Through which method can an insurer alleviate large losses?

The method through which an insurer can alleviate large losses is by transferring risk. This process typically involves mechanisms such as reinsurance or insurance policies where certain risks are passed on to another party, thereby providing financial protection against significant losses. By transferring risk, the insurer can manage its overall exposure and mitigate the impact of any single loss event on their financial stability.

In practice, when an insurer works with reinsurers, they share the financial burden associated with large claims. This allows the insurer to maintain their solvency and continue operating even when faced with high loss scenarios, distributing the risks in a way that protects all parties involved.

While pooling resources, risk avoidance, and diversifying investments are all valuable strategies in risk management and financial planning, they do not specifically address the direct alleviation of large losses in the context of insurance in the same way that transferring risk does. Pooling resources might help in collective risk sharing but is more about collaboration than transfer. Risk avoidance involves eliminating the risk entirely, which is not always feasible for an insurer. Diversifying investments can reduce overall financial risk but does not directly manage insurance claims exposure.