Reinsurance is best described as:

Reinsurance is best described as one insurer ceding risk to another. This process involves an insurance company transferring a portion of its risk to another insurance company, known as the reinsurer. The primary insurer does this to mitigate its risk exposure, stabilize its financial performance, and manage its capital requirements more effectively.

Through reinsurance, the primary insurer can protect itself from large claims that could potentially jeopardize its financial health. The reinsurer takes on this risk in exchange for a premium, which allows it to diversify its portfolio and manage its exposure across various types of risks. This relationship is crucial in the insurance industry, as it helps maintain stability within the market, especially during periods of large losses or catastrophic events.

The other options do not accurately represent the concept of reinsurance. Risk retention refers to keeping and managing risk within the company rather than transferring it, while new coverage after policy cancellation implies a different aspect of insurance that does not relate to reinsurance. The idea of a policyholder assuming part of the risk is more about deductibles or co-insurance, not the transferring of risk between insurers.