Patricia Kwan, director of financial services ratings for North America insurance at S&P Global, said reciprocal insurance exchanges operate much like traditional insurers in terms of risk management, regulatory oversight, and reinsurance.
In an interview with Globe Banner, Kwan emphasized that reinsurers do not treat reciprocals differently when setting treaty terms or pricing.
"We don't see any differences. Reinsurers base their pricing on the cedent's risk profile and loss experience, not on whether the cedent is a reciprocal," Kwan said.
When asked whether reinsurers treat reciprocal exchanges differently when setting treaty terms and pricing, Kwan said that reinsurers focus solely on the insurer’s risk metrics such as claims history, exposure concentrations, and catastrophe modeling. They do not adjust pricing based on the insurer’s legal form.
Reinsurers determine treaty pricing based on the cedent's risk profile, including factors such as historical loss experience, exposure concentrations, and modeled catastrophe scenarios.
According to the Casualty Actuarial Society, the legal structure of the insurer—whether a reciprocal exchange or a stock company—is not considered in actuarial or underwriting frameworks. This approach ensures that all insurers are subject to the same pricing mechanisms based on their empirical risk metrics.
"Inside the insurance market, when we speak of standard, that means admitted... Non-admitted is the excess and surplus lines," Kwan said.
According to Inszone Insurance, in the insurance industry "admitted" carriers are those licensed by a state's insurance department to operate within that state. They adhere to its regulations and offer policyholders protections such as access to state guaranty funds in case of insurer insolvency.
Conversely, "non-admitted" carriers are not licensed in the state but can provide coverage for risks that admitted insurers may not underwrite, often through surplus lines insurance. The non-admitted insurers must still meet certain financial standards to ensure they can fulfill their obligations to policyholders despite operating outside the state's regulatory framework.
As Director and senior credit analyst at S&P Global Ratings, Kwan oversees credit assessments for major North American insurers including Travelers, Liberty Mutual, Nationwide Mutual, W.R. Berkley, and Berkshire Hathaway Insurance Group. She also contributes to developing risk-based capital adequacy criteria and authors industry commentaries. Before joining S&P Global in 2010, she worked in corporate treasury roles at Elevance Health (formerly Anthem) and General Motors focusing on investment risk analytics and global foreign exchange management. She holds a B.A. in Mathematics and an MBA in Finance and Accounting from the University of Chicago.