Which type of insurance company has capital stock owned by stockholders and policyholders do not participate in dividends?

• A. Stock Insurance Company
• B. Mutual Insurance Company
• C. Reciprocal Exchange
• D. Reinsurer

Answer: (A)

Ownership structure determines who participates in profits. In a stock insurance company, capital stock is owned by stockholders, and policyholders do not participate in dividends. Profits go to the owners of the stock, not to the insureds. This contrasts with a mutual insurance company, where policyholders are the owners and may receive dividends or premium refunds. A reciprocal exchange operates without stockholders and with insureds as members in a different arrangement, and a reinsurer provides reinsurance rather than direct coverage to policyholders. The defining point here is that stock ownership belongs to shareholders, so policyholders don’t share in dividends.