How Does a Reciprocal Share Profits?
Reciprocal insurance companies earn profits from two sources. One is underwriting profits (loss) and the other is investment income. Accumulated profits become the policyholder surplus of the insurer and in the case of a reciprocal, these profits become the property of the policyholders. Adequate policyholder surplus is required to maintain a financially stable insurance company and to meet regulatory requirements. To the extent the company maintains surplus levels needed to meet internal and regulatory financial requirements, the Board of Governors will make decisions about the return of profits directly to policyholders.
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