Reciprocal insurance exchanges have been increasingly popular in recent years, with third-party investor int
erest in the fee-for-service businesses that manage RIEs and w
aning property insurance capacity in catastrophe-prone regions supporting the resurgence.
Third-party investors “are not exposed to the insurers’ underwriting and investment performance but rather derive steady fee income from operatin
g the attorney-in-fact” of a reciprocal exchange, observes Rick Cheney,
senior analyst at ALIRT and author of the late-October report, “Overview of Reciprocal Insurance Exchanges and Recent Market Trends.”
ALIRT’s new report explains that RIEs are unincorporated insurance entities owned by policyholders, or
“subscribers.” Distinct from stock or mutual insurers, RIE policyholders
share directly in profits and losses and appoint an “attorney-in-fact” (AIF) to manage operations.
Read more about RIE structures: Unique Structure of Reciprocal Insuran
ce Exchanges Offers Release Valve on Pressurized Markets and A Look at Reciprocal Insurers From 30,000 Feet
AIFs can be owned by managing general agents and underwriters, p
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ublic or private organizations, individuals, the reciprocal itself or other insurance companies, Cheney’s report explains.
This model allows capital flexibility but can also create risk misalignment between policyholders and investors. Sin
ce an RIE is owned by the policyholders, “this ‘walls off'” the investors
who own the attorney-in-fact, Cheney wrote in the report, also noting tha
t third-party investors are increasingly also deriving fee income from the RIE’s distribution source—usually an MGA or MGU.
An MGA Weighs In
Terrence McLean, CEO of SageSure, an MGA specializing in placing insurance in catastrophe-prone coastal regions, r
ecently spoke to Carrier Management about three RIEs that SageSure sponsored in the past four years.
Asked for his take on the surge in RIE launches generally, McLean
said he believes “investors and banks are treating the reciprocal model differently than they would a stock company equivalent.”
“The value of the balance sheet from a regulatory capital or a rating
agency capital perspective is effectively the same,” he said. While running an RIE, the AIF “has access to managing the capital the same way you would in a stock
company.”
“But investors and lenders look at it somewhat differently. It’s questionable whether they should, but they definitely
factually do. [And] if they do, the model is better because they think of the revenue and the earnings going into the AIF as fee-based revenue.”
Related: How One M
GU Grew Fivefold When Capacity Fled Cat-Prone Property Markets
The ALIRT report, which flags property capacity shortages—in U.S
southern coastal states, in particular—as a factor driving a surge in RIE startups, provides an in-depth assessment of the structural evolution, financial performance and outlook of RIEs in the U.S. property/casualty insurance market.
According to the research report, 72 companies were operating as p
ure RIEs as of year-end 2024. Between 2017 and 2025, 36 new RIEs were formed by ALIRT’s count.
Focusing on the most recent cohort, 18 of the 36 newest exchanges were formed in just the last 21 months—from early 2024 through the first nine months of 2025—with most of these specializing in homeowners coverage in hurricane-prone regions such as Florida, Texas and Louisiana.
“Reciprocal insurance exchanges are once again stepping in to fill coverage gaps, this time in high-risk property markets,” Cheney said in a media statement announcing the publication of the report. “Their growth underscores both the innovation and the financial vulnerabilities that come with insuring catastrophe-exposed regions.”
“The sustainability of this trend may well depend on the success of the RIEs that have formed in the last few years. If these insurers struggle, it may hinder the flow of capital to new entities, pressuring both policyholders and insurance companies in these coastal property markets,” the report says.