Which of the following insurance options represents a risk-sharing arrangement?

In a risk-sharing arrangement, policyholders are essentially pooling their resources together to cover the potential losses incurred by any of them. The reciprocal insurance model embodies this concept perfectly. In this structure, members of the reciprocal exchange agree to indemnify each other by contributing to a common fund from which claims are paid. Each member acts as both an insurer and an insured, sharing in the financial risk of losses while having a vested interest in the group's overall performance. This mutual participation strengthens the incentive for all members to minimize risks and losses, as they directly feel the consequences of each other's claims.

The other options, while being valid insurance structures, do not inherently represent risk-sharing in the same manner. Stock companies operate for the profit of shareholders rather than to share risk among policyholders. Mutual companies, on the other hand, also involve policyholders in a form of mutual risk-sharing, but they typically do not have the same member involvement or collective decision-making that characterizes a reciprocal arrangement. Surplus lines insurance is a specialty insurance for high-risk situations and does not involve the risk-sharing concept among members. Thus, reciprocal stands out as the best example of a true risk-sharing arrangement.