Casualty Actuarial Society (CAS) Practice Exam

How do stock insurers benefit their stockholders?

1. By providing lower premiums

2. Through dividends and increased stock value

3. By guaranteeing claims satisfaction

4. Through community service initiatives

The correct answer is: Through dividends and increased stock value

Stock insurers primarily benefit their stockholders through dividends and increased stock value. When a stock insurer generates profits, these profits can be distributed to shareholders in the form of dividends. Additionally, when the financial performance of the insurer is strong, it often leads to an increase in the market value of its stock. This dynamic allows stockholders to realize returns on their investment through both direct payments and potential capital appreciation. Lower premiums are generally aimed at attracting policyholders rather than directly benefiting stockholders. While competitive pricing can indirectly benefit shareholders by increasing market share, it is not a direct means of providing financial benefits to stockholders. Guaranteeing claims satisfaction does not pertain to stockholders but is rather a commitment to policyholders. The value proposition lies in maintaining policyholder trust and loyalty, which may help in retaining customers and enhancing profitability over the long term. Community service initiatives can enhance a company's reputation and build goodwill, but they do not directly contribute to the financial returns for stockholders. These initiatives may have an indirect effect on the company's public perception and potentially its profitability, but they are not a means of providing direct financial benefits to shareholders. Therefore, the mechanism through which stock insurers deliver benefits to their stockholders is clearly articulated in the relationship between dividends and stock