Registered Insurance Brokers of Ontario (RIBO) Practice Exam

The reasoning behind identifying the choice regarding the collection of more money as incorrect lies in understanding the primary motivations behind reinsurance. Insurance companies typically enter into reinsurance agreements to manage risk more effectively and not to directly increase their revenue.

Reinsuring helps limit exposure to risks, giving insurers the ability to take on larger or more numerous policies without overextending their capacity. By sharing the risks with reinsurers, they can stabilize their loss experience, ensuring that the financial impact of claims is manageable. Additionally, reinsurance is a crucial tool for protection against catastrophic events, allowing insurance companies to safeguard their financial stability in the face of significant, unforeseen losses.

In contrast, the idea of collecting more money does not align with the fundamental principles of reinsurance. It is more focused on risk management rather than revenue generation. Thus, this choice does not accurately represent the rationale for an insurance company to engage in reinsurance.