State Street captive has A- rating affirmed

US bank State Street's captive insurer Federated Underwriting Company has had its financial strength rating of A- affirmed by ratings agency AM Best. 

The agency said the insurer, which was formed in Vermont in 2019, was too new for its historical operating peformance to be evaluated. 

It said the company was strengthened by the backing of Boston-headquartered State Street. 

"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," AM Best said. "The ratings also reflect the credit enhancement received from its ultimate parent, State Street Corporation."

Best said the single parent was formed 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 its sole purpose is to take on specific risks related to State Street’s insurance programmes," it said. "Being a relatively new company, Federated’s historical operating performance has yet to be determined. The operating performance assessment of adequate reflects AM Best’s neutral position until Federated’s business matures and evolves. 

"Consideration is also given to management’s projections and its ability to execute on these projections in conjunction with Federated’s overall mission and business plans."

Federated is aligned directly with the interests of State Street, the agency said, adding: "The ratings include a level of credit enhancement from State Street, one of the world’s largest financial service organizations. 

"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."