Stock Insurance Companies
A Stock Insurance Company is an insurer that is owned by its stockholders and formed as a corporation for the purpose of earning a profit for these stockholders.
Insurance formed for the purpose of making a profit for their owners are typically organized as for – profit (stock) corporations. By purchasing stock in a for-profit insurer, stockholders supply the capital the insurer needs when it is formed or the additional capital needed by the insurer to expand its operations. Therefore, one of the primary objectives of a stock insurance company is returning a profit to its stockholders. The stock form of ownership also provides financial flexibility for the insurer. For instance, stock insurance companies can sell additional stocks for its expansions, etc.,
Mutual Insurance Companies
A Mutual Insurance Company is an insurer that is owned by its policyholders and formed as a corporation for the purpose of providing insurance to its policyholder-owners.
The corporation of a traditional mutual insurer issues no common stock, so it has no stockholders. Mutual insurance companies are also slowly changing their objective towards profit making akin to that of Stock Insurance Company.
One traditional difference among mutual insurers involves the insurer’s right to charge its insureds an assessment, or additional premium, after the policy has gone into effect. Known as an assessment mutual insurance company, this type of mutual insurer is less common today than in the past.
Demutalization is the process by which a mutual insurer, which is owned by its policyholders, becomes a stock company, which then owned by its stockholders.
Reciprocal Insurance Exchanges
A reciprocal insurance exchange (or an interinsurance exchange) is an unincorporated association formed to provide insurance coverage to its members. One of the distinguishing features of a reciprocal is that the subscribers empower an attorney-in-fact to manage it.
Subscribers (also known as members) are the policyholders of a reciprocal insurance exchange who agree to insure each other.
The attorney-in-fact of a reciprocal insurance exchange is the contractually authorized manager of the reciprocal who administers its affairs and carries out its insurance transactions.
A reciprocal insurance exchange (or an interinsurance exchange) consists of a series of private contracts among the subscribers, or members, of the group, with subscribers agreeing to insure each other. Each member of the reciprocal is both an insured and an insurer.
Who Provides Insurance
