Reciprocal inter-insurance exchange

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A reciprocal inter-insurance exchange is a form of insurance company. A reciprocal inter-insurance exchange is not a "mutual insurance company," which is generally an incorporated entity; rather it is an unincorporated association of subscribing members who exchange contracts of indemnity with each other.


Capital in an unincorporated reciprocal interinsurance exchange is provided by the subscribing members' current payments which are not called "premium" but rather "premium deposits".


In some exchanges, operating surplus generated by the exchange belongs to the subscribers but is held by the exchange in accounts called subscriber savings accounts.[1]

State by state regulation[edit]

McCarran-Ferguson Act, 15 U.S.C. 20 mandates that US Insurance companies may only be regulated by the individual states. Thus, there is a considerable variation in how these insurance companies are referred to in individual state regulation. In some states it seems that this special unincorporated form of insurance company is subsumed into the regulations governing "captive insurers".

Creation of an exchange[edit]

A reciprocal inter-insurance exchange may be operated directly by its policyholders. In theory, a small group of individuals could band together to "cross insure" each other on an informal basis. A group of 20 stock-car racers, for example, could agree to cross-indemnify each other for damage to each of the 20 cars owned by the individual racing members: at the end of each race, the racers would have agreed to pass the hat to fund the repairs of the car(s) damaged in that race. Such an arrangement might be unlawful under some state insurance codes.

Reciprocal v LLC, LP and GP[edit]

Reciprocals have been compared to limited liability companies (LLCs), limited partnerships (LPs), and general partnerships (GPs).

Members of a reciprocal may be either a natural person, an LLC or LP, a partnership, or a corporation. In some states, municipalities form reciprocals to cross-indemnify towns, cities, villages, and counties. Reciprocals are sometimes confused with incorporated mutual insurance companies.


See also[edit]


  • Reinmuth, Dennis F. The Regulation of Reciprocal Insurance Exchanges. ISBN 0-256-00676-8. 
  • Ringenbach, Paul T. USAA. A Tradition of Service 1922 –1997. ISBN 0-89865-993-0. 
  • Dunn, Edward Clare. USAA: life story of a business cooperative. ISBN 0-07-018280-9. 


External links[edit]