Which statement describes mutual insurers?

• A. Not for profit and owned by policyowners
• B. For profit and owned by shareholders
• C. Managed by a board of directors and par value
• D. Not assessable

Answer: (A)

Mutual insurers are owned by the people who hold the policies—the policyowners. Because they don’t issue stock, there are no shareholders, and profits aren’t directed to investors. Instead, these companies operate on a not-for-profit basis, with any excess earnings returned to policyowners through dividends or reduced premiums on participating policies. The company is managed by a board of directors elected by policyowners, and there’s no par value or stock structure to support. This ownership by policyowners is the defining feature that distinguishes mutual insurers from stock insurers, making the description “not for profit and owned by policyowners” the best fit. While some mutuals may also be nonassessable, the key point is who owns the company and how profits are used.