CARD T025
Insurer Ownership
Insurer ownership describes who holds the company’s ownership interests: shareholders or policyholders.
Stock Insurer: An insurance company owned by shareholders. Owning a policy does not, by itself, make someone a shareholder.
Mutual Insurer: An insurance company owned by its policyholders. Ownership rights depend on the company’s governing provisions.
How it works
A stock insurer is owned by shareholders. Buying its policy does not itself buy shares. A mutual insurer is owned by its policyholders under its governing rules. Ownership is separate from whether a particular policy pays a dividend. A participating policy may receive a nonguaranteed policy dividend; that is not the same as a corporate dividend paid to shareholders. [1]
A customer buys a policy from a stock insurer but no company shares. The customer is a policyowner, not automatically a shareholder. In a mutual company, policyholder membership provides the ownership connection.
Ownership of a policy and ownership of the issuing company are different concepts. Dividends are not guaranteed merely because an insurer is mutual.
CARD T026
Insurer Domicile
Domicile is the state or country under whose laws an insurer was legally formed. It determines whether that insurer is called domestic, foreign, or alien in a particular state.
Domestic Insurer: An insurer formed under the laws of the state being discussed. A Texas-formed insurer is domestic in Texas.
Foreign Insurer: An insurer formed in another U.S. state or jurisdiction. A Texas-formed insurer is foreign in Florida.
Alien Insurer: An insurer formed under the laws of another country. A Canadian-formed insurer is alien when classified by a U.S. state.
How it works
Domestic, foreign, and alien are classifications from the perspective of the state being discussed. A Texas-formed insurer is domestic in Texas and foreign in Florida. An insurer formed under Canadian law is alien from a U.S. state’s perspective. An insurer’s sales office or the policyowner’s address does not by itself change its legal domicile. Domicile and authorization are separate classifications. [5]
A Texas stock insurer authorized to sell in Florida is foreign and admitted in Florida. “Foreign” does not mean it is prohibited from doing business there.
First identify the formation jurisdiction; then identify the state whose perspective the question uses.
CARD T027
Insurer Authorization
Insurer authorization concerns permission to conduct specified insurance business in a particular state.
Admitted Insurer: An insurer authorized to conduct specified insurance business in a state. Authorization is determined separately for each state.
Nonadmitted Insurer: An insurer without authorization as an admitted insurer in the state. Whether it may provide particular coverage depends on applicable law.
How it works
An admitted insurer has state authorization for the relevant business. A nonadmitted insurer lacks that admitted status there. This does not mean every nonadmitted transaction is unlawful: particular exceptions may exist, but their rules and permitted products must be checked. Do not assume a property-and-casualty surplus-lines exception automatically permits a life or health sale. [4] [5]
An insurer may be authorized in State A but not State B. Its home state, ownership structure, and size do not automatically give it authority in every state.
Admitted/nonadmitted answers “authorized here?” Domestic/foreign/alien answers “formed where?”
CARD T028
Certificate of Authority
A certificate of authority is state authorization for an insurer to conduct specified insurance business.
How it works
The insurer’s authority is different from a producer’s license and from an appointment authorizing a producer to act for an insurer. The certificate addresses the insurer’s permitted business in that state. Authority for one line or one state should not be treated as blanket approval for all lines everywhere. [4]
A company seeks authority to issue life insurance in a state. Its producers separately need the licenses and any appointments required for their activities.
Certificate of authority: insurer. Producer license: person or business selling, soliciting, or negotiating insurance.
CARD T029
Fraternal Benefit Society
A nonprofit membership organization that provides insurance benefits to members who share a religious, charitable, or other fraternal connection.
How it works
A fraternal benefit society combines a membership organization with insurance benefits for eligible members. Typical legal features include local chapters, called lodges, and representatives chosen by members to govern the society. It has no ownership shares sold to stockholders. Members receive insurance certificates describing their benefits. It is not simply any association offering group coverage, and it remains subject to applicable insurance laws. [6]
A qualifying fraternal society offers life insurance benefits to eligible members while also conducting benevolent activities through its lodge structure.
Look for the member and lodge structure. Do not confuse it with an ordinary employer group plan or a stock insurer.
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Practice questions
Select an answer, then check it to see why each option is right or wrong.
T025 · Insurer Ownership
0 of 3 answered
T026 · Insurer Domicile
0 of 3 answered
T027 · Insurer Authorization
0 of 3 answered
T028 · Certificate of Authority
0 of 3 answered
T029 · Fraternal Benefit Society
0 of 3 answered
Sources & further reading
Original explanations and practice scenarios informed by the following regulator resources. State examples are not presented as nationwide deadlines or requirements.