Mississippi Property & Casualty Practice Exam

Which type of insurer is owned mutually by its policyholders?

1. Stock company

2. Mutual company

3. Reciprocal insurer

4. Bureau

The correct answer is: Mutual company

A mutual company is an insurer that is owned by its policyholders. This ownership structure means that the policyholders have a direct stake in the company and can benefit from its profits in the form of dividends or reduced premiums. The primary characteristic of mutual companies is that they prioritize the interests of their policyholders over external investors, as there are no stockholders whose needs must also be considered. In a mutual company, decisions are typically made with the policyholders' benefits in mind, and policyholders may have voting rights that allow them to participate in key governance decisions. This communal aspect fosters a sense of shared ownership and purpose among those insured. The other types of insurers listed do not share this ownership model. A stock company is owned by shareholders who may not be policyholders, while reciprocal insurers involve subscribers who agree to insure one another but do not operate under the same mutual ownership structure. A bureau generally refers to organizations that provide statistical, actuarial, and other information, rather than serving as insurers themselves. This reinforces why the mutual company is the correct answer, as it accurately represents the mutual ownership by policyholders.