What is a significant advantage of proportional reinsurance for insurers?

Proportional reinsurance is designed to share the risks of insurance policies between the primary insurer and the reinsurer. This arrangement is particularly advantageous as it allows the insurer to distribute their risk across multiple parties, reducing the burden of large claims. By doing so, insurers can protect their balance sheets from significant losses that could arise from catastrophic events or a high frequency of claims, thus enhancing their overall financial stability.

Furthermore, this sharing of risk can lead to a more manageable claims experience for the insurer, as they only retain a portion of each policy's claims, which also allows them to underwrite more business than they would typically be comfortable handling alone. This is especially important in lines of business that carry high inherent risks, as it effectively provides a safety net.

While other choices suggest benefits that may seem appealing, they do not accurately capture the core advantage of proportional reinsurance. For instance, it does not eliminate claims liability or guarantee profits, as insurance inherently involves uncertainty and potential losses. Simplification of the underwriting process may occur in some cases but is not a fundamental trait of proportional reinsurance itself. The key benefit remains in the effective distribution of risk.