What type of insurance company is owned by its policyholders?

The correct choice is a mutual company, as it is specifically structured to be owned by its policyholders. In a mutual insurance company, the policyholders are essentially the shareholders, meaning they have a vested interest in the company’s operations and performance. The profits generated by a mutual insurance company can be returned to policyholders in the form of dividends or used to reduce future premiums, which directly benefits the individuals who hold policies with the company.

In contrast, a stock company is owned by shareholders who may or may not be policyholders. This type of company operates with a profit motive focused on delivering returns to its investors. A fraternal organization, while it may provide insurance products, is also a social or benefit organization designed to provide insurance primarily to its members rather than being strictly a mutual insurance company. Captive insurers, on the other hand, are typically formed by a parent company to insure its own risks, and they are not owned by policyholders in the traditional sense.

Thus, the unique ownership structure of mutual companies is what sets them apart, making them the correct answer in this context.