OLDWICK, N.J.--(BUSINESS WIRE)--AM Best has revised the outlook to negative from stable for the Long-Term Issuer Credit Rating (Long-Term ICR) and affirmed the Financial Strength Rating of A (Excellent) and the Long-Term ICR of “a+” (Excellent) of Federated Rural Electric Insurance Exchange (Federated) (Shawnee, KS). The outlook of the FSR is stable.
The Credit Ratings (ratings) reflect Federated’s balance sheet strength, which AM Best assesses as very strong, as well as its strong operating performance, neutral business profile and appropriate enterprise risk management.
The negative outlook on the Long-Term ICR reflects pressure on Federated’s operating performance, driven by deterioration in underwriting results in recent years, resulting from increased property and auto physical damage losses that stem from weather and inflationary pressures. While management has taken actions to stabilize results, the ultimate effectiveness in returning performance to historical norms is uncertain. A continuation of adverse operating results could prompt a lowering of the operating performance assessment.
Despite the deterioration in operating performance, Federated’s balance sheet strength remains at the very strong level, based on risk-adjusted capitalization at the strongest level, as measured by Best’s Capital Adequacy Ratio (BCAR). Additional factors include modest underwriting leverage, solid liquidity and cash flow measures, favorable loss reserve development, a conservative investment portfolio and a diversified panel of highly rated reinsurance partners.
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