Loans on company's stock represent situations where the insurer lends money and accepts its own stock as collateral.

Question

Options

• ATrue
• BFalse

• A
  74% (46)
• B
  26% (16)

Explanation

Option A is correct because "loans on company's stock" is a defined concept in insurance investment law referring specifically to an insurer acting as a lender and accepting its own capital stock as collateral for those loans. This arrangement is heavily regulated or prohibited in most jurisdictions because it creates a circular financial structure that can artificially inflate the insurer's apparent financial strength while masking true solvency risk.

Option B is wrong because the statement accurately describes the technical definition - there is no factual error to point to; the description of the lender-borrower-collateral relationship is precisely what regulators mean when they flag "loans on company's own stock."

Memory tip: Think of it as the insurer playing both sides - it's the bank (lender) AND the collateral (its own shares). The phrase "loans on company's stock" literally means the loan is backed by (on) the company's own stock. If the borrower defaults, the insurer ends up holding its own shares, which doesn't actually recover any outside value - a key reason regulators restrict this practice.

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