What does the term "reinsurance" refer to?

Reinsurance is a crucial concept in the insurance industry that refers specifically to the practice whereby an insurance company purchases additional insurance for itself to manage its own risk exposure. By doing so, insurers can protect themselves against large losses, stabilize their finances, and increase their capacity to underwrite more policies. This mechanism allows primary insurers to mitigate the potential financial impact of claims, especially in the case of catastrophic events, by sharing risk with other insurers, known as reinsurers.

The other options relate to different concepts in the insurance domain. For instance, the first choice focuses on individual consumers purchasing insurance, which pertains to personal insurance coverage rather than the practices of insurers. The third choice mentions insurance policies covering natural disasters, which are specific types of insurance products but do not encompass the broader concept of reinsurance. Finally, the mention of government-provided insurance relates to public policy and insurance programs rather than the private sector's risk management practices inherent in reinsurance.