South Carolina Personal Lines Practice Exam

What type of insurer distributes dividends to stockholders?

1. Mutual insurer

2. Stock insurer

3. Reciprocal insurer

4. Captive insurer

The correct answer is: Stock insurer

The correct answer revolves around the nature of stock insurers. Stock insurers are organized as corporations owned by shareholders. They issue stock and distribute dividends based on the profitability of the company to those shareholders. The dividends serve as a return on investment, rewarding stockholders for the capital they've provided to the insurer. In contrast, mutual insurers are owned by policyholders, and any surplus profits generated are typically returned to policyholders in the form of dividends or reduced premiums rather than to shareholders. Reciprocal insurers are essentially groups of individuals or organizations that agree to insure each other, and they rely on contributions from members rather than stock dividends. Captive insurers are created to provide insurance to a parent company or related entities and do not distribute dividends in the same manner as stock insurers. Thus, stock insurers uniquely distribute dividends to their shareholders, making them the correct answer.