A reciprocal inter-insurance exchange, is an insurance company referred to in United States state legislation as either a reciprocal insurance exchange, a reciprocal interinsurance exchange, or perhaps most properly a reciprocal inter-insurance exchange and is managed by an attorney in fact (AIF). Sometimes they are referred to simply as "reciprocals".
A reciprocal interinsurance exchange is unincorporated: each member of the exchange is individually and severally liable to indemnify all the other members. As to the unincorporated personal liability of each member of a reciprocal inter-insurance exchange, there is an important distinction when compared to a partnership: members of a reciprocal inter-insurance exchange are not jointly liable, as are partners of a law firm.
Reciprocals are sometimes confused with an incorporated mutual insurance company. Reciprocals have been compared to limited liability company (LLC) and limited partnerships (LP). Both the reciprocal and the LLC are made up of members. Members of a reciprocal are also sometimes referred to as subscribers. Members enter into a direct partnership with most of the features associated with a mutual agency. As is also true in the case of the LLC, there is no incorporated limited liability entity owned by shareholders. Share ownership and limited liability evidenced by stock certificates are not issued to each owner. However, legislation has been enacted that limits liability of members to only the assets held by the reciprocal. Therefore, for liability purposes, membership in a reciprocal is similar to ownership of shares of a corporation.
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.
The AIF is a stakeholder and a trustee who holds the deposits made by each member. All property entrusted to the AIF in a reciprocal remains, at all times, the property of the subscribers. In that regard, the AIF is a classic trustee, and the members are the beneficiaries of the trust.
- The Regulation of Reciprocal Insurance Exchanges, by Dennis F. Reinmuth (ISBN 0-256-00676-8)
- USAA. A Tradition of Service 1922 –1997, by Paul T. Ringenbach (ISBN 0-89865-993-0)
- USAA: life story of a business cooperative, by Edward Clare Dunn (ISBN 0-07-018280-9)