What can typically extend the available capacity of an insurer to provide coverage?

Reinsurance agreements are a crucial aspect of the insurance industry, designed to manage risk effectively. When an insurance company enters into a reinsurance agreement, it transfers a portion of its risk exposure to another company, known as a reinsurer. This process allows the primary insurer to increase its capacity to underwrite more policies or cover larger claims than it could alone.

By sharing risk, the insurer can protect itself from catastrophic losses, thus stabilizing its financial position and allowing it to provide additional coverage to policyholders. Reinsurance acts as a safety net that enables insurers to take on more risk while maintaining solvency, particularly in situations where potential claims may exceed their retained capacity.

Conversely, simply establishing new policies, raising premiums, or introducing technology does not directly correlate to enhancing the core capacity of an insurer in the same manner as reinsurance does. While those approaches may improve profitability or efficiency, they do not significantly affect the underlying risk-sharing mechanisms that reinsurance facilitates.