California Life-Only & Accident and Health AgentGeneral InsuranceMedium
An insurance company specializing solely in property and casualty insurance decides to offer life insurance products. To do this, they create a separate legal entity that underwrites life policies. This arrangement is an example of:
- AA Reciprocal Exchange
- BA Reinsurer
- CA Mutual Insurer
- DA Stock Insurer
Show answer & explanationAnswer & explanation
Correct answer: D. A Stock Insurer
A stock insurer is a company owned by stockholders who provide the capital necessary to establish and operate the insurance company. This scenario describes a typical stock insurer structure where a separate entity is created for a new line of business, funded by its owners (stockholders).
Why the other options are wrong
- A. A reciprocal exchange is an unincorporated group of individuals who insure each other.
- B. A reinsurer is an insurer that insures other insurance companies.
- C. A mutual insurer is owned by its policyholders and often issues participating policies.
Stock Insurer
A stock insurer is an insurance company owned by stockholders who invest capital and share in profits or losses. They typically issue non-participating policies.
- Owned by stockholders.
- Capital provided by stockholders.
- Issues non-participating policies (no dividends to policyholders).
- Profits distributed to stockholders as dividends.
Memory trick: Insurers are Stock, Mutual, Reciprocal, or Government – think 'SMaRG' for who owns them.