AM Best has affirmed the financial strength rating of A- (Excellent) and the long-term issuer credit rating of “a-” (Excellent) of Federated Underwriting Company (Federated) based in Vermont. The outlook of these credit ratings is stable. The ratings reflect Federated’s balance sheet strength, which AM Best assesses 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. 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. AM Best considers Federated’s business profile to be limited, and whose sole purpose is to take on specific risks related to its parent’s insurance programmes. Federated’s historical operating performance has yet to be determined, says AM Best. The operating performance assessment of adequate reflects AM Best’s neutral position until business matures and evolves, it adds. Consideration is also given to management’s projections and the ability to execute on these projections in conjunction with Federated’s overall mission and business plan. Lastly, the ratings include a level of credit enhancement from State Street. AM Best believes 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, if necessary.
