facing undue financial strain.

The other options do not accurately reflect the fundamental purpose of reinsurance. For instance, boosting profits through decreased coverage doesn't align with risk management principles, as this approach could potentially undermine customer trust and long-term profitability. Eliminating the need for consumer policies contradicts the essence of insurance, which is to provide coverage for consumers against potential risks. Lastly, while reinsurance may indirectly affect the number of claims processed by ensuring stability, its primary function is not to increase claims but to manage risk.