View source for Definition:Attorney-in-fact

⚖️ '''Attorney-in-fact''' is the individual or entity designated to manage the day-to-day operations of a [[Definition:Reciprocal exchange | reciprocal exchange]] — a unique form of [[Definition:Insurance carrier | insurer]] in which [[Definition:Policyholder | policyholders]], known as subscribers, mutually insure one another. Rather than a traditional corporate board directing the company, subscribers grant a [[Definition:Power of attorney | power of attorney]] to this manager, who then handles [[Definition:Underwriting | underwriting]], [[Definition:Claims handling | claims administration]], [[Definition:Reinsurance | reinsurance]] procurement, investments, and all other functions necessary to keep the exchange solvent and competitive.

🏛️ The attorney-in-fact's authority is spelled out in the subscribers' agreement, which functions much like a charter governing the relationship between the exchange's members and its operator. Compensation is typically structured as a percentage of [[Definition:Gross written premium (GWP) | gross written premiums]], giving the attorney-in-fact a direct incentive to grow the book — a dynamic that regulators watch carefully to ensure it does not conflict with subscribers' interests. In some reciprocal exchanges, the attorney-in-fact is a separate, for-profit corporation, creating a layered governance structure in which the exchange itself is a non-corporate entity while its manager may be publicly traded. The [[Definition:Advisory committee | advisory committee]] or [[Definition:Subscribers' advisory committee | subscribers' advisory committee]] serves as a check on the attorney-in-fact's decisions, approving budgets, major strategic moves, and executive appointments.

🔑 Understanding the attorney-in-fact role matters because reciprocal exchanges represent a meaningful share of the U.S. [[Definition:Property and casualty insurance (P&C) | property and casualty]] market — some of the largest homeowners and auto insurers operate under this structure. The quality of the attorney-in-fact directly determines the exchange's [[Definition:Underwriting discipline | underwriting discipline]], [[Definition:Expense management | expense management]], and long-term viability. Disputes occasionally arise when subscribers feel the attorney-in-fact prioritizes its own fee income over the exchange's financial health, leading to regulatory intervention or restructuring. For analysts, investors, and reinsurers evaluating a reciprocal exchange, scrutinizing the terms of the attorney-in-fact arrangement is as important as examining the exchange's [[Definition:Combined ratio | combined ratio]] or [[Definition:Surplus | surplus]] position.

'''Related concepts:'''
{{Div col|colwidth=20em}}
* [[Definition:Reciprocal exchange]]
* [[Definition:Subscribers' advisory committee]]
* [[Definition:Power of attorney]]
* [[Definition:Mutual insurance company]]
* [[Definition:Surplus]]
* [[Definition:Underwriting authority]]
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