Mutual life insurance companies are owned by their policyholders, from whom they receive equity capital in the form of premiums. By contrast, the majority of insurers are stock life insurance companies owned by their shareholders, who provide equity capital; the policyholders are simply customers who pay premiums to buy policies.
Stock life insurance companies frequently rebate to their policyholders part of the premiums paid. Those premium rebates are tax deductible by the company. Stock companies also pay their shareholders a portion of their profits as dividends. Those dividend payments, however, are not tax deductible. Mutual life insurance companies give premium rebates to their policyholders, but because the policyholders are also the company's owners, payments to policyholders are part price rebates, part policyholder benefits, and part returns on equity.
Stock companies must prepare financial statements following generally acceptable accounting principles (GAAP). GAAP accounting records are designed for financial reporting to investors and the public at large, which focus on showing the company's financial stability along with its profitability. Mutual companies may also create GAAP-based financial statements, but do so primarily for in-house use. However, all United States life and health insurers must follow statutory accounting practices (SAP) when preparing Annual Statements and certain other financial reports.
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