Final answer:
A Stock Insurance Company allows stockholders to share in profits and losses, where shareholders have limited liability but also own a portion of the company. It is distinguished from mutual and other types of insurance companies in its structure and the way profits are distributed.
Step-by-step explanation:
The type of insurance company where stockholders can share in the profits and losses of the insurer is known as a Stock Insurance Company. In a stock insurance company, those who buy the company's stock become the owners, or shareholders, of the firm. Stock represents firm ownership and carries with it the possibility of profit as well as the risk of losses. Unlike a mutual insurance company, which is owned by its policyholders who may receive dividends but do not own stock in the company, a stock insurance company is owned by investors who have purchased stock. These shareholders have limited liability for the company's debts, but they also share in its profits — and potentially its losses.
Insurance companies, regardless of type, receive income from insurance premiums and investment income from the reserves that were not paid out as insurance claims in prior years. These companies typically invest in safe and liquid assets to ensure funds are accessible when needed, such as after a major disaster.