Stock companies are owned by the stockholders who provide the capital necessary to establish and operate the insurance company and who share in any profits or losses. Officers are elected by the stockholders and manage stock insurance companies. Traditionally, stock companies issue nonparticipating policies, in which policyowners do not share in profits or losses.

A nonparticipating (stock) policy does not pay dividends to policyowners; however, taxable dividends are paid to stockholders. The dividends are not guaranteed as they are based on company profit.

Mutual companies are owned by the policyowners and issue participating policies. With participating policies, policyowners are entitled to dividends, which, in the case of mutual companies, are a return of excess premiums and are, therefore, nontaxable. Dividends are generated when the premiums and the earnings combined exceed the actual costs of providing coverage, creating a surplus. Dividends are not guaranteed.

A fraternal benefit society is an organization formed to provide insurance benefits for members of an affiliated lodge, religious organization, or fraternal organization with a representative form of government. Fraternals sell only to their members and are considered charitable institutions, and not insurers. They are not subject to all of the regulations that apply to the insurers that offer coverage to the public at large.

In most states, fraternal benefit societies are permitted to issue life insurance (including endowments), health insurance (including medical and disability), and annuities. They do not issue property or liability policies.

A reciprocal exchange is insurance resulting from an interchange of reciprocal agreements of indemnity among persons known as subscribers. A reciprocal exchange is an unincorporated insurance company managed by an attorney-in-fact common to all subscribers, that operates like a mutual company. Subscribers agree to become liable for their share of losses and expenses incurred among all subscribers, and they authorize the attorney-in-fact to manage and operate the exchange.

A risk retention group (RRG) is a liability insurance company owned by its members. The members are exposed to similar liability risks by virtue of being in the same business or industry. The purpose of a risk retention group is to assume and spread all or part of the liability of its group members. A risk retention group may reinsure another risk retention group’s liability as long as the members of the second group are engaged in the same or similar business or industry.

Lloyd’s is not an insurance company. Lloyd’s provides support facilities for underwriters or groups of individuals that accept insurance risk.

Lloyd’s associations are a group of individuals who operate an insurance mechanism using the same principles of individual liability of insurers that Lloyd’s of London uses, in that each individual underwriter assumes a part of each risk. Each individual promises to pay a specified amount in the event that the contingency insured against occurs. Members are liable only for their portion of the risk and are not bound to assume any portion of a defaulting member.

While Lloyd’s formed in this country operate in essentially the same manner as Lloyd’s of London, they are not subject to the strict regulation which Lloyd’s of London imposes upon its members. Most states have laws which prohibit the organization or licensing of American Lloyd’s. Those Lloyd’s which do exist operate almost exclusively in the property insurance field.

Surplus lines is type of coverage that is not readily available on admitted market. Such coverages are marketed through nonadmitted insurers who specialize in offering insurance to the high-risk market on an unregulated basis under each state’s surplus lines laws. While surplus lines insurers are not admitted, most states require that they be on that state’s “approved” list.