21.4 Stock and Mutual Companies
Mutualization - Stock company turns to mutual company
Demutualization - Mutual company turns to stock company
Mixed company - Sells both par and nonpar policies
Stock Company
An insurance company owned and controlled by a group of stockholders whose investment in the company provides the safety margin necessary in issuance of guaranteed, fixed premium, nonparticipating policies.
- Nonparticipating policies
- Owned by stockholders
- Provides profit to stockholders
- Majority stockholder controls company
- Lower rates
Mutual Insurer
An insurance company characterized by having no capital stock; it is owned by its policyowners and usually issues participating insurance.
- Participating policies
- Owned by policyholders
- Vote for directors and trustees
- Directors and management have control
- Typically higher rates
