Unit 1 Review- Mutual Companies Flashcards
How are mutual companies organized & incorporated? Do they have stockholders?
They are organized and incorporated under state laws, but they have no stockholders.
Who are the owners of a mutual company?
The owners are the policyholders.
Anyone purchasing insurance from a mutual insurer is both a customer and an owner.
Who has the right to vote for members of the board of directors of a mutual company?
- Policyowners
What are mutual companies referred to and why?
They are referred to as participating companies because the policyowners participate in dividends.
By issuing participating policies that pay policy dividends, mutual insurers allow their policyowners to do what?
It allows their policyowners to share in any company earnings (divisible surplus).
What are company earnings in a mutual company called? What is it?
Divisible surplus. The divisible surplus is the amount of earnings paid to policyowners as dividends after the insurance company sets aside funds required to cover reserves, operating expenses, and general business purposes.
What are policy dividends in a mutual company?
Policy dividends represent a refund of the portion of premium remaining after the company has set aside the necessary reserves and has made deductions for claims and expenses.
How often are surpluses distributed to policyowners of a mutual company?
Surpluses are typically distributed to policyowners on an annual basis.
How can a stock company be converted into a mutual company?
Through a process called mutualization.
How can a mutual company convert to a stock company?
Through a process called demutualization.
What is a mixed plan stock insurance company?
A stock insurance company issuing both participating and nonparticipating policies
What do participating policies allow?
Policyholders to participate in the company by electing the board of directors and receiving dividends from the divisible surplus.
What do nonparticipating policies not allow?
Policyholders cannot participate in elections or dividends and instead aim to increase profit for the shareholders.
How are assessment mutual companies classified?
By the way in which they charge premiums.
How does a pure assessment mutual company operate? re premiums payable in advance?
On the basis of loss-sharing by group members. No premium is payable in advance. Instead, each member is assessed a portion of the losses that actually occur.
