CII Certificate in Insurance - Insurance Broking Fundamentals (I10) Practice Test 2026 - Free Insurance Broking Practice Questions and Study Guide

A company specializing in motor insurance might act as a reinsurer for a property insurance firm primarily to diversify its portfolio. Engaging in reinsurance allows the motor insurance company to spread its risk across different areas; despite its focus, it can become involved with property insurance, potentially stabilizing its overall financial performance. Diversification is a risk management strategy that helps in mitigating the volatility tied to a single line of business.

While the option suggesting that motor insurance is a new liability line for the property insurance company highlights a possible motivation, it overlooks the broader strategy of risk management and portfolio diversification, which are essential in the dynamic insurance industry. The other options, such as potential legal mandates for reinsurance and a focus on market dominance, do not specifically address the motivations driven by risk diversification, which is a more compelling reason for this kind of arrangement.