A mutual insurer is owned by its policyowners. Policyholders who purchase participating policies may possess membership rights in the company and may be eligible to receive policy dividends when declared by the insurer ' s board, although dividends are not guaranteed.

This ownership structure differs fundamentally from a stock insurer, which is owned by shareholders who purchase shares of corporate stock. A stock insurer ' s policyholders purchase insurance contracts but ordinarily do not acquire corporate ownership merely because they hold a policy.

The terms foreign and alien classify an insurer according to the jurisdiction in which it is organized rather than according to ownership. From Arizona ' s perspective, an insurer organized under the laws of another U.S. state is generally classified as foreign, while an insurer organized under the laws of another country is classified as alien. Either a stock company or a mutual company may also be foreign or alien.

Therefore, the one classification among the alternatives that specifically describes an insurer owned by its policyowners is a mutual insurer.

The examination distinction to retain is: stock insurer = stockholder ownership; mutual insurer = policyowner ownership.

Study Guide Reference: General Insurance Concepts — insurer organization; mutual and stock insurers; participating policies; insurer classifications.