A.M. Best has affirmed the financial strength rating of A- (Excellent) and the long-term issuer credit rating of “a-” of Federated Underwriting Company (Federated), based in Colchester, Vermont. The outlook of these credit ratings is stable. The ratings reflect Federated’s balance sheet strength, which A.M. Best categorises as very strong, as well as its adequate operating performance, limited business profile and appropriate enterprise risk management. The ratings also reflect the credit enhancement received from its ultimate parent, State Street Corporation (State Street). “This single-parent captive was formed and capitalised in 2019 as part of State Street’s alternative risk financing strategy in the wake of significant price firming in the insurance market,” according to A.M. Best. The rating firm considers Federated’s business profile to be limited, as it operates as a single-parent captive insurer whose sole purpose is to take on specific risks related to its parent’s insurance programmes. Being a start-up company, A.M. Best notes that Federated’s historical operating performance has yet to be determined. The operating performance assessment of adequate reflects A.M. Best’s neutral position until business matures and evolves. The rating firm’s assessment is based largely on Federated’s historical loss experience, as well as management’s projections and ability to execute its business plan. Additionally, the ratings include a level of credit enhancement from State Street, which is one of the world’s largest financial service organisations. A.M. Best suggests that given the captive nature of the business being insured, the interests of State Street and Federated are aligned directly, and additional capital and financial flexibility are available should it be necessary.
