Rise in Reciprocal Insurers Fills Gaps in Catastrophe Markets

A surge in the formation of reciprocal insurance exchanges is reshaping the US property-casualty landscape, driven by capacity constraints and rate hikes in traditional markets, according to a new AM Best report. The report cites a growing trend toward reciprocals—especially in catastrophe-exposed homeowners' insurance—as insurers retreat from volatile regions like Florida and Louisiana.

Reciprocal exchanges have long existed in lines such as personal auto, but recent market pressures have pushed managing general underwriters and policyholders to seek new models. The unique subscriber-based structure of reciprocals, where members are both the insured and the insurer, offers policyholders more control over pricing, strategy, and operational decisions.

Alexander Winant, associate analyst, industry research and analytics at AM Best, said, "A key advantage of the reciprocal exchange model is the increased control subscribers exert over aspects like rates, strategy and administrative overhead, all of which directly aligns the interests of the insurer and the insured since they are the same party."

The report, Reciprocal Insurance Exchanges Represent a Unique and Collaborative Structure, highlights the recent expansion of reciprocals in states frequently impacted by natural disasters. Of the 27 reciprocal exchanges formed between 2017 and 2024, 14 are based in Florida, 4 in Texas, and 2 in Louisiana. Direct premium volume for these exchanges grew 83 percent from 2022 through 2024, with 11 of the 14 Florida-based companies focusing primarily on homeowners multiperil coverage.

AM Best evaluates these entities under its standard criteria: balance sheet strength, operating performance, business profile, and enterprise risk management. While many reciprocals are rated in the "very strong" balance sheet category, newer organizations often start at the lower end of that range due to reliance on surplus notes. Maturity and diversification may lead to higher assessments over time.

David Blades, associate director, industry research and analytics at AM Best, said, "The rapid rise of these newer, often less seasoned, reciprocals underscores the critical importance of execution risk and leads rating analysts to meticulously monitor actual results against initial projections and thoroughly review business plans, initial capitalization strategies and the robustness of reinsurance programs."

With persistent instability in traditional insurance markets, reciprocals are expected to remain a key source of capacity in distressed sectors, especially coastal property. Their long-term viability will depend on their ability to withstand catastrophic losses, control expenses, and maintain sound financial metrics under increased regulatory and rating agency scrutiny.

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