Glossary

Reciprocal exchange

An insurer organized as an association of policyholders, called subscribers, who insure one another and are managed by an attorney-in-fact.

Also called: reciprocal insurance exchange, interinsurance exchange, reciprocal insurer, reciprocal

A reciprocal exchange is an unincorporated association whose members, called subscribers, exchange insurance contracts: each subscriber insures the others and is insured by them. The subscribers are both the policyholders and the owners, and the exchange issues no stock. Day-to-day operations are run by an attorney-in-fact, a management company holding a power of attorney from the subscribers that earns a fee or a percentage of premiums.

Some large insurers use the structure. Erie Insurance Exchange is managed by Erie Indemnity Company as attorney-in-fact, so the Erie Insurance group has a publicly traded management company alongside a subscriber-owned exchange. Farmers Insurance Exchange is managed by Farmers Group, Inc. See Farmers Insurance for that group's profile.

An exchange is licensed and regulated by the state insurance department as an insurer and rated by AM Best like any other, and its capital is the surplus built up from subscribers' premiums. The point to understand is the split in interests. The attorney-in-fact is a separate, often profit-seeking, company, and its fees come out of the exchange. The people who own the surplus do not control the manager in the way shareholders control a corporation. That is the first question for governance review.

Compare it with a mutual insurer or a captive owned by a single company. The guide on reciprocal insurance exchanges: how they work and what to check explains the structure in more depth.

Last reviewed October 10, 2026

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Related terms

Captive insurance company A licensed insurer owned by the business or group it insures, formed to underwrite their own risks rather than buying all coverage from outside insurers. Risk retention group A member-owned liability insurer formed under the federal Liability Risk Retention Act, licensed in one state but allowed to cover members in every state. Statutory surplus An insurer's admitted assets minus its liabilities under regulatory accounting rules, the capital cushion that stands behind policies beyond its loss reserves. Admitted insurer An insurance company licensed by a state's insurance department to sell policies there, subject to that state's filing rules and guaranty fund protection. Managing general agent (MGA) An agency or underwriting firm that an insurer authorizes by contract to quote, bind and issue policies for a defined book, sometimes handling claims too.

Related guides

Mutual vs stock insurance companies: what the difference means for you Mutuals are owned by policyholders and stock insurers by shareholders. What that changes in dividends, capital, claims and risk, and what it does not change. Reciprocal insurance exchanges: how they work and what to check A reciprocal exchange is owned by its policyholders and run by an attorney-in-fact. How it differs from a mutual, what the fee and surplus mean, what to ask.

Related insurers

Accelerant A risk exchange whose insurers issue policies for 300-plus specialty MGAs insuring small and mid-sized businesses; a Thoma Bravo buyout is pending. Erie Insurance Policyholder-owned reciprocal in Erie, Pa., selling small business packages, auto and comp through local agents in 12 states and D.C.; No. 1 in J.D. Power 2026. Farmers Insurance Policyholder-owned personal-lines group managed by Zurich's Farmers Group; sells small-business package, auto and workers' comp through Farmers agents. Palomar La Jolla specialty insurer known for earthquake and DIC property, now growing in contractor casualty, inland marine, surety, crop and fronting. The Doctors Company Physician-owned med mal insurer based in Napa, California, covering doctors, dentists, clinicians and hospitals. It bought ProAssurance in June 2026.