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Question

Difficulty: MediumTypes of Insurers

A resident of Texas is seeking property insurance and receives a quote from a carrier that was incorporated in Mexico. The agent explains that this carrier is owned by shareholders who provided the initial capital, and it issues nonparticipating policies where profits are distributed to those shareholders as taxable dividends. Furthermore, the carrier currently holds a valid Certificate of Authority issued by the Texas Department of Insurance. Based on this information, how is this carrier classified under Texas insurance regulations?

  1. An alien admitted stock insurerAnswer
  2. B
    An alien admitted mutual insurer
  3. C
    An alien admitted reinsurer
  4. D
    A non-resident insurance broker

Answer

The carrier is correctly classified as an alien admitted stock insurer.
The carrier is properly classified by three distinct characteristics outlined in the scenario. First, because it was incorporated in Mexico (outside the United States), it is classified as an alien insurer. Second, because it holds a valid Certificate of Authority from the Texas Department of Insurance, it is an admitted (or authorized) insurer in that state. Finally, because it is owned by shareholders who receive profits as taxable dividends and it issues nonparticipating policies, it is a stock insurer.

Step-by-Step Solution

1
Determine the insurer's domicile based on its place of incorporation.
The carrier is incorporated in Mexico, classifying it as an alien insurer.
Under state regulations, insurers formed under the laws of a different country are designated as alien.
2
Determine the insurer's authorization status in the state where it is doing business.
The carrier holds a valid Certificate of Authority in Texas, making it an admitted (or authorized) insurer.
A Certificate of Authority grants an insurance company legal permission to conduct standard, regulated business within that specific state.
3
Determine the insurer's ownership structure.
The carrier is owned by shareholders and issues nonparticipating policies, classifying it as a stock insurer.
Stock companies are owned by stockholders who provide capital and receive profits as dividends, distinguishing them from mutual companies which are owned by policyholders.

Key Concept

Insurer Classification (Domicile, Authority, and Ownership)
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Topics

Types of Insurers

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