What type of risk does "subrogation" aim to mitigate for insurers?

Subrogation is a crucial principle in the insurance industry that permits an insurer to pursue a third party that caused a loss to the insured, in order to recover the amount paid out in a claim. This process helps mitigate losses that the insurer has incurred, which could potentially have been recovered from the party responsible for the damage.

In this context, subrogation effectively allows the insurer to reclaim their financial outlay, thereby reducing their overall loss exposure. This mechanism is essential for keeping insurance costs manageable and ensuring that the burden of loss does not fall entirely on the insurer when another entity is liable.

The other choices, while related to various risks in the insurance landscape, do not specifically connect to the purpose of subrogation. Financial risk from unprofitable policies pertains to the overall profitability of the insurance operation rather than the recovery of losses. Risks associated with underwriting practices deal with the evaluation and acceptance of risk but do not cover recovery post-claim. Investment risk in insurance stocks focuses on the market performance of insurance company investments rather than the mechanics of loss recovery after a claim.