State RegulationsTX specificDifficulty 1/5
Under the Insurance Code definitions in TIC 801.001 and the mutual insurer provisions of TIC 547.001, who owns a mutual insurance company?
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Answer & full 3-part explanation (select an option above, or peek)
Why B is correct
Under TIC 801.001 and the mutual insurer provisions of TIC 547.001, a mutual insurer has no capital stock and is owned by its policyholders, who elect the directors and to whom any surplus belongs. The surplus is returned to them as policy dividends or applied to reduce future premiums. Practically, this is the structural reason mutual policies are usually participating while stock insurer policies are usually nonparticipating: the mutual has no shareholders to whom earnings can be paid, so the earnings stay with the policyholders who own the company.
Why the other options are wrong
- A) Stockholders own a stock insurer, not a mutual; a mutual has no capital stock and its earnings do not flow to investors.
- C) A mutual insurer is a private company owned by its members, not a state-owned enterprise, even though it is regulated by the department.
- D) Directors manage the company but do not own it, and a mutual issues no capital stock for anyone to hold.
Memory hook
Mutual means the members own it; stock means the shareholders own it.