Federated Rural Electric Insurance Exchange Rating Upgraded

A.M. Best Co. has upgraded the financial strength rating to A (Excellent) from A- (Excellent) and issuer credit rating to “a” from “a-” of Federated Rural Electric Insurance Exchange (FREIE or the Exchange) in Lenexa, Kan. The outlook for both ratings has been revised to stable from positive.

Best said the rating action reflects FREIE’s strong capitalization, consistently favorable operating performance and firmly established market position as a specialty writer for rural electric cooperative utilities and rural telephone systems.

These positive rating factors are derived from the Exchange’s prudent underwriting standards, firm pricing within its major books of business, strict loss control processes and strong relationships with its insureds.

Partially offsetting these positive rating factors are FREIE’s limited business scope and modest adverse loss reserve development on its core lines of business for certain prior accident years. However, loss reserve development has been favorable in more recent years.

Although FREIE is susceptible to claims severity, this exposure is somewhat mitigated by an active management that is combined with a comprehensive reinsurance program.

The Exchange continues to be supported by the National Rural Utilities Cooperative Finance Corporation (CFC). CFC holds the Exchange’s surplus note and has demonstrated its commitment through its willingness to be flexible with the terms of the note.

In addition, the business concentration is partially offset by FREIE’s geographic spread of risk. A.M. Best believes that both earnings and surplus will continue to grow modestly but without the volatility typically seen in most insurers’ results.

Source: A.M. Best